Stocks to Buy: is Fisker (FSR) the Asset-Light Electric Vehicle Maker a Buy?
Updated: Jun 1, 2021
“Although Tesla is the top EV player, automaker Fisker Inc is looking to disrupt with an asset-light customer-centric business model. They may have the right formula for success so is it time to take a serious look at this Electric Vehicle (EV) stock."
Fisker wants to build the world's most sustainable vehicle, the Ocean SUV, with a respectable starting price of $37,499.
They will focus on design and customer relations.
SUV will be built by Magna Steyr in Europe, keeping Fisker asset-light.
By: Allan R Kirby
Fisker (FSR) a new disruptive entrant in the Electric Vehicle (EV) space.
It's been a daunting task sorting through all the recent Electric Vehicle SPACS to find a good company to invest in today, there are just so many companies sprouting up. However, I have found one small company that does show some promise, Its Fisker Inc., a California-based EV startup that is hoping to challenge EV leader Tesla. Their first model will be the Fisker Ocean SUV, with a starting price of only $37,499. There is also a plan to provide a flexible lease option which will start at $379 (U.S.) per month with all maintenance and service included! Production is scheduled to begin by Q4 2022 and it will not be Fisker who will build the vehicle it will be auto supplier Magna International.
There are a couple of things that separate Fisker over a number of the newer entries in the EV market, first Fiskers founder, Henrik Fisker is well known in the auto industry through his vehicle designs such as the BMW Z8 and Aston Martin DB9 along with his past experience with his first EV company Fisker Automotive. He clearly shows he is exceptionally good at designing and building vehicles people want. Plus he has the industry knowledge and experience needed to get the Fisker Ocean off the ground in the timelines provided.
Three top electric vehicle EV ETFs to buy! Read more.
Outsourcing and In-house
To accomplish their ambitious goals of getting the Ocean to the market quickly, Fisker has developed the Fisker Flexible Platform Adaptive Design (FF-PAD) which allows the company to design and develop vehicles that can be adapted to any Fisker approved EV platforms. Basically, Fisker is using the FF-PAD platform to help reduce development time by 2-3 years and saving billions of dollars in expenses in order to get their vehicle to the market quickly. Additionally, by outsourcing the production, Fisker does not need to waste time and money trying to figure out the complexities of building a manufacturing process. They are leaving the production of their vehicles to the experts, which in Fiskers' case is the production deal with Magna International. By outsourcing Fisker will significantly reduce capital and operating expenses, becoming asset-light. This asset-light and quick concept to the production model is very attractive to investors such as me.
Fisker wants to keep their customer relations in-house as well, with a digital customer experience that includes going direct to consumers similar to Telsa which again saves capital the would be required to build out an expensive dealership model. For those looking to Get on the list for the new Ocean, it's easy, you can just download the Fisker app and reserve a Fisker for only $250 (refundable.) Information here
Reservations currently total 12,467. Retail daily reservation rate up 400% since mid-October 2020.
Fisker and Foxconn MOU
Fisker has not been sitting ideally by with just the development of the SUV Ocean, they have a plan to develop and market a total of 5 vehicles by 2025. Recently Fisker penned a Memorandum of Understanding with Foxconn, the following details that MOU from the news release:
- Foxconn to manufacture the vehicle at projected annual volumes of more than 250,000.
- Global market scope – including North America, Europe, China, and India.
- Projected start of production is Q4 2023; this will be the second vehicle introduced by the Fisker brand, following the launch of the Ocean SUV in Q4 2022.
“We created our company to disrupt every convention in the auto industry,” commented Fisker Chairman and Chief Executive Officer, Henrik Fisker. “The creation of Project PEAR with Foxconn brings together two like-minded and complementary companies, each focused on creating new value in a traditional industry. We will create a vehicle that crosses social borders while offering a combination of advanced technology, desirable design, innovation, and value for money, whilst delivering on our commitment to creating the world’s most sustainable vehicles.”
