Fisker Looks Too Weak to Buy as EV and SPACs Keep Cooling Off

With market sentiment turning negative towards both electric vehicle stocks and companies that went public via a special purpose acquisition company (SPAC), now is not the time to invest in Fisker (NYSE:FSR) stock.

Currently, FSR stock is trading at around $10.50 a share, basically the same price it was at when it debuted on the New York Stock Exchange on Oct. 30, 2020.

The share price has dropped 68% since hitting an all-time high of $31.96 on February 26th of this year.

Since then, the stock has fallen with the broader electric vehicle sector and downturn in SPAC-related securities.

With the entire market now enduring a correction stoked by rising inflation fears, Fisker stock is likely to remain depressed over the near term.

A Closer Look at FSR Stock

Much of Fisker’s share appreciation earlier this year was due to the fact that it has a fully electric sport utility vehicle (SUV) called the “Ocean” that is far enough along in terms of its development that the company is taking pre-orders from customers.

Fisker has reported more than 13,000 pre-orders for the Ocean, which is expected to retail for $37,499 and scheduled to begin deliveries towards the end of 2022.

Analysts and investors also took a shine to Fisker’s innovative approach to producing the Ocean SUV. The company has completely outsourced the manufacturing of its electric vehicle to Canadian auto-parts supplier Magna International, which will produce the Ocean at its European facilities.

This enables Fisker to focus exclusively on designing and marketing its vehicles without having to worry about the grind of production.

President Biden’s environmentally friendly policies and fondness for electric vehicles, as well as potential federal rebates, also helped to give FSR stock a boost.

Upgrades and Downgrades

Since the end of February, sentiment towards Fisker and the entire electric vehicle market has turned bearish, resulting in mixed outlooks for FSR stock.

In mid-April, investment bank Goldman Sachs (NYSE:GS) downgraded the company’s shares to a “sell” rating and a $10 price target, stating that Fisker is late to the electric vehicle party. They worry that the Ocean SUV is likely to be overshadowed by a glut of electric vehicles from leading automakers such as General Motors (NYSE:GM) and Ford (NYSE:F).

However, no sooner had Goldman Sachs turned sour on Fisker, then rival investment bank Morgan Stanley (NYSE:MS) came out with an upgrade to FSR stock.

Morgan Stanley labeled Fisker its “top-ranked EV start-up” and put a $31 price target on the stock, praising its production model and stating that Fisker has lined up reliable partners to successfully bring the Ocean SUV to market. The strong pre-orders also show a positive response from consumers, which bodes well for Fisker’s future growth.

Future Opportunities and Past Issues

Fisker says its Ocean SUV will be powered by electric motors supplied by an 80kWh lithium-ion battery pack and have a driving range of up to 300 miles on a single battery charge, making it competitive with similar electric vehicles.

The company also forecasts a big market opportunity, if the International Energy Agency’s (IEA) prediction of 120 million electric vehicles deployed on roads and highways around the world by 2030 is to be believed.

While the future is potentially exciting, Fisker is a company with a past.

Started by Danish entrepreneur Henrik Fisker, an earlier version of the automotive company ended up in bankruptcy court in 2012. The first version of Fisker Automotive managed to raise more than $1 billion from investors, but only built about 2,500 electric vehicles before going broke.

The current version of Fisker was resurrected in 2016 with a new focus on design and marketing, and a business plan that called for outsourcing manufacturing.

Pass on FSR Stock

The electric vehicle market has cooled and cooled quickly. Investors are also taking a more critical view of SPAC companies. These reasons help to explain why FSR stock has given up all of its gains since going public last fall.

On top of these issues, the electric vehicle market is extremely crowded right now as established automakers and start-ups jockey for market share. A shakeout and consolidation within the global industry likely is coming over the next few years.

For all of these reasons, it would be best for investors to pass on FSR stock right now. Until it becomes clear that the share price has bottomed and is on an upswing, there’s no point in taking a position.

Investors who get in now risk getting burned if Fisker stock falls even further and slips below the price it was at when it came to market. Wait for market sentiment to improve and see how the roll out of the Ocean SUV goes over the coming 18 months.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.