Hi Jeff, again, so happy we found you! Would love to know your thought on the future of Fisker, whose share price is now below $2. I still believe in Henrik and his vision. — Lisa M.
Hello Lisa, thank you for writing in about Fisker. Many others did as well, so this is a good one to explore. It is such an interesting story and company. And I haven’t written about Fisker in some time.
For everyone’s reference, Fisker is an exciting and up-and-coming electric vehicle car company that has taken a very unique approach to the EV industry.
At the helm of Fisker is Henrik Fisker himself. He is a big name in the automotive industry, having started at BMW in the late 80s working on the BMW E1 electric concept car. From there, he migrated to the BMW Z8 roadster.
After BMW, he became very well-known at Aston Martin from his work on the 2004 DB9 and the V8 Vantage. Those are both incredible cars that Fisker designed.
Fisker even spent a short time working at Tesla on the Model S before finally making the jump to designing a car under his own name, the Fisker Karma.
It was a bumpy road, but his deep industry experience as an automotive designer and executive bought him to where he is today with Fisker, the company.
I first wrote about Fisker in August of 2021, back when most didn’t ever think the company would get to production.
But by November of 2021, Fisker managed to show off its very first car — the Fisker Ocean, shown below — a few weeks ahead of schedule.
Aside from being a beautiful SUV, Fisker’s market positioning is to be the most sustainable and environmentally sound electric vehicle car company in the world.
Fisker goes to great lengths to reduce environmental impact of its cars, to an even larger extent than Tesla.
One of the unique attributes of the Fisker Ocean, which is currently its only production car, is the Fisker SolarSky solar roof seen below.
The roof isn’t just for show either.
It has the ability to generate enough electricity to fuel 1,500 miles of travel per year, and under ideal conditions could reach 2,000 miles. No other production car has this.
But aside from its market positioning, what makes Fisker so unique in the industry is that it doesn’t manufacture its own cars. It outsources its manufacturing to other players in the industry.
Doing so dramatically reduces the capital expenditures that would be required to build and manage automotive factories. Fisker is able to leverage other manufacturing companies’ factories for the production of its own vehicles.
Fisker as a company is responsible for the entire design of the car, the car’s software, marketing, sales (direct to consumer), logistics, and ultimately deliveries of Fisker EVs.
In the past, I’ve referred to Fisker as “The Apple of the Electric Vehicle Industry.” The reason for that is that Fisker uses contract manufacturing to produce its electronic devices (its EVs), just like Apple uses contract manufacturing to produce all of its iPhones, Apple Watches, laptops, etc.
The Fisker Ocean is manufactured by Magna, a $30 billion Canadian company that provides manufacturing services to the automotive industry.
Magna produces the Fisker Ocean in Austria at the moment. Fisker has also been working on a strategic partnership with Foxconn, the same company that Apple uses to produce its products, for manufacturing in the U.S.
Fisker, just like most automotive companies, experienced supply chain problems during the pandemic. This delayed Fisker getting to mass production.
Smaller electric vehicle (EV) companies were more negatively impacted during this time, as larger companies with more purchasing power, like Tesla, always had priority for parts and semiconductors.
2023 however was the turning point for Fisker, as it began full production of the Ocean. Fisker managed to produce 10,142 Oceans, through Magna, last year and managed to deliver 4,700.
Fisker claims that its production ramp is the most successful “first four quarters” production ramp in the EV industry.
I’m sure that those numbers jump out at many of us. There is a major gap between production vehicles and deliveries.
We might assume that the lower deliveries number might be due to lack of orders. But that’s not the case. Fisker hasn’t seen any problem with demand for its product — quite the opposite.
The problem is that Fisker has struggled to make deliveries at a fast enough pace. It is actually having to slow down production until it can get its delivery infrastructure in place to meet demand.
This is a good problem to have, but it highlights a major mistake made by the management team. It underestimated the complexity of delivering vehicles at scale in more than 10 countries. That put the company on its back foot, reacting to the problem.
Naturally, this was not received well by the market. After all, Fisker can’t recognize the revenue from the sale until the cars have been received by customers.
