Although I’ve criticized my fair share of aspirational companies, they’re not automatically bad investments. After all, almost every top innovator that you see in the market started off with mostly aspirations. And that could be the case for Fisker (NYSE:FSR). Though competing in the highly intense electric vehicle segment, the EV maker brings enough to the table (in my opinion) to warrant a modest bet in FSR stock.
For full disclosure, that’s exactly what I did. For a time being, FSR stock justified my belief in it. Of course, with the magic of hindsight, I should have dumped out. Not because Fisker is a pre-revenue company, a clinical euphemism for hopes and dreams. Instead, global supply chain disruptions stemming from the worldwide chip shortage draws extreme skepticism on Fisker.
Recently, Ford (NYSE:F) warned that the chip drought “will reduce production this year by some 1.1 million vehicles and cut its profit by about $2.5 billion.” Ford as you know is a post-revenue company, generating $127 billion worth in 2020. Of course, I must point out that this tally was down over 18% against the prior year.
Biggest Problem Facing FSR Stock
This brings us to the biggest problem facing FSR stock at the moment. Ford isn’t an aspirational company, it’s a productive one. While it doesn’t have the potentially relevant and nifty flexible leasing options that Fisker proposes, Ford’s customers are real.
Ford is one of those brands that are steeped in American history. Apparently, they cause fights at the dinner table. Many years ago, I remember one of my classmates imploring others to buy Ford, not Chevy. I thought it was perplexing because I thought they were both crap.
But the point is, when Ford says they’re going to lose billions, those aren’t aspirational billions.
Risky Forward-Looking Opportunity
No matter how much you drill into the chip crisis, it’s hard not to feel skepticism toward FSR stock. It’s not just the shortage itself but what it entails. Basically, everyone is going to compete like mad for whatever supply is available.
That’s where aspirational or pre-revenue companies get their reckoning. These organizations already have a bear of a time attempting to transition aspiration into actualization. Dealing with an unprecedented supply chain crisis was really not in the cards. Plus, there’s the practical element that Fisker just doesn’t have the resources to battle the automotive majors for chips.
Unfortunately, things could get uglier for FSR stock before they get better. According to insights reported by The Wall Street Journal, industry experts believe that chip supplies won’t meaningfully recover until the end of this year. If so, this indicates that production and sales disruptions in the second quarter could be worse than in the first quarter.
We’ll see how the market reacts. But it’s very possible that the majors could take a hit in Q2. If so, that wouldn’t be encouraging for FSR stock, which is now hostage to the circumstances.
Still, the upside is that Fisker concentrates almost exclusively on the new generation of drivers. First, the company obviously specializes in EVs, which inherently attract young buyers. But even on the business model, Fisker caters to millennials and Generation Z.
We all know about millennials’ non-committal approach to life, which affects everything from relationships to working life to purchasing cars. Bottom line, millennials don’t want to be trapped into a long-term commitment, especially to an inanimate object.
Fisker’s offer of no-strings-attached road trips present a compelling alternative to what’s available. With the flagship Fisker Ocean SUV, you get a very attractive vehicle that you can lease for as long or as little as you like.
Perfect for Post-Pandemic World
But the beauty of this flexible leasing option is that it’s not just for young people. Due to the disruption of the novel coronavirus pandemic, we now know that anything can happen. Having a costly vehicle to make payments on can be a huge burden, especially following an acute impact like a job loss. Therefore, the ability to lease as you like is appealing for those suffering pandemic-related trauma.
Indeed, it’s possible that we could see flexible subscription models across other product segments. Nobody wants to be stuck with anything while knowing that anything can happen. So FSR stock isn’t just an investment in millennial behavior; it’s really an investment for our post-coronavirus reality.
Nevertheless, Fisker is a very risky proposition because of its aspirational profile. I still believe in it but the ride will be a choppy one.
On the date of publication, Josh Enomoto held a long position in FSR and F.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.