There are going to be electric vehicle (EV) stocks that go to zero. I believe Fisker (NYSE:FSR) could be in trouble, and FSR stock has a chance of being one of those names that plummets.
Let’s be clear: Almost every one of the startups in the space is a high-risk play. Whether it’s a manufacturer like Fisker, a supplier, a charging station developer, it doesn’t matter. This is still an extremely new industry. No one really knows for certain how it’s going to play out.
One thing we do know for certain: Competition will remain stiff, to say the least. In the manufacturing side of the business, there are multiple startups like Fisker raising multiple billions of dollars through the private markets and SPAC (special purpose acquisition company) mergers. Legacy automakers continue to rev up their own electric efforts.
All this is going to happen even if the industry grows at a rapid clip. And I believe that it will: I’ve been an EV bull for years. That doesn’t mean that some companies won’t get left behind.
Fisker might well be one of the losers, which creates enormous downside risk in FSR stock.
A Series of Whiffs
There’s a lot of optimism around Fisker and FSR stock. But there’s an increasing amount of evidence that the hype doesn’t quite meet the reality.
Let’s go back to when Fisker announced its merger with Spartan Acquisition last July. Fisker and Spartan used their merger presentation to make the case for what was then SPAQ stock. Less than nine months later, that case already has some holes.
One of Fisker’s big potential edges was a partnership with a major automotive manufacturer — what Fisker called its “preferred partner.” That partnership would allow Fisker access to an entire platform, lowering costs and reducing time to market.
Fisker spent much of its presentation touting the agreement, which hadn’t yet been finalized. But negotiations never went anywhere, and Fisker had to move to another supplier.
Let’s go back a bit further, to 2018. Fisker founder and noted auto designer Henrik Fisker said his company was near a breakthrough on so-called solid-state batteries. Henrik Fisker claimed range could exceed 460 miles with charging times slashed.
Earlier this year, the company quietly dropped that entire project. Henrik Fisker now says significant production of solid-state batteries is “at least seven years out.”
In the meantime, those batteries were supposed to power a sports car that was going to be Fisker’s first model — and was going to be produced in 2020. That model is now the Ocean, a more traditional sport-utility vehicle, which should launch next year.
Yet Henrik Fisker already is talking up the next, lower-priced vehicle, which he claims should be along the lines of the most innovative and unique cars ever produced.
There’s been a lot of talk. There hasn’t been enough execution.
A Checkered History
This isn’t a new problem.
Fisker follows Henrik Fisker’s first eponymous company, Fisker Automotive. Fisker Automotive took over half a billion dollars in government loans, repeatedly missed production targets and eventually went bankrupt.
To be fair, Fisker Automotive had some external pressure. Most notably, its battery supplier at the time, A123 Systems, itself went under, helping to bring Fisker Automotive down with it.
But that’s kind of the point. Vehicle manufacturing is a brutally difficult business. There are many, many, many, more car manufacturers that have disappeared than still exist.
Economic cycles matter. Supplier choices and relations matter. Negotiations matter. At worst, a car company has to get most things right to prosper. Neither Henrik Fisker nor Fisker Inc. have given much evidence they’re going to be able to do so.
No Need to Chase FSR Stock
And yet the optimism persists — and last month even spiked further.
The catalyst was an agreement to develop that new car with a Taiwanese contract manufacturer. FSR stock soared more than 30% as investors speculated that the Taiwanese company was a conduit for a larger deal.
But we don’t have any evidence to suggest that’s the case. The deal, as announced, makes some sense in that it diversifies Fisker’s production and brings in a partner to share development costs. But a deal that makes some sense is not the same as a deal that is a game changer.
We’re seeing the market figure that out, as FSR stock now has given back those gains. It should have. The agreement is little more than a contract and a sketch. Like so much surrounding Fisker, it’s optimism over reality. Until that changes, FSR stock will remain far too risky.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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