Fisker (NYSE:FSR) stock has made big news without the company having delivered a single car to date. Of course, a lot of EV companies are making news this year.
With Tesla (NASDAQ:TSLA) leading the industry, there are lots of other EV makers who are trying to take a small bite of the large pie.
It’s one of the reasons FSR stock has shown volatility lately and has dipped below $16 from the $20 level in June.
That’s a level the stock hasn’t seen since March 2021. We could consider the impact of investor sentiment and chip shortage that affected all EV stocks, but FSR stock is nowhere close to being affected by the chip shortage since it has not started production yet.
The company has made a few big announcements that have led to its addition to the Russel 3000 index. However, I believe that investing in FSR stock comes with a lot of risks. Let’s dig deeper into them.
A Closer Look at FSR Stock
Fisker does not have a car on the road yet and the shares are only moving based on speculation. The company has laid out a roadmap to begin production and deliveries but there is no solid movement.
Fisker has made a lot of effort in marketing the Ocean SUV and announced a partnership with Foxconn for the production of its second car. Such moves can keep the stock on track but investors will expect some action.
My colleague at InvestorPlace, Mark Hake explains that the company may need to raise cash in the near future. I also believe that the company does not have enough cash balance to invest in research and development operations.
Plus, it looks like the company may not be free cash flow positive for the next few years. If this happens, FSR stock will decline in value.
Magna Alliance
Fisker announced an alliance with Magna International (NYSE:MGA) on June 17. It is a company moving into EV production. Magna has a 7% stake in Fisker which throws light on the prospects of the company.
It is an eight-year agreement where the production of Fisker Ocean will begin from November 2022 and the pact will be active till 2029. This alliance has helped Fisker save time in setting up its production unit and will also help control costs.
Manga’s production unit can make 240,000 units in a year and it has already produced 3.7 million vehicles for other clients in the past. However, this does not guarantee that Fisker’s production schedule will be followed.
The alliance will help Fisker with the production and adds value to the company but it will be worth it only if the schedule is followed. If we consider the impact of chip shortage, the production may be delayed further.
The Bottom Line on FSR
Short-term gains can make you money, but keep in mind that Fisker has no vehicles and it is not planning to sell any until the end of next year. Even if the company sticks to this deadline, it has a long time to go.
Investors must only consider the stock once the company begins deliveries of Ocean SUV. There is not much in the financials of the company that make the stock a buy. The market is huge and the competition is rising. If the company fails to meet the production timeline, it could lose out on a lot of customers.
In short, investing in FSR stock is not without risks. You are investing in speculation at this stage, which is best avoided. Nothing can be guaranteed until the company launches the car.
If you are keen on investing in EV stocks, there are some attractive options to consider.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