Why the Focomm deal is a big deal
The main reason this is a big deal is that the Foxconn Technology Group has a close relationship with Apple. In fact, Foxconn has been Apple's largest production partner, assembling the majority of the world’s iPhones, Macs, and iPad. With Apple rumored to be interested in getting into EVs, the Fisker tie-up looks much more interesting.
Fiskers Fourth Quarter 2020 Financial Highlights:
From Fiskers earnings release, we see they have plenty of cash and since they are going to be capital-light, can certainly continue with the planning and development of the Fisker Ocean along with other newer models such as an EV pickup.
Cash and cash equivalents of $991.2 million as of December 31, 2020, and zero debt.
Loss from operations totaled $31.3 million, which includes $0.4 million of stock-based compensation expense.
Net loss totaled $12.0 million, which includes a $19 million non-cash gain reflecting changes in fair value of convertible equity securities and embedded derivatives.
Net cash used in operating activities totaled $30.1 million.
Cash paid for capital expenditures totaled $0.5 million.
Weighted average shares outstanding totaled 223.1 million, not including dilutive effects of outstanding warrants and options.
What do analysts think?
We find that Morgan Stanley’s Jonas was impressed, and in 2021 initiated research coverage on Fisker with an Overweight rating and price target of $27. Highlights of the analysis included:
The firm calls Fisker its EV sleeper pick.
Analyst Adam Jonas: "FSR is a play on an all-new, asset-light, design-centered EV business model that improves time to market and break-even points. In a very crowded EV startup field, we think FSR stands out as one of the more de-risked and strategically underpinned business models."
Jonas and team think investors underestimate that FSR's path to commercialization is significantly aided by Magna, which is said to have a mastery of bringing high-quality vehicles to market on time, with high quality and good economics.
Valuation is seen attractive at 6.2X estimated 2025 EV/EBITDA and 0.6X estimated 2025 EV/sales.
There is interest with Fiskers' SUV with ride-hailing company Viggo from Denmark has ordered 300 Oceans"
Investing long-term in Electric Vehicles like Fisker:
As noted by the latest annual Long-Term Electric Vehicle Outlook, published by the research company BloombergNEF (BNEF), EV sales look very good. The publication shows electric models accounting for 58% of new passenger car sales globally by 2040, and 31% of the whole car fleet. They will also make up 67% of all municipal buses on the road by that year, plus 47% of two-wheelers and 24% of light commercial vehicles. Although there was a brief downturn due to the pandemic, long-term the electric vehicle market looks to continue growing and Fisker can take a slice of that demand.
Although we love the Fisker SUV Ocean, there are still a lot of risks with the company, First, the vehicle is not even in production yet, and it will not even achieve significant sales until late 2022, a lot can happen between now and then. Secondly, all those down payments may not lead to sales and excitement may wane. Third competitors may step in with their own competitively priced vehicles with similar offerings before Fisker can even get their vehicle out of production. Finally, if production delays occur and money starts to dry up, it could not only affect the share price but the companies ability to succeed.
Positives outnumber negatives
However, what we like is the fact that Henrik Fisker is a visionary, someone who is taking a fresh approach to the design and building of electric vehicles through an asset-light model that is focused on the customers' experience. His designs such as the BMW Z8 and Aston Martin DB9 clearly show he is exceptionally good at designing and building vehicles people want. Additionally, he has the industry knowledge and experience needed to get the Fisker Ocean off the ground.
But that's not all, the deal with Magma is brilliant and will allow Fisker to focus on their core competencies while leveraging the expertise of Magma to build high-quality vehicles. I do like the designs and feel this could be a formula for success.
Do your research and see if Fisker is a stock for you. I will likely start a small speculative position with Fisker and wait patiently over the next year or two to see what happens. However, I fully expect this stock to be volatile as investors try to figure out who will be the winners in the EV space over the next few years. Fisker however does stand out with its asset-light, speed-to-market philosophy.
Stocks to buy is a segment of the MySmallBank.com blog written by Allan R Kirby, who writes and produces investment and personal finance articles and videos.
Disclosure: mysmallbank.com nor the author received any compensation from the mentioned securities for this article. The article is our opinion only and is written to help readers learn more about the security mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.