Shareholders of electric-vehicle (EV) maker Fisker (FSRN -12.70%) haven't had much to smile about in recent months. The company has experienced numerous headwinds since it began producing and delivering its first vehicle, the fully electric Ocean SUV.
The company has changed its sales and distribution model due to high costs and delivery issues from its contractor's manufacturing facility in Europe. It also recently acknowledged a National Highway Traffic Safety Administration (NHTSA) scrutinization of braking system complaints from some customers. That all led to Fisker stock hitting an all-time low last week.
But the company has responded to those prior issues and is now giving investors a reason to cheer today. After announcing new financial agreements with an investor, Fisker shares exploded higher by as much as 40% to start the trading week.
Financial flexibility is key
The financial agreement related to an investor in a convertible notes offering due 2025. The investor agreed to convert some of the bond offering to equity, which now reduces Fisker's outstanding debt level from that offering to $324.5 million from $510 million. Fisker CEO Henrik Fisker said in a statement, "I am pleased that we were able to reach an agreement with one of our investors that will provide increased flexibility and better position us to execute on potential strategic business deals."
Another part of the agreement was the easing of financial restrictions related to the use of restricted cash for operations. Also important from today's announcement was an adjustment for Fisker to potentially be able to collaborate with "a strategic OEM partner."
Did Fisker fix all its issues?
The lowering of Fisker's debt balance is certainly a positive. The reduction of $185.5 million in debt is meaningful, especially considering Fisker had just about $625 million in cash and equivalents on its balance sheet as of Sept. 30, 2023. The monstrous initial reaction to the stock from investors was likely also supported by the fact that Fisker already has plans for its next vehicle-model offerings beginning next year.
The fact that the stock was only higher by 12.3% as of 1:45 p.m. ET indicates that many feel the company isn't out of the woods yet. And they would be correct. Even with today's positive move, the stock remains below $1 per share and could still be on a path to zero.
Fisker did buy itself more time with today' agreement, and that's why the stock soared and remained up by double digits later in the day. But it doesn't fix all of its issues. Any investment still remains highly speculative in this EV start-up.
