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The global electronic vehicle (EV) industry is rapidly growing and is flooded with companies focusing on climate change. As countries across the world begin reducing carbon emission and increasing sustainability, EV manufacturers are making the most of the moment. One such automaker is Fisker (NYSE:FSR). FSR stock gained recognition and popularity when the company unveiled its Ocean SUV, which the company claims to be the most sustainable vehicle in the world.
But that doesn’t make Fisker an automatic buy for your portfolio. Let’s take a look at the risks with FSR stock.
A closer look at FSR stock
The Special Purpose Acquisition Company (SPAC) Spartan Energy Acquisition announced its merger with Fisker last July. FSR stock surged over 110% in November after the merger. This was also partially due to EV industry hype that boosted the price.
However, the gains did not last long. It’s shed nearly 50% of its price since its post-merger November rally. FSR stock is nearly cut in half, trading at $11.38 today.
It does not look like Fisker has any chance of winning in the competitive EV industry.
Less action, more speculation
While the company loves to talk about its Ocean SUV, it is yet to go into production. The company has provided specifics about the model, including a range of 250 to 350 miles on a full charge, an optional solar roof, and rear-wheel-drive and all-wheel-drive options. But deliveries may not begin until November 2022. Fisker is planning to outsource the manufacturing of its car with a starting price of $37,499.
The company also offers an opportunity to lease the vehicle for $3,000. However, the leasing model does not sit well. It does not have a fixed term so if the customer is not happy with the ride, they can return the vehicle without any penalty. It could work well in attracting customers in the near term, but the company will lose foresight about its future cash flow.
There is no guarantee that the company will hit its production target or whether there will be enough demand for its SUV in the first place. Considering the rising competition in the industry and the competitive price offerings, customers could be driven towards a different electric SUV in no time.
Fisker does not have impressive fundamentals. The net loss reported at the end of the fourth quarter totaled $12 million. It forecasts revenue of $13.2 billion in 2025 and a free cash flow of $1.9 billion.
Let’s not forget that the company has no revenue currently and going from nil to $13 billion in five years is no small feat. On top of that, operating expenses are only going up.
However, these are only projections by management. Until and unless there is action, it is only speculation.
The Bottom Line
EV companies are showing strong signs of growth this year, but investing in FSR stock is risky. There is only speculation about an SUV model that the company is working on. Due to a lack of fundamentals, the valuation of the company cannot be justified. The stock could come back to the ground in the coming months.
Until we see the Ocean SUV delivered, it is best to stay away from the stock. The absence of debt and a cash balance of $1 billion do work in the favor of the company but we do not know when production will finally begin and if deliveries will be met. Will customers be keen on the leasing model? How will it work out in terms of revenue generation for the company?
We’ll only know when the company launches the product. Until then, stay away from FSR stock. If you want to join the EV industry momentum, there are several other strong players to consider.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.
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