Fisker has been scrambling to hire staff to help with deliveries. It has been building delivery centers to enable customers to come and pick up their new cars, and it has also been putting in place partnerships with dealers so that it can leverage existing infrastructure for deliveries.
The short-term objective is to be able to make 300 deliveries a day, which it may have achieved already. This will allow Fisker to quickly work through its backlog of deliveries, and also increase production to meet demand.
Now that Fisker is in production mode, it is generating significant revenues.
In the third quarter of 2023, it brought in $71.8 million in revenue. During the same quarter, it also raised $450 million, which lifted its cash and cash equivalents to $625 million. Fisker also has access to an additional $550 million through a convertible note transaction.
The above numbers are worth mentioning, because Fisker is still in the process of scaling up its business. It has not yet reached free cash flow breakeven. And even though it doesn’t need to invest in capital expenditures for factories, it still needs to invest in its own infrastructure for deliveries and service.
Fisker currently has an enterprise value of about $1 billion and a market capitalization of $361 million. The delta in those two number is due to the large cash balance that Fisker has right now.
Fisker, like just about every other small capitalization growth stock, has been hit hard due to the rising interest rates. Small cap stocks are still out of favor right now, but this will swing back quickly when interest rates start to move lower.
When that happens, valuations will expand quickly, and high quality small capitalization growth stocks will appreciate.
Until that happens though, companies like Fisker that are still investing for growth will have a bumpy ride.
Even though Fisker made it to production and has ramped quickly, it still has to invest a lot for growth. Wall Street doesn’t like those kinds of investments right now. It’s waiting to see if Fisker can solve its delivery problems.
I believe that it will solve those problems. It’s pretty straight forward to do so. The much harder part was designing and producing a great EV that consumers want.
With that said, it is still likely that Fisker will have to raise additional capital, most certainly within the next four quarters.
In situations like this, the real question is whether or not the company will be able to raise the additional capital. Companies that can’t raise capital either go bankrupt or sell out at a deeply discounted price.
I don’t believe that will happen with Fisker though. I believe that Fisker will be able to raise the capital. It has enough positive momentum and market demand to interest institutional capital to get the company to free cash flow breakeven.
There is one more item that is important to mention. Just in the last few days, the National Highway Traffic Safety Administration (NHTSA), a department of the U.S. Department of Transportation, filed a preliminary investigation over 9 complaints received concerning a “loss of braking performance” in the 2023 Fisker Ocean cars.
Coincidentally, the news of this investigation was just made public today, which pulled Fisker’s share price under $1. At the time of this writing, there has been no official response from the Fisker management team, so it’s not clear whether the issue is a serious one or not.
It is important to note that this is not a recall, or a defect petition — just a preliminary investigation to determine whether or not there are any serious safety issues.
There is no way to know right now if this is just a calibration issue that affects a very small number of cars, or if this impacts all cars produced to date (unlikely).
It may also be something that is largely software related. If that were the case, that would be good for Fisker.
Fisker implemented the ability to perform software upgrades to its cars “over the air” (OTA). OTA means that cars can be upgraded over a wireless network or a WiFi network, without needing the car to be brought in for an upgrade.
Fisker has already completed two OTA upgrades and is planning on a third in February. This is the same kind of approach that Tesla has been so successful with for its EVs.
I can’t say much more about the NHTSA preliminary investigation until the company provides an update, so I’ll just leave it at that. I will say, however, that it is very good to catch things early when production volumes are low.
My working assumption is that this will likely be a tough year for Fisker’s share price. This is not because of Fisker itself, but because of my outlook on monetary and fiscal policy in 2024, and the impact that will have on interest rates.
For a more detailed explanation of my forecast on this matter, I encourage subscribers to have a look at my January 3, 2024 edition of Outer Limits.
And if my forecast is wrong, and interest rates actually decline by 100 basis points or more this year, that would be great for Fisker and other similar companies.
As I look beyond 2024, I remain bullish on Fisker’s prospects, and also maintain that it will be an attractive acquisition target… as it continues to improve its operations and deliveries and releases new Fisker models to meet additional market demand.
What do you think of this issue of Outer Limits? As always, we welcome your feedback and questions, and look forward to them. We read each and every email and address common questions in the Friday AMA issues. Please write to us by clicking here.
