Fisker Stock’s Downfall: A Cautionary Tale for EV Investors
Fisker (OTCMKTS:FSRN) is bankrupt in all but name only. The company hangs on by the slimmest of threads that only a miracle bailout can save while Fisker stock is a literal penny stock trading at 2 cents per share on the over-the-counter exchanges.
It is a mighty fall for a company that went public less than four years ago in a $2.9 billion special purpose acquisition company merger. Fisker is one of the few companies that got two bites at the apple and dramatically failed both times. Yet, does that make it an anomaly or is it the fate of Fisker stock the same for all electric vehicle companies?
The End of Fisker Stock?
InvestorPlace’s Eddie Pan recently detailed Fisker’s rise and fall 20 years ago and its rise and fall again today. It’s clear there were factors unique to Fisker stock both times that don’t or won’t apply to Tesla (NASDAQ:TSLA), Lucid Group (NASDAQ:LCID) or Rivian Automotive (NASDAQ:RIVN).
For example, the federal government limiting EV tax credits only to vehicles assembled in the U.S. affected Fisker hard because its EVs are produced in Austria. Fisker’s domestic rivals make their vehicles here and are eligible for the incentive.
However, it shows just how critical these subsidies are to EV manufacturers. Without the government underwriting their sale, an EV’s cost would be unattractive to a large majority of car buyers. And it’s not just in the U.S. either. Governments globally are all subsidizing the production of EVs.
In China, Beijing enacted a $72 billion incentive program last year that enables over 90% of EVs in the country to qualify for them. Some 20 European countries offer a variety of incentives, from tax exemptions to pricing reductions.
In Germany, where the government was forced to end its subsidy program early to plug a gaping budget hole last December, Tesla, Volkswagen (OTCMKTS:VWAGY), Stellantis (NYSE:STLA) and other EV makers covered the lost incentives cost for buyers taking delivery by the end of the year.
Profitability Pipe Dream
We’re already seeing a demand slowdown for EVs that’s global in scale. The market is still growing but at a much slower pace. That’s worrisome for EV makers already at the fringe of viability. The early adopters of the EV market have bought their cars. Now manufacturers need to convince the rest of car buyers that an EV purchase is worthwhile.
Ford (NYSE:F) slashing the price of its Lightning F-150 pickup trucks is an ominous sign for companies that are struggling to reach profitability. The ongoing price war among EV makers will delay that further into the future. Perhaps too far. But it’s going to take more than financial incentives to move consumers though.
Concerns over distances traveled between charges, availability of charging stations, safety issues and more have many concerned EV technology hasn’t come far enough to outweigh the reliability of fossil fuel-powered vehicles. It could be a high hurdle to get over.
Rivian and Lucid in particular have the hardest cases to make. However, because they still have deep-pocketed financial backers they likely won’t see the same fate as Fisker. At least not yet. Rivian still has Amazon (NASDAQ:AMZN) committed to buying its EVs while Lucid has the Saudi Arabian government keeping it afloat.
Too Much Risk
The problem for investors is the stock market isn’t quite so confident. Rivian stock tumbled hard on Ford’s price cut new, sending shares below $10 a stub. Lucid began trading below that threshold a long time ago.
Its stock also plummeted and it goes for $2.50 a share now. Tesla, as the most financially secure EV stock, is not at risk. That doesn’t make its stock a buy though.
Unique circumstances may have caused Fisker’s implosion but it still serves as a cautionary tale for investors.
A healthy EV market would have allowed Fisker to fix its problems and make a turnaround. The current EV industry means you should avoid buying EV stocks to see who the survivors will really be.
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On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
