Try a Small Position in Fisker Stock, but Monitor the EV Competition

Updated on

Only time will tell whether the electric SUV is unique enough to warrant a strong buy rating for FSR stock

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2020 hedge fund letters, conferences and more

People have waited, and the time has finally come. Electric vehicle manufacturer Fisker (NYSE:FSR) finally came public through a reverse merger with Spartan Energy Acquisition, which means that SPAQ stock is gone and FSR stock is available for trading on the New York Stock Exchange.

This transition from SPAQ to FSR was eagerly anticipated as EV stocks are a hot item in 2020. So are special purpose acquisition companies, or SPACs. FSR stock fits into both of those categories.

As Spartan, SPAQ stock rode on the coattails of the broader rally in electric vehicle stocks and SPAC mania. But that was then and this is now. Are we seeing the same enthusiasm for FSR stock that we witnessed earlier with SPAQ?

We’ll certainly examine the price action of FSR stock, but there’s a larger question to answer here. It concerns the viability of Fisker as a company amid an increasingly crowded field of EV contenders.

A Closer Look at FSR Stock

Back in early October, when I analyzed the price action of SPAQ stock, I observed that it quickly reached its 52-week high of $21.60 in September before falling back to $13.

In other words, SPAQ stock was a short-term trader’s paradise but a long-term investor’s nightmare. But what about the newly minted replacement, FSR stock? It didn’t start trading on the NYSE until Oct. 30, so we’ll begin our current analysis there.

While we only have a few days’ worth of price action to look at, still, as of Nov. 6, FSR stock appears to be finding its footing between $10 and $12. Until there’s a sustained breakout or breakdown from that range, it’s difficult to determine whether the bulls or the bears are winning. (I’ll reserve judgment on this week’s jump to the $13-$14 range.)

It will probably take a while for the trading community to work through the process of price discovery for FSR stock. For now, therefore, it’s advisable to keep your position size moderate and brace for continued volatility.

A Cool Billion

With the reverse merger finally completed, Fisker’s stakeholders can now breathe a sigh of relief as the company can focus on manufacturing its flagship model, an electric SUV called the Ocean.

You could almost hear the sense of eagerness as Chairman and CEO Henrik Fisker revealed the debut date (or at least the debut quarter) for the Ocean:

“We can now fully turn our attention to developing and launching the revolutionary, all-electric Fisker Ocean into the heart of the midsize SUV market, expected to commence in Q4 2022.”

Sure, it’s frustrating to consider the prospect of having to wait so long for the Ocean’s launch. On the other hand, it’s comforting to know that Fisker expects to have at least $1 billion (after transaction fees and expenses) worth of cash on its balance sheet as a result of the completed business combination.

Weighing the Competition

Not only that, but Fisker also expects to have no funded debt. Plus, the cool $1 billion should be sufficient to fully fund the development of the Fisker Ocean program all the way through its 2022 production target date.

So, in financial terms, it’s fair to say that Fisker’s on solid footing, so far. Yet, there’s an ongoing issue that every FSR stock investor needs to consider.

I’m referring to the heavy competition in the electric vehicle space. You’re undoubtedly aware of the more famous names like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO). However, Fisker will also have to fend off market-share encroachments from a host of other EV makers, including:

  • XL Fleet, which plans to merge with Pivotal Investment Corp II (NYSE:PIC)
  • Hennessey Capital Acquisition Corp (NYSE:HCAC), which plans to merge with Canoo
  • Hyliion Holdings (NYSE:HYLN)
  • Lordstown Motors (NASDAQ:RIDE)
  • … and of course, the ever-controversial Nikola (NASDAQ:NKLA)

The Ocean’s base price of $37,499 is quite reasonable for an all-electric SUV, I’ll admit. Moreover, mindful consumers will appreciated the fact that the Ocean is at least partially made from recycled materials.

Nevertheless, informed FSR stock investors will need to keep tabs on Fisker’s competition, and that may be a daunting task. If you’re not prepared to keep abreast of the latest developments in the expansive electric vehicle market, then it’s best to stay small with your allocation of FSR.

The Bottom Line

Starting off with a cool $1 billion in cash will undoubtedly help Fisker on its path to competitiveness in the electric vehicle space.

Nonetheless, a right-sized allocation in FSR stock is warranted as the competition runs deep and wide.

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

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Article by Investor Place