Why Roshan Digs Electric Vehicle Stock Fisker

Why Roshan Digs Electric Vehicle Stock Fisker

over 2 years ago3 mins

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Summary:

  • Fisker is aiming to become a nimble producer of EVs by outsourcing production to third parties.
  • If Fisker’s manufacturing partners can meet the company’s ambitious delivery targets, the share price could grow strongly.

What's your background, Roshan?

Full-time investor and a curious mix of optimism, pessimism, pragmatism and realism. 

What’s the pitch?

Fisker (ticker: FSR). A case for 5-10x upside by 2025.

What does Fisker do?

Fisker is a California-based automotive design and development firm with aims to sell electric vehicles (EVs) in multiple geographies by the end of 2022. It outsources manufacturing expertise to reputed third-parties.

What’s your three-point investment thesis?

  • Strong partnerships: Fisker has built an asset-lite business model by carving strategic partnerships with high-quality service providers like Canada’s Magna International, manufacturing giant Foxconn, and Mekonomen Group in Scandinavia. This de-risks parts of their business by outsourcing areas such as manufacturing, vehicle delivery, maintenance, and fleet management.
  • Delivery on the horizon: Magna's Austrian operation, Magna Steyr, will build Fisker's first vehicle, Fisker Ocean, slated for a 2022 launch with 16,000 preorders. Foxconn will start building a mass-market model called Project Pear with a goal to produce 250,000 by the third quarter of 2023 across multiple sites.
  • Highly liquid with attractive growth potential: The company holds cash and cash equivalents of $985 million with zero debt and forecasts revenue of $13.2 billion in 2025 with free cash flow of around $1.9 billion from 2025.

What are the key events you’re watching?

  • Delivery timeframes: From November 2022, Mekonomen will start deliveries of the Fisker Ocean SUV, with Denmark, Norway, and Sweden among the first European markets to launch – followed by the UK and India in 2023. Fisker’s mass market Project Pear model should be delivered by late 2023 in the US.
  • Expansion to India: Having established Fisker’s tech centers in India, Fisker may look out for local partners to manufacture their vehicles locally – following in the footsteps of Tesla, Audi, and Mercedes.
  • Preorder and new model updates: Fisker regularly provides updates on pre-orders of the Fisker Ocean and Project Pear models. I expect the market will react to such updates considering the company’s aggressive timeline for delivery of vehicles by the end of 2022.

What’s the upside potential if your thesis is correct?

If Fisker achieves their targeted production of 250,000 vehicles per year with pricing per vehicle of about $30,000 they will generate a revenue of $7.5 billion in 2025. Fisker is currently trading at about 0.8x that forecast for 2025 revenue – while Tesla trades at 8x expected 2025 revenues of $100 billion and NIO trades at 5x 2025 revenues of $19 billion. If Fisker is valued with similar multiples, its market cap will exceed $55 billion, giving it an upside of nearly 10x. A more conservative discounted cash flow (DCF) model reveals a price target of $95, about 5x more than the current stock