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Finance

Is Fisker the Next Tesla?

The electric vehicle (EV) industry has received a lot of attention from investors recently.  Shares of Tesla (TSLA) and Nio (NIO) have soared in 2020, up 410% and 597%, respectively.  

Another popular EV company, Fisker Inc., will soon be listed on the NYSE via a special purpose acquisition company (SPAC).  Fisker is coming to the public market through a merger with Spartan Energy Acquisition Corp. (SPAQ) and is expected to start trading under the symbol “FSR” around October 29th, pending approval from SPAQ shareholders.

SPACs have been dubbed as “IPO 2.0” and have become the new craze on Wall Street. So far, there have been 110 SPAC IPO transactions in 2020 that have raised a total sum of $145 billion. 

For private companies that want to go public, the main advantage of a SPAC is that it saves time and expenses. Additionally, given the number of SPACs, they are getting favorable deals in terms of valuation, retaining controlling interest, and can tap into outside funds much quicker than a traditional IPO. 

For investors, one drawback is there’s less scrutiny of the company’s business and financials. One benefit is that they can get exposure to companies at a less mature phase of their growth cycle, so there’s more potential upside.     

Fisker Going Public

Fisker’s reception will be interesting. There’s been a huge demand for electric vehicle stocks. Some of the best performers of 2020 and the last 3 months are companies in or supplying the EV sector.

EV stocks have been so strong because of multiple reasons: 

  • Prediction markets and polling are suggesting that the chances of Joe Biden winning the Presidency and Democrats winning the Senate are around 60%.  If this were to happen, it’s important because Democrats would like to create legislation that forces automakers to only produce electric cars by 2035.
  • The quality of EVs, in terms of range and reliability, are advancing and approaching an inflection point, from which they will be cheaper. 
  • Another factor is that EVs are a growth market in an economy with low secular growth and abundant liquidity. In hindsight, it’s clear that the Fed’s policies are increasing the multiple paid for a “growth premium”.

Currently, there are around 1.4 million electric vehicles on the road. By 2030, it’s expected that there will be 19 million electric cars on the road. This growth will create opportunities for electric car companies. 

And, this timeline could be pulled forward with the passage of Biden’s energy plan which is proposing funds to build out nationwide charging infrastructure, tax credits for EV purchases, and a “cash for clunkers” type program targeted towards EVs. In total, the plan seeks to spend $2 trillion in the next four years on “green energy” investments.

Upstarts vs Legacy Car Companies

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If we look back at recent history, new categories mean new winners. Google (GOOG) beat Microsoft (MSFT) in search, even though MSFT had more resources and advantages. Facebook (FB) beat GOOG in social media, even though Google had the resources and advantages in that space. So, it’s quite probable that new winners will emerge to take market share in the EV space.

This is bad news for legacy car companies. Despite having an early start and considerable resources, they have not been as successful with EVs. Newcomers like Tesla (TSLA) and NIO (NIO) are already carving out market share and establishing themselves as “cult brands”. Fisker is also attempting to navigate a similar path.

Fisker

Since announcing the deal on July 6, SPAQ shot up from $11 to $21 in three trading days. However, since then, SPAQ has given up the majority of these gains and now trades around $12. The listing will give Fisker $1 billion in cash and value the company at $4 billion. These funds will be used for the development of the all-electric Fisker Ocean SUV and bring it to production by late-2022.

The current iteration of Fisker was started by Henrik Fisker in 2016. Previously, he had another electric car startup, Fisker Automotive, which went bankrupt in 2012. Before that, he was a highly-regarded designer of luxury cars for BMW and Aston Martin. 

Fisker has three products in development – the Fisker Ocean SUV; the Fisker EMotion, an electric sedan with 400 miles of range; the Fisker Orbit, an autonomous, all-electric shuttle.

The company plans to focus on design and sales while it outsources production to VW. This would save Fisker on costs and allow it to take advantage of VW’s MEB electric vehicle platform as well as VW’s supply chains and manufacturing capabilities. The outsourcing of manufacturing is one clear difference between Fisker and Tesla.

Next Tesla?

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Given the massive gains in Tesla’s stock since it became public, it’s understandable that people are eager to find the next hot EV stock. Fisker has many similarities to Tesla, including a charismatic visionary as its founder and CEO who has gotten many people excited about the potential for their product.

Its electric SUV features an attractive design with considerable range and is reasonably priced. However, one major difference is that Tesla is already the dominant company in this space, based on market share. In contrast, Fisker is expected to begin limited production in late 2022. It will be competing with electric vehicles from Tesla and a variety of new offerings from legacy companies.

In contrast, Tesla had many years, when it was the sole maker of luxury electric vehicles to gain market share and establish its brand. 

Ultimately, the EV market is going to be so massive that there will be space for plenty of competitors just like there is with gas-powered cars. In 2019, 64.3 million vehicles were sold globally and 2.3% were electric. By 2050, more than half will be EVs. And by the end of the century, gas-powered vehicles may be a novelty item. 

Risks

Such a massive market means that there will be an opportunity for smaller companies, like Fisker, to thrive, especially if Fisker can deliver on its promise of range, low-costs, and design prowess. 

However, the matter still comes down to whether investors trust that Fisker can execute on his vision. He notoriously failed with Fisker Automotive, despite generous subsidies from the federal government, while Musk used the same federal largesse to succeed with Tesla.

Even with Musk’s resources and skills, Tesla’s success was far from guaranteed, and there were many moments when its success and existence were in jeopardy.  

The recent experience of Nikola Motors (NKLA) also exemplifies the importance of trust in the leadership team. NKLA’s stock has plunged nearly 80% since it’s been revealed that many of the company’s promises about its technology were inflated.

And, there have been some concerns with Fisker. His wife is the CFO of the company which would certainly be more of an issue if the company was going public through an IPO. At Fisker Automotives, he wasn’t upfront with investors about issues such as the costs of the car’s production and that the company had been cut off from taxpayer-subsidized loans from the Department of Energy.  There were also accusations of extravagant spending.

In total, Fisker Automotive raised over $1 billion from investors but only built 2,450 vehicles and lost an estimated $35,000 per car.

Conclusion

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It’s quite possible that Fisker has learned from this experience and will do better the second time around. For investors, the stock is a high-risk/high-reward bet..

If Fisker can bring its product to market on the set timeline and for the cost it’s projecting, then it has a good chance of being successful and rewarding investors at today’s price due to the growth in EVs over the next decade. However, if Fisker fails to pull off this feat, then investors could face steep losses. 

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TSLA shares were trading at $421.94 per share on Tuesday afternoon, down $8.89 (-2.06%). Year-to-date, TSLA has gained 404.31%, versus a 8.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More…

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