Fisker (NYSE:FSR) seems almost forgotten in the electric vehicle (EV) race. That might present an enormous opportunity for FSR stock — or highlight risks ahead.
Certainly Fisker has received its share of attention over the past year. Shares of Spartan Energy Acquisition doubled last July when the SPAC (special purpose acquisition company) announced it would merge with the electric vehicle automaker. Following the merger, FSR stock saw a 140% rally in November, as the EV sector soared following U.S. elections. A nearly 100% rally followed in February.
But for the most part, the gains have faded. At $14, FSR has been cut down by more than half from late February highs around $28.50. FSR is down about one-third from the peak reached after the merger announcement in July.
After the most recent pullback, the valuation applied to Fisker looks dramatically out of place relative to other EV manufacturers.
What the market is telling investors, at least right now, is that it doesn’t believe Fisker has much chance of winning in the EV race. The question for FSR stock is whether the market is right.
Back in February, Barron’s highlighted the wide disparity of valuations among EV manufacturers when looking to projected 2025 sales. FSR stock at the time traded for 0.4x revenue on that basis. The multiple actually has compressed since the article was published, but the broad point still holds.
FSR stock is valued at a fraction of other EV manufacturers. Tesla (NASDAQ:TSLA), for instance, trades at nearly 6x based on Wall Street estimates. Chinese plays Nio (NYSE:NIO) and XPeng (NYSE:XPEV) trade at over 3x and roughly 2x, respectively.
The disparity holds on an absolute basis as well. Fisker has a market capitalization just over $4 billion. Tesla’s valuation is roughly 170x as high.
The most interesting comparison is to Churchill Capital IV (NYSE:CCIV), a SPAC which is merging with Lucid Motors, an EV startup like Fisker. Even with a sharp pullback following an insane rally before the merger was made official, the price on CCIV stock values Lucid at about $33 billion.
That’s 8x Fisker’s market cap. Using enterprise value, which backs out cash on the balance sheet, the gap is even larger (though I’m reluctant to use that figure with these manufacturers, since both plan to use up that cash as they scale production).
The Case Against Fisker
However you slice it, the market is clearly discounting Fisker’s chances of success. And there are reasons for doing so.
Fisker’s founder, renowned auto designer Henrik Fisker, already has gone the EV startup path. His first company, Fisker Automotive, went bankrupt in 2013. That history naturally raises some concerns.
More recently, Fisker’s performance hasn’t been all that impressive of late. At the time of the merger, Fisker and Spartan Energy talked up a potential partnership with Volkswagen (OTCMKTS:VWAGY), which it called its “preferred partner.”
But that deal fell through and Fisker had to instead pivot to contracting with Canadian giant Magna International (NYSE:MGA). Magna is a respected contract manufacturer in the space, but given that Fisker itself pointed to the Volkswagen partnership as a competitive edge, it’s not difficult to see the switch as a disappointment.
Meanwhile, reservation data suggests that consumers too, aren’t all that excited. On Twitter this month, Henrik Fisker disclosed that his company had reached 15,000 reservations for the Fisker Ocean, less than six months after launch.
That milestone isn’t as impressive as it sounds. Reservations for the Ocean cost just $250 — and are fully refundable. Lucid, by contrast, has sold out of its Dream Edition Air sedan, albeit with a run of roughly 500.
There’s certainly a case that FSR stock is cheaper because FSR stock should be cheaper. At least so far, other companies have accomplished more.
The Argument for FSR Stock
Despite those early setbacks, Fisker stock still looks somewhat intriguing.
For one, the valuation matters. It’s not just that FSR is cheaper than other EV manufacturers. The $4.2 billion market capitalization itself implies an opportunity, if a high-risk one.
At that level, the odds of Fisker being a big success — perhaps not quite the ‘next Tesla’, but something close — don’t have to be very high to make the stock at least intriguing.
To use essentially made-up numbers, if there’s an 80% chance of FSR being worth $0 and a 20% chance of it being worth $100 (the latter being a roughly $30 billion market cap fully diluted), $14 is a not-terrible “lottery ticket” price.
Valuation aside, it seems too early to make any real judgments about the space — one way or the other.
The same reason I’m still somewhat skeptical toward CCIV is the same reason I’m intrigued by FSR. EVs are going to be a big market. At some point in the future, it seems highly likely they will be the automotive market.
How that market shakes out, however, is roughly anyone’s guess. Fisker at the least has a real shot.
It bears repeating: it’s a high-risk case. FSR stock can go to zero.
And it’s not a case that rests on the spurious claims that Fisker would be involved in the speculated electric vehicle from Apple (NASDAQ:AAPL) simply because the two companies share a contract manufacturer.
Rather, it’s a case that rests on the idea that no one really knows how this market will play out. For some EV stocks, that uncertainty creates risk. For FSR, at this valuation, it might create opportunity.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.