Fisker (NYSE:FSR) stock represents what many investors will be looking for when buying into a new age company. It is part of the emerging electric vehicle (EV) sector. The company is pledging to build the world’s most sustainable vehicle, and it is committing to be a global leader in measuring and reporting on environmental, social and governance (ESG) practices.
Those talking points were enough to send FSR stock soaring near $30 in February.
But those days are long gone. Today, Fisker stock is trading below $15 per share and could have further to fall.
Some of that is the deflation of the EV bubble in general. But Fisker does present some risks that investors would be wise not to ignore.
A Second Chance for FSR Stock
For starters, the company is being led by Henrik Fisker who previously headed up Fisker Automotive. That business went bankrupt after missing production targets.
That may or may not be a fair criticism. However, it’s a part of Fisker’s resume. It seems natural for investors to proceed with caution.
There’s also the company’s Memorandum of Understanding (MOU) with Foxconn. This partnership is for the company’s second EV, code-named project PEAR (Personal Electronic Automotive Revolution).
It’s encouraging, I suppose, that Fisker is already cementing plans for its next vehicle. However, it has to prove it can deliver the first.
That vehicle, the Ocean, is being built by Magna International (NYSE:MGA). According to Fisker, they are still on track to start production in late 2022.
However, as Matt McCall reminded investors, bringing an automobile to market is an elusive target, and many would-be automakers have failed.
There Is a Revenue Story
As of the company’s first quarterly earnings report in Feb. 2021, Fisker had 12,467 total reservations for The Ocean. At a price tag of 37,496 that will be around $470 million in revenue for the company.
And the company’s business model includes the Fisker Flexee Lease program. This may fit very well with the company’s embrace of the “low-end” EV market, and for investors, recurring revenue is always welcome.
Furthermore, Fisker says it plans to produce 250,000 of its second vehicle by 2025. Assuming the price will be similar to that of the Ocean puts revenue around $9.3 billion.
For comparison, Tesla (NASDAQ:TSLA) delivered approximately $31.5 billion in revenue in its last fiscal year.
Am I saying that Fisker will have one-third the 2020 valuation of Tesla in five years? No I’m not. But at this point it’s what investors have to work with.
But Then There Are Those Risks
First and foremost, its first vehicle, The Ocean, won’t start being built until the fourth quarter of 2022. That means another 18 months or so without the company seeing any of that potential revenue coming through the door.
There’s also the risk that comes from the ample competition that exists in the EV space. It’s true that many EVs sold in the next couple of years will likely be sold to early adopters. But to reach that 250,000 mark in five years the company is going to have to reach a broader base.
Can they do it? Of course it’s possible. But a lot has to go right and a lot can go wrong.
The Bottom Line on FSR Stock
If it sounds like I’m all over the map on FSR stock it’s because I am. I certainly like the stock better near $13 a share than I did when it was trading near $30. I’m not a fan on rewarding any of these EV companies without knowing they can deliver the goods.
However, that’s me. If you have more risk tolerance, Fisker can be a speculative play on a sector that is likely to grow exponentially in the next decade. At the same time, the company has some risks that investors shouldn’t overlook.
The good news is that the risks, like the rewards, will be obvious for investors to see as the company nears production.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.