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Is Fisker Stock a Buy?

By Rekha Khandelwal – Oct 22, 2021 at 9:42AM

Key Points

  • Top EV companies are looking to bring down costs to make electric vehicle pricing comparable to that of traditional vehicles.
  • Fisker's management team has rich industry experience.
  • The company's partnerships with Magna International and Foxconn should help in the timely launch of its first models.

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The company hopes to bring a different approach to electric vehicle manufacturing, but will it succeed?

Electric vehicles are transforming the auto sector, and several new EV start-ups should help accelerate the ongoing transformation. They may not all succeed in the long term, though. As the space continues to evolve, finding potential winners is not an easy task.

One promising EV start-up is Fisker (FSR 4.17%). Let's discuss what may and what may not work for this aspiring company in the long term. 

Why Fisker may succeed

There are quite a few things to like about Fisker. To begin with, it has an experienced management team. The company's founder and CEO, Henrik Fisker, has rich technical experience, and he has previously worked with Aston Martin, BMW, and Ford Motor Company

fisker-ocean-front-blue-garage.

Image source: Fisker.

Moreover, Fisker created an auto company called Fisker Automotive in 2007, which went bankrupt in 2014 for several reasons: bankruptcy of its battery supplier, battery problems requiring product recalls, destruction of a car shipment by Hurricane Sandy, and Fisker's disagreement with the company's management on its business strategy. This experience could help Fisker avoid such issues in his new company. Other members of the company's management and technical team also have valuable industry experience.

The second thing to like about Fisker is its asset-light approach. Rather than setting up its own manufacturing plant, the company has contracted manufacturing to leading auto parts supplier Magna International (MGA 1.83%), which has decades of experience in this segment. This should greatly help in the timely launch of Fisker's vehicles. The company plans to start commercial deliveries of its first SUVs -- the Fisker Ocean line -- in November 2022. Magna has a 6% equity stake in Fisker.

Fisker has also partnered with Foxconn to launch lower-priced models starting at under $30,000. Production under this partnership is expected to start in the first quarter of 2024. Fisker believes that its low-cost manufacturing will allow it to offer vehicles with ranges comparable to competitors' at much lower prices.

What may not work for Fisker

Fisker's key selling proposition is high performance, quality, and range at an affordable price. However, with production still a year away, other EV companies have time to bring their costs down and compete with Fisker on this front. Several legacy auto manufacturers are planning to launch electric versions of their top-selling models and may offer stiff competition to Fisker.

In short, Fisker may find it difficult to differentiate itself in the crowded electric vehicle space and compete on cost, as it is hoping to do. That's because several auto companies have been outsourcing parts manufacturing. Fisker expects to be able to launch lower-priced electric vehicles, but there doesn't seem to be anything unique in its approach.

Should you buy Fisker stock?

Overall, though there is a lot to like about Fisker's strategy, the company still faces significant risks. Fisker may have a tough time competing with legacy auto heavyweights as well as other EV companies. It looks like a very high-risk stock to me. Investors may want to let this story play out and look elsewhere for attractive electric vehicle stocks in the meantime.

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool recommends BMW and Magna Int'l. The Motley Fool has a disclosure policy.

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