EV stocks have nosedived in the past few weeks over fears of inflation. An estimated $400 billion of market value has been wiped off. However, California-based EV start-up Fisker (NYSE:FSR) is moving in the opposite direction. FSR stock has grown over 50% in the past month amidst a slew of positive business developments.
FSR remains a solid long-term EV play with an asset-light model, decent financial flexibility, and strategic partnerships.
It’s difficult to find an EV investment these days that isn’t trading at an overly inflated price. FSR stock, though, has been trading at a significant discount to its EV peers. Additionally, the stock is trading at roughly 27% lower than its mean price target.
With about seven quarters left before launch, speculative trading on the stock will continue to rise, pushing its price higher. Therefore, long-term investors should scoop up the stock now when it’s trading at a discount.
Recent Positive Developments
A string of recent positive developments has widened the bull case for Fisker. The company announced it engaged a memorandum of understanding with Foxconn to jointly develop its second model dubbed Project PEAR (Personal Electric Automotive Revolution). Once signed, the contract has a seven-year expiration date.
The car will be sold globally under the brand commencing in the fourth quarter of 2023. Details are scant, but CEO and founder Henrik Fisker claims the vehicle will be unique. The deal will close in the second quarter this year.
Projected annual volumes are expected to surpass 250,000 units for the new model. If we also include the Magna Steyr facility’s manufacturing capacity, Fisker could have a 500,000 maximum capacity by 2025.
Moreover, the company is also exploring agreements with various battery suppliers, including those in the top tier.
The goal is to set up a reliable battery manufacturing facility to reduce the risks associated with production. One of the prime reasons for its previous namesake’s debacle was due to battery recalls. Additionally, Fisker will be using prismatic cells, similar to the ones used by industry stalwart Tesla (NASDAQ: TSLA).
Perhaps the most encouraging news relates to its reservations. Total reservations for Fisker have reached 12,467, and the daily reservation rate is up roughly 400% since mid-October 2020. That is a massive increase from August 2020s 5,000 figure when the company announced its SPAC merger.
Though Fisker looks incredibly promising at this point, a few risks need to be considered. Operating an asset-light model has its advantages, but it also takes things out of its control. It has to hit production and delivery targets, otherwise, manufacturers could become hesitant about inking future deals.
The company has approximately $1 billion in cash with no debt, but the reality is that Fisker could easily blow that money.
For example, Hyundai’s (OTCMKTS:HYMTF) battery recall for its all-electric SUV Kona costs roughly $900 million. Therefore instances of product recalls could quickly burn through Fisker’s cash at hand and leave it exposed.
Additionally, more established EV companies could suppress Fisker’s average selling prices. This will, in turn, affect the company’s top and bottom-line as well as its revenue projections. Moreover, the industry’s advancements will put significant pressure on Fisker in increasing its operational and R&D expenses.
Bottom-line on FSR Stock
FSR stock has been an anomaly in a beaten-down EV market, mostly because of the progress it has made in the past several months. Reservations for its products are increasing at an impressive pace which is a testament to its brand equity.
Though details about its second model are limited, the CEO’s assertion suggests that it could prove to be a game-changer in the EV sector.
As we advance, the company needs to manage its finances wisely and ensure effective management of its operational expenses. Therefore FSR stock is shaping up to a fascinating long-term EV play.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.