Can Fisker Break Through a Crowded EV Space
The Rundown - Your weekly SPAC Deep Dive (11/17/21)
At first sight, you might mistake Fisker as just another EV startup looking to capitalize on the recent investor enthusiasm in the space. The market is now crowded beyond a doubt, with incumbent Tesla seeing competition from challengers Lucid and Rivian, while ICE competitors General Motors and Ford have also been converting their portfolio of vehicles into EV/Hybrid. Furthermore, Chinese Competitors like NIO, XPeng, and Li Auto pose a threat themselves as they rapidly scale production and charging infrastructure across Asia and Europe.
Markets have weeded out EV makers like Lordstown, Nikola, and Canoo, who made debuts with lofty projections and will potentially need billions in additional capital to deliver on their original vision. The question then is, will Fisker challenge Tesla, Lucid & Rivian, or will it just be ‘another EV startup’.
Sponsored this week by…
Want to find more EV Stocks? Try Benzinga
(Offer Expires 11-20-2021)
I use tons of trading software to help me better understand the market and make smarter trading decisions. One thing I love about Benzinga Pro is its versatility. It wasn’t built for just one type of trader but for a wide range of experienced investors like myself. I can create custom watchlists, and then quickly monitor the performance of my investments.
Some great news - Benzinga is giving all subspac readers a free two week trial!
Return from the Grave
Expectations are high for Fisker, which went public through a $2.9 billion SPAC merger with Spartan Energy in 2020. But this isn’t Fisker’s first foray into building EVs. In fact, long before the likes of Lucid or Rivian made cars that competed with Tesla, Fisker Automotive made sleek electric sedans that could give the Tesla Model S a run for its money. The company raised $1.2 billion in its lifespan and delivered 2,500 hybrid sports sedans priced at $103,000 (the sedan was called ‘Karma’).
But it all came crashing down spectacularly for the company in 2013, when it had less than $20,000 in cash and fell victim to a perfect storm of operational and financial setbacks, ranging from production delays to problems with a key battery supplier, suspension of a loan from the Department of Energy (DOE) and even inventory losses from Superstorm Sandy, which destroyed hundreds of vehicles at a port in New Jersey. Subsequently, Fisker Automotive Declared Bankruptcy and even faced a congressional hearing about the $529 million in financing that it received from the DOE. Henrik Fisker, the company’s CEO, is now back to try again and believes that he has learned a lot from his past experience.
The ‘Apple’ of EVs?
Unlike the Karma, which was a stylish yet impractical car, Fisker is building a fully Electric SUV for the masses called the ‘Ocean’, with a starting price of just $37,000 (model tops out at $69,900 with add-ons). While the lower-end SUV market has seen increased competition, especially from the likes of Volkswagen, Hyundai, and Toyota, the Ocean is designed with practicality in mind and is thus a five-seat SUV with plenty of room. The Ocean also boasts a range of up to 350 miles with a 545 HP power output.
Fisker is also looking to sidestep most of the manufacturing issues that most EV companies face (Tesla had production issues with the model 3 and Lordstown sold its factory) by outsourcing production. Henrik Fisker has stated previously that Fisker derived its business model by ‘looking at the Apple-Foxconn model, where Apple outsources production to Foxconn’. Fisker now has partnerships with both Magna International and Foxconn. Manga International already makes cars for the likes of Toyota, BMW, Mercedes, and others, and will start the production of the Ocean in Late 2022.
Foxconn’s partnership with Fisker is still in its initial stages, with Fisker looking to produce a sub-$30,000 vehicle that will be sold in North America, Europe, China, and India (the companies are now looking to break ground on a new factory) with production commencing in late 2023. While outsourcing production may help improve quality control and reduce capital expenditure, Fisker’s Ocean will trail EV offerings from BMW, Cadillac, Mercedes, and Rivian by 2-3 quarters, and could potentially lead to lower sales.
Q3 is a Mixed Bag
Fisker lost $110 million in Q3 of the quarter, compared to a loss of $46 million in the same quarter a year ago. For the full year, management guided that total spending would be between $490-$530 million. With no revenues projected till late 2022, the company has turned to a convertible note offering to bolster the balance sheet. The 2.5% senior note offering is due in 2026 and generated gross proceeds of $667 million (dilution of stock above $32.70, amounting to 3.7% dilution of shares outstanding should the stock cross $50). To partially hedge the dilution, the company has also entered into capped call contracts with an effective conversion price of $32.57. As a result, Fisker now has $1.4 billion in cash at the end of Q3, which should equate to around two years of run rate, supporting the company while it scales up production.
Fisker also closed a vital battery supply agreement in Q3 with Chinese battery cell manufacturer CATL. The supply agreement will initially run from 2023 till 2025, with the companies now working to optimize the structure of the battery pack over the next 12 months. Fisker has ordered five gigawatt-hours battery cells, which will take a two-pronged approach (similar to the cells in Tesla batteries). Fisker will use NMC cells in the higher capacity battery packs (for the higher end Ocean models), while LFP cells will be used in the cheaper version. Fisker announced that the type of cell shouldn’t impact the speed of charging, which is expected to be up to 250 kW at peak.
Catalysts for Growth and Valuation
Fisker now has a market cap of close to $7 billion, which seems very high for an EV company currently with no cars and no sales. But EV Valuations are relative, as seen with Rivian’s massive $90 billion IPO (which also has no cars or material revenue). Fisker had 17,500+ refundable bookings in August for the Ocean. The company plans to officially unveil the Ocean at the LA Auto Show (on November 19th) with the detailed pricing and specifications, accompanied by a substantial marketing campaign, which the company says should help drive bookings to around 25,000 by the end of the year.
Assuming that the company is able to deliver 20,000 vehicles by 2023 at an average price of $47,500, the company would generate $950 million in revenues, implying a forward revenue multiple of 7.3x. Much of the company’s valuation will depend on the market’s reaction to the launch of the Ocean and if it can be priced competitively for the equivalent specs of a competing ICE SUV.
Bottom Line
Investors have already been burned with EV SPAC stocks like Workhorse and Lordstown, but there is still room in the market for automobile makers that deliver comparable EVs at reasonable price points. Fisker is aiming to deliver a mass-market SUV close to a decade after failing and declaring bankruptcy. The company has learned from its mistakes in the past to manufacture vehicles using an asset-light model by partnering with the likes of Magna and Foxconn. The collaboration has resulted in shorter development times and the ability to substantially scale production over time.
The only question that remains is if the company can garner enough consumer interest for the ‘Ocean’, especially as the vehicle is launching two-three quarters after the other SUV launches from competitors. Fisker stock is currently trading close to $23, and much of the future performance will depend on several factors like the price/performance, vehicle interest, and delivery schedule. Investors should see more clarity when the company reveals these details over the next few weeks.