Fisker Inc. (FSR) is an electric vehicle designer, developer, manufacturer, and retailer. The company differentiates itself by focusing on producing aesthetically appealing vehicles as well as promoting sustainability and care for the environment. As the company states on its website: “We’re here to weave emotion and sustainability into everything we make. We’re here to reimagine not only how we move through the world, but our place within it.”
The main value for FSR comes from its unique designs, highly targeted branding, and a direct-to-consumer operating model. The result is less cyclicality, and a less complicated/lower risk production process that ultimately produces enhanced profitability. It is able to achieve all of this by partnering with auto manufacturer Magna International (MGA) and electronics manufacturer Foxconn Group. By outsourcing production and supply chain concerns as well as much of the finer points of its technology, Fisker is free to focus its limited resources on optimizing customer-focused areas. (See Fisker stock charts on TipRanks)
In its most recent quarterly report, Fisker announced that it was ramping up spending as it accelerated product and vendor engineering along with tooling efforts as they completed early prototype builds. The company is also progressing on the development of next-generation battery, drive-unit, ADAS (advanced driver-assistance systems), edge computing, and multi-domain controller technologies. The company remains on pace for Q4 2022 deliveries in both the U.S. and Europe.
Valuation Metrics
While the company certainly has a visionary and innovative approach to automobile design and manufacturing, it is very difficult to know whether the company is attractively valued or not. First and foremost, Fisker is not making vehicle deliveries yet and is therefore not generating any substantive revenue.
In 2022, analysts expect that it will generate $340 million in sales with a gross margin of 18.43%. However, it will still run up heavy losses and likely remain unprofitable for several years until it can scale sufficiently to reduce fixed costs as a percentage of its revenue.
The good news is that Fisker has time to reach profitability since it currently has nearly $1 billion in cash on hand, which should be more than sufficient to get it through the end of 2022, given projections. Furthermore, electric vehicles remain an in-favor business on Wall Street, so selling additional equity to raise cash should not be too difficult.
With a market cap of $4.8 billion, Mr. Market is clearly expecting significant upside in Fisker’s growth in the coming years and as long as this somewhat bullish outlook remains in place, the company should be able to raise sufficient capital to continue scaling its business towards free cash flow positivity. (See Electric Vehicle stock comparison on TipRanks)
Wall Street’s Take
From Wall Street analysts, Fisker earns a Moderate Buy consensus rating based on five Buy ratings, two Hold ratings, and zero Sell ratings in the past 3 months. Additionally, the average Fisker price target of $26.67 puts the upside potential at 73.75%.
Summary and Conclusions
Fisker has high-upside potential given its unique, innovative approach to manufacturing electric vehicles, and has sufficient cash on hand to get through its first quarter of deliveries in Q4 2022.
However, it will likely need to continue issuing equity to fully scale to free cash flow positivity, so it is a bit risky in that it will depend on continued market bullishness on electric vehicles as a whole. Furthermore, it will need to grow substantially to become profitable and warrant its multibillion-dollar market cap.
As a result, investors should view this as a very speculative investment, even if Wall Street price targets indicate it is attractively priced at the moment.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
