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Don’t Sleep on Fisker in the EV Race

Published 2022-11-23, 10:19 a/m
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  • Fisker’s valuation is notably lower than that of other electric vehicle manufacturers.
  • That’s perhaps because the company is aiming lower — but that plan also suggests a higher chance of success.
  • A wide range of outcomes remains, but FSR stock should intrigue EV bulls.
  • Right now, Fisker (NYSE:FSR) has a market capitalization of about $2.4 billion. Tesla (NASDAQ:TSLA), even with a sharp slump of late, has a valuation roughly 220 times as high.

    Obviously, Tesla, unlike Fisker, already has cars in production. In fact, the EV leader has a multi-car lineup and, most importantly, should generate something like $13 billion in net profit this year.

    But it’s not just Tesla that is getting more credit from the market. Fellow startups Rivian Automotive (NASDAQ:RIVN) and Lucid Group (NASDAQ:LCID) have sharply higher market caps (roughly 11x higher and 7x higher, respectively). Polestar Automotive Holding (NASDAQ:PSNY) is further along in its production ramp, admittedly, but its $16 billion valuation dwarfs that of Fisker.

    There are reasons for the gap, admittedly. Even so, the size of the gap makes Fisker stock intriguing, particularly as the company’s first model heads into production.

    Why Fisker’s Valuation is So Low

    Again, there are reasons why peers merit such substantial premiums from the market. One might be that Fisker doesn’t have the distinctive edge that others might.

    Tesla is, well, Tesla: the early leader and the giant in space. Rivian has backing from Ford (NYSE:F), an investment from and a major contract with Amazon (NASDAQ:AMZN), and plans to target profitable categories in both consumer and commercial vehicles.

    Lucid’s high-end Air appears to be a potentially spectacular vehicle; it’s already won Motor Trend’s Car of the Year for 2022. Polestar somewhat quietly has carved out a solid niche and just raised a substantial amount of capital.

    In contrast, the Fisker story seems a bit less alluring. The company’s first model, the Ocean mid-sized sport-utility vehicle, will be sold at least somewhat on price. Its second model, the PEAR, should have a base price under $30,000. (A high-end sports car does appear to be on the way at some point.)

    And while those peers are building out production capabilities, Fisker is outsourcing the Ocean to a subsidiary of Magna International (NYSE:MGA). As with the pricing and go-to-market strategies, there’s a sense that Fisker is playing it safe.

    Given the history of founder Henrik Fisker — who has had two previous companies go into bankruptcy — that’s perhaps not surprising. But in a space whose investors, by definition, are willing to take on risk, it does leave Fisker Inc. in a somewhat odd position. The rewards simply are higher elsewhere.

    The Risks to FSR Stock

    And it’s not as if Fisker is zero-risk; auto manufacturing is a brutally difficult industry, and competition remains stiff. It’s absolutely possible that Fisker’s plans, even if they are less ambitious than those of other EV players, simply don’t pan out.

    Indeed, even with the outsourced production, financing is still a bit of a question mark. In Q3, Fisker sold $132.5 million worth of stock pursuant to a so-called “at the market” agreement, in which its agents sell shares regularly in the open market. Fisker closed the quarter with $825 million in cash — but that’s not enough to get the company to profitability. More sales are going to follow, which means more shareholder dilution, even in a best-case scenario.

    Even if Fisker is undertaking a lower-risk strategy, Fisker stock remains high-risk.

    The Case for Fisker Stock

    That said, the lower valuation does matter. Even accounting for a growing share count, Fisker doesn’t have to be a massive winner for the stock to be attractive at the moment. To compensate for the risk involved, investors in Rivian and even Lucid need to see pretty material probabilities of consistent success and multi-billion-dollar annual profits.

    Fisker shareholders can win with a consistently profitable—if somewhat niche—business. And the company seems somewhat on track toward that goal.

    Production began this month, as promised when the company announced plans to go public more than two years ago. The Ocean has been well-reviewed so far. TheDrive, for instance, gave it an 8.5 rating out of 10, calling it “the good kind of weird.”

    The number of reservations continues to tick up, rising from roughly 5,500 in the summer of 2020 to more than 62,000 at the moment. Over time, Fisker will bring production in-house; it’s already looking for a U.S. site to allow its buyers to take advantage of tax credits.

    For the most part, Fisker has done what it said it would do. In announcing its merger with special purpose acquisition company Spartan Energy two years ago, the company targeted the production of 51,000 cars this year; current guidance is for a little over 42,000. By the standards of SPAC mergers, and particularly EV SPAC mergers, that counts as a win.

    The Ocean seems like an excellent car. There’s probably a niche for the company to hit in the middle of the market instead of going high like Lucid and Rivian. The story here makes sense, and there seems to be a good chance the story can work out.

    At a $2.4 billion market cap, that’s enough to perhaps see some upside. FSR almost certainly won’t be the home run investment that shareholders in other EV manufacturers are looking for — but there’s nothing wrong with hitting singles and doubles, either.

    Disclosure: As of this writing, Vince Martin is short on TSLA.

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