The electric vehicle market is growing globally and new players are emerging in the market to make the most of the surge in demand. Fisker (NYSE:FSR) was one of the first startups that went public last year but it has not been able to begin production yet. FSR stock is trading under $15 today and it is down 25% over the past six months.
The company is far behind its peers and the production timeline could put it much farther.
Fisker is set to begin production of Ocean SUV in November 2022. It has not divulged much about the technology or specifications of each model and waiting until 2022 looks like a big deal. Considering the pace at which its rivals are growing, Fisker could be in a tight spot if it misses the production deadline.
FSR stock does not look attractive to me at this stage. With that in mind, let’s take a look at the investment case for Fisker.
Sale of $600 Million in Convertible Senior Notes
Fisker recently made an announcement to sell $600 million convertible senior notes due in 2026 through a private offering. Additionally, it intends to sell $690 million worth of the notes if the buyers exercise the option of over-allotment.
These notes are debt and the company will have to pay interest on it. As of June 30, the company had $962 million in cash and zero debt which means the interest payment will not be an issue.
Fisker can certainly scale the business with the funds, but the notes could potentially be converted into stock in the future. If that happens, there will be high dilution in the company with new Fisker stock in the market.
Additionally, the company will get to keep the cash and not have to pay it back. Several companies have taken this route and it has not gone well with the shareholders.
Speculation Should Not Be An Investment Strategy
Fisker has not allotted a budget towards marketing but it already has more than 17,500 reservations, each costing $250. This shows massive public interest in the company, despite having no information about the performance, or specifications. I believe this interest is driven by regular announcements made by the company.
It is based on speculation and unless we see a car on the road, one cannot make a judgment about the performance. The full marketing activities will start in November after the launch of Fisker Ocean and this is when we will be able to learn more about the company and decide if the car is worth your money.
Fisker certainly has a strong growth projection and expects 25,000 reservations by the end of this year, and 50,000 by the end of 2022. But will it achieve? Only time will tell.
The Bottom Line on FSR Stock
There are a lot of updates to the emission standards and support towards electric vehicles that will lead to a surge in demand for EVs. Fisker aims to be the most eco-friendly and sustainable EV maker in the world and with its high ambitions, it needs a well-laid out plan.
One of the most important things is to be on time and the company has a lot at stake. It must adhere to the production timeline if it wants to attract consumers. The design and specifications of the Ocean SUV are complete but there is more than a year for production to start.
There will be a marketing campaign soon and the company will take all the necessary steps to prove its worth, but there is still time.
I am not saying Fisker will not be able to deliver but the EV market is crowded and everyone is fighting for a piece. Fisker is not in the race yet. There are several EV players you may want to consider if you are keen on investing in EV stocks.
For now, hold your horses on Fisker stock and wait for some action to begin.
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.