After Fisker (NYSE:FSR) announced that it had received more than 40,000 reservations for its Ocean SUV and its stock tumbled, the outlook of FSR stock has greatly improved. Also making me more confident in Fisker are its decisions to offer a cheaper electric vehicle (EV) and a decent warranty.
In light of the automaker’s valuation, which remains rich, and the tough competition that it continues to face, I do not recommend that investors own FSR stock at this time.
Better-Than-Expected Reservations
At the end of March, the EV maker announced that it had obtained over 40,000 reservations for its Ocean SUV. Moreover, Fisker reported that it had “indications that many reservation holders intend to purchase” one of the more expensive versions of the Ocean, which cost nearly $70,000 in the U.S.
Not only is the 40,000 total higher than expected, but it is way above the number of reservations obtained as of the end of February by a much more heralded EV start-up. Specifically, Lucid (NASDAQ:LCID), which seems to have received much more attention than Fisker, announced on Feb. 26 that it had obtained more than 25,000 orders for its EVs.
Meanwhile, Fisker has announced that it plans to offer a relatively low-cost EV, which it is calls PEAR, starting in the second half of 2024. According to Seeking Alpha, “The vehicle is expected to have a sticker price of just under $30,000, significantly lower than most other EVs on the market.”
Assuming that Fisker can turn a profit on the PEAR, I think the EV will be positive for the company and its stock. Not only do Tesla’s (NASDAQ:TSLA) EVs sell for well over $30,000, but so do those of Ford (NYSE:F), Lucid, GM (NYSE:GM), BMW, and many other automakers.
As far as the warranty, the EV maker is backing the Ocean’s “powertrain for six years and 60K miles and battery for 10 years and 100k miles.” That may differentiate the automaker from a number of its competitors in the EV sector.
FSR Stock: Not a Buy
The market capitalization of FSR stock still slightly exceeds $3 billion. If the company converts 30,000 of its reservations to sales at an average selling price of $45,000, it will generate $1.35 billion of revenue.
That amount of sales over a multi-year period does not justify the current market capitalization of FSR stock. Additionally, given the high level of competition that Fisker will face until it releases the PEAR in 2024, it may have trouble getting many more orders for the Ocean and could even have difficulty converting more than 50% of the reservations it does have.
Fisker’s outlook has greatly improved, but it is still not yet a buy.
On the date of publication, Larry Ramer 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.
