Fisker (FSR) is one of the relative newcomers seeking to capitalize on the EV sector. This company's unconventional design for its EVs, Fisker's unique marketing, and what appears to be some engineering prowess, have made this stock one to watch for EV aficionados.
Indeed, like most of its de-SPAC peers, FSR stock saw tremendous interest during the recent meme stock rally this year. In February, FSR stock traded well above the $30 per share level. However, of late, FSR stock has trended down toward its $10 SPAC IPO reference price.
With the company's electric Ocean SUVs set to hit the market approximately one year from now, there's a lot that needs to happen over the next year to bring these vehicles to market. Accordingly, this waiting period is likely to provide some volatility for this stock.
I remain neutral on Fisker right now. Let's dive into some of the pros and cons of this stock, as investors assess its value.
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Unique Business Model
Unlike many other early-stage EV players, Fisker has sought the help of third parties to handle the manufacturing. Among the key partnerships Fisker has made in this regard is a big manufacturing deal with Magna International (NYSE:MGA). While this deal pertains to Europe for now, the two companies also struck another deal, placing Magna in charge of developing Fisker's driver assistance system.
This business model is one that's intriguing to investors. Indeed, the valuations of various EV companies are based on a variety of factors. Among the key factors investors assess when valuing these companies are the quality of the companies' underlying brands, as well as their gross margins on vehicles produced.
By outsourcing its production and much of its product development, Fisker stands to potentially benefit from higher margins than its EV peers. As a brand, Fisker could potentially reap the benefits of its loyal customer base it's looking to build (a big if), in a similar way to companies like Apple (NASDAQ:AAPL), with a similar business model.
Of course, some of the margin opportunity is left on the table by allowing a third party to take control of the manufacturing process. Additionally, quality control and other key aspects of the supply chain will be out of Fisker's hands.
That said, it appears Fisker is on track to deliver its Ocean SUVs to market by November of next year. Accordingly, investors may be intrigued by the potential growth opportunity with this stock.
Meaningful Growth Opportunity Provides Catalyst
In July, Fisker’s CEO, Henrik Fisker, unfolded several operational areas at a Magna plant in Austria. Here, the Ocean program will take part in test facilities and prototype manufacturing.
A series of announcements regarding the manufacturing progress Magna has made in gearing up for production of Fisker's Ocean SUV has provided some life to this stock in recent months. Despite trending toward $20 per share in late-June, FSR stock has given up much of these gains. Currently, investors can pick up shares of FSR stock at around $13.50 per share.
That said, there's still good reason why this stock is trading at a premium to its SPAC IPO price. After all, many de-SPAC companies are trading at a meaningful discount to this level.
These moves to prepare Magna's facilities for a global launch follow reports that more than 17,000 reservations have been made for Fisker's Ocean SUV. The demand for this electric SUV has been steadily increasing in recent months, suggesting there's strong support for this brand. Consumer demand for any brand is important, particularly in this stage of the game. Accordingly, Fisker's relatively attractive retail price (expected to be well below $40,000 per vehicle) could provide incredible growth potential for Fisker upon launch.
Fisker will also launch the Ocean SUV with Intelligent Pilot. This feature will support the drivers with over-the-air notifications. Customers will also gain the benefits of more levels of autonomous driving. All this, along with digital imaging radar and added cybersecurity, make FSR an intriguing bet.
Potential Risks
Like its EV peers, Fisker's valuation depends greatly on investors' assessment of the true potential of the Fisker SUV, relative to the potential market. Along with other early-stage EV companies Lordstown Motors (RIDE) and Workhorse (WKHS), investors have seen what can happen when the market factors production-related risks into various early-stage EV plays.
While Fisker has not yet been hit with massive short-seller interest, this stock is likely to remain in the cross hairs of those looking to benefit from the potential overvaluation in this sector. Accordingly, investors looking to play the upside on FSR stock should be aware of the risks of investing in relatively speculative early-stage EV stocks.
What are Analysts Saying about FSR Stock?
As per TipRanks’ analyst rating consensus, FSR is a Moderate Buy. Out of 5 analyst ratings, there are 4 Buy recommendations and 2 Hold recommendations.
This stock has an average Fisker price target of $20.33, implying an upside of 50%. Analyst price targets range from a high of $26 per share to a low of $16 per share.
Bottom Line on Fisker
The upcoming Fisker Ocean SUV model is intriguing. Indeed, at its proposed price point, there's likely to be significant demand for this vehicle. Accordingly, FSR stock is one investors may want to put on their watch list.
That said, the fact that this electric SUV won't hit the market for another year suggests we could be in for a relatively volatile 13 months. Accordingly, cautious long-term investors concerned with capital preservation may want to sit on the sidelines with this stock for now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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