Fisker Won’t Be Able to Contend With Its Competition

I believe that many investors and stock pundits are greatly underestimating the impact of the extremely tough competition that electric-vehicle maker Fisker (NYSE:FSR) is likely to face. Further, I don’t expect the relatively low price and the environmentally friendly materials of Fisker’s Ocean SUV to enable it to sell nearly enough EVs to justify the still-gigantic valuation of FSR stock.

The Fisker logo hangs on display at the November 2011 International Auto Show.
Source: Eric Broder Van Dyke / Shutterstock.com

In a recent note to investors, Goldman Sachs cut its rating on Fisker to “sell” from “neutral,” citing the very intense competition that the company is likely to face by the time it’s scheduled to start mass producing the Ocean at the end of 2023.

But I think that even Goldman could be underestimating the steep road that Fisker will have to navigate.

Fisker’s Predicament May Be More Difficult Than Believed

According to Barron’s, Goldman analyst Mark Delaney thinks that 12+ electric SUVs will hit the market ahead of the Ocean. The traditional automakers, such as General Motors (NYSE:GM), are entering the sector, while Big Tech, led by Apple (NASDAQ:AAPL), and China-based automakers Geely (OTCMKTS:GELYF) and Xiaomi could also bring electric SUVs to the U.S., he stated.

In reality, however, many Chinese companies could start bringing electric SUVs to the U.S. by 2023. After all, Chinese EV maker Kandi (NASDAQ:KNDI) has already entered the U.S. market, while another EV manufacturer from China, Xpeng (NYSE:XPEV), is looking to enter Europe.

As a result, I don’t believe that there are any meaningful barriers that would prevent other major Chinese automakers, including Nio (NASDAQ:NIO) and Xpeng, from bringing EVs to America.

Nio’s electric SUVs have sold very well in China. Xpeng, which has developed a crossover called the G3, has developed a “navigation guided pilot” that has generally drawn very positive reviews.

Finally, as I pointed out in a recent article on Baidu (NASDAQ:BIDU),  the company’s “autonomous vehicle unit, Apollo, is already testing robotaxis in the Chinese city of Cangzhou, and last month, it obtained permission to begin charging passengers for using 35 of its autonomous vehicles (AVs) there.”

Meanwhile, Hyundai (OTCMKTS:HYMTF) has recently brought its Ioniq and Kona 5 electric SUVs to the U.S. They have generally garnered favorable reviews. Finally, Volkswagen (OTCMKTS:VWAGY), which has a strong reputation in the U.S., last year launched its ID.4 electric SUV. The EV garnered fairly strong reviews.

Low Price Won’t Be the Savior

By the time the Ocean is released, it will be going up against many electric SUVs with very strong brand names. For example, Ford’s (NYSE:F) new Mustang Mach E has already established a very good, strong reputation. Tesla (NASDAQ:TSLA), which of course has an extremely solid brand name in the U.S., has its Model Y SUV. And GM’s Chevrolet is expected to launch a “mid-size” SUV by 2025. Additionally, GM is due to launch a Hummer SUV in 2024. Generally, I believe that Hummer has a strong brand name in the U.S.

Compared to all of the brands in the paragraph above, Fisker’s brand is pretty weak. It also trails the brand names of Volkswagen, Hyundai and, of course, Apple, by wide margins. Meanwhile, Fisker’s marketing budget will be dwarfed by that of most of its rivals.

Some of those who are bullish on FSR stock have emphasized the relatively low expected base price of the Ocean. Fisker has said that the base price will be about $37,000. However, the Ocean is anticipated to sell for an average of $55,000 per vehicle in 2025. So actually, the EV will be too pricey for a majority of the nation’s middle class. Secondly, Volkswagen, Hyundai and Ford already have electric SUVs around the same price range, and many more such EVs are likely to enter the market by 2024.

Finally, Fisker has touted the Ocean’s “vegan interior and solar panels” as key points of differentiation from its competitors. However, I very much doubt whether those attributes will enable Fisker to overcome its brand-name deficit. And if these characteristics do prove to be fairly popular, the larger automakers can start releasing EVs with the same attributes in a relatively short time.

The Bottom Line on FSR Stock

Fisker’s Ocean will face extremely tough competition, and I believe that the EV’s limited points of differentiation will not enable it to overcome the tough competitive  hurdles that it’s facing. Therefore, I continue to recommend that investors sell Fisker’s shares.

On the date of publication,  Larry Ramer was long GM stock. 

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


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