- FSR shares have been cut in half in recent weeks.
- But this was to be expected given it has no revenue.
- FSR is a lottery ticket being valued at $5 billion worth of hope, but I'm cautious given the competitive landscape.
There are very few sectors that have received as much media and investor attention as electric vehicles. The sector is red hot because as the world’s consumers become ever more environmentally conscious, and as governments follow with regulations on internal combustion vehicles (or planned outright bans), EVs are the only logical alternative. Given this, there is a countless array of now-public EV designers and manufacturers of various stripes, including a rebooted EV maker called Fisker (NYSE:FSR).
Fisker operated in a limited capacity from the Financial Crisis through the early part of the 2010s, only to essentially go out of business on lack of success of its Karma model. However, founder Henrik Fisker is having another go at it, and investors have responded positively.
Shares are up ~70% from the $10 SPAC price that took them public less than a year ago, after briefly running to $32 in early March. Shares are about half that now, and that’s the first lesson on Fisker shares; these are extremely volatile so that is something to take into account if you’re interested in owning it. You are likely to see huge moves up and down over time.
Fisker’s current strategy hinges upon its Ocean model launching late next year, with other models to follow. And while that sounds fine, we must keep in mind how far behind Fisker is when compared to larger EV competitors, and even legacy OEMs that have the manufacturing and R&D might to make relatively quick strides in EVs. Given this, the only way for Fisker to survive is to produce a highly differentiated product. So let’s take a look.
Strategy makes sense, but will it work?
That’s the big question with Fisker, and while the pieces certainly look like they’re in place, the company faces a massive amount of current and upcoming competition.
Source: Investor presentation
Fisker’s fortunes currently rest solely on the back of the yet-to-exist Ocean model, seen above. Fisker is going with an SUV because that’s what’s popular in America, and it needs cash to start rolling in as quickly as possible.
I’ll say the Ocean looks really sharp, particularly considering midsize SUVs tend to be a bit dreary; the Ocean was designed by a team of people that know what they’re doing, and I think consumers will respond well to the way it looks.
Apart from a sleek body, Fisker intends to differentiate on its ESG mission, which includes things like solar panels on the roof, use of recycled materials wherever possible, and a vegan interior, which is a carryover from the now-defunct Karma model from years past. I’m not sure a “vegan interior” is necessarily a selling point with the masses but it does speak to the fanatical intensity with which Fisker chases its eco-sustainable mission, and that is something I do think will resonate with a lot of consumers.
The base price is currently set at $37K but Fisker expects the average Ocean to sell between $55K and $60K, so this is not a cheap car for the masses. There really aren’t that many consumers with $60k to spend on a new vehicle, and of course, Fisker plans to gain efficiencies to lower costs over time and introduce cheaper models. But given the price point, Fisker will certainly be a niche automaker for a long time, rather than a mainstream one, in the same way that Tesla (TSLA) was niche before it had the capital to go more mainstream. Keep in mind that people with $60K to spend on a car are spoiled for choice, so the car Fisker makes needs to be exceptional to stand out.
The range of ~300 miles isn’t a differentiator, as that has been EV industry standard for some time now. Thus, on a technical and specifications basis, I’m not sure the Ocean is any different than the wide variety of alternatives either available now, or slated to become available in the relatively near future. It looks great and has an eco-friendly mission, but that’s about it.
However, Fisker faces the same problem that all other EV makers face; the lack of charging infrastructure in the US is a significant concern for people that just have one vehicle, and want the flexibility to do things like take it on a vacation that is further than 300 miles away.
Below we have Fisker’s projection of Electrify America’s planned charging stations through 2027, which is six years from now if you’re keeping score at home.
Source: Investor presentation
This simply isn’t good enough for mainstream adoption because while you can charge at home, taking any sort of meaningful journey would be very difficult in an EV, as it is today. I have no doubt that charging stations will eventually be as common as gas stations are today in the US, but we are nowhere near even scratching the surface today. The above shows that if you want to go on a trip in the US in an EV, you have to take an interstate, and you aren’t going to be able to stray very far without running out of juice.
To be clear, this is not a problem specific to Fisker, but it is a problem nonetheless.
I’ve mentioned competitors a few times, so let’s take a look at what I’m on about.
Source: Investor presentation
Fisker wants to be right at the bottom of the base price range of its competitors, in line with things like the ID.4 and Kona EV. The Ocean looks like a much sexier product than either of those, so if people have $40k to spend on an EV SUV, they may very well opt for the Ocean. However, when you start to option out an Ocean – which is where the gross profit is for Fisker – you get into very crowded waters with the big boys like Ford (F), Nissan (OTCPK:NSANY), and Tesla. That’s not to say Fisker cannot win just because there is competition, but it will make it more difficult. Fisker must rely upon its differentiation of its eco-friendly mission to set itself apart, because from a technical perspective, it doesn't appear to be any different to me.
Hope is driving the share price
Fisker is essentially a startup at this point, and since it doesn’t actually have any products, it also doesn’t have any revenue. However, the analyst community is extremely bullish, as we can see below.
Source: Seeking Alpha
Revenue is slated to be naught both this year and next year, with $400+ million in 2022 on the launch of the Ocean. From there, we see an avalanche of revenue that is supposed to accrue as Fisker gains popularity and scale.
Estimates for 2023 are for $2.33 billion, which implies something like 40k vehicle deliveries at a $55k average price, give or take. Forty thousand vehicles in what will essentially be the first year after launch seems achievable, but given Fisker has so far delivered zero vehicles, I’m inclined to take that with a grain of salt.
Indeed, what has made me more cautious is that analysts have consistently been wrong about Fisker’s projections, and in huge magnitudes.
Source: Seeking Alpha
For instance, revenue estimates for 2025, which is the purple line above, were $13.3 billion back in November, which was just six months ago. Today? $8.3 billion. A similar story is true for 2023, which we should have greater visibility into, but that has fallen from $3.2 billion to $2.3 billion. These are enormous reductions in forecasts, and while that doesn’t mean Fisker is doomed, anytime a company has perpetually overly optimistic estimates, I have to wonder how reliable current forecasts really are.
Fisker trades at ~2X projected sales for 2023, which is roughly in line with much of the EV startup sector. However, valuations are pretty much all over the place, and you can find ones that are much higher or much lower. What you have to ask yourself is: do you think Fisker can deliver in 2022, and do you think people will buy it?
Fisker tried this once before and failed, and while past failure doesn’t guarantee future failure, that, combined with estimates that have plummeted in the past few months, and the fact that the company doesn’t actually have a product yet, means a nearly-$5 billion market capitalization is a bit too rich for me. I’m going to pass on Fisker but I don’t want to take a bearish stance here. If we get another run to $30, I’ll certainly be bearish then. But for now, it just looks like a fairly priced lottery ticket.
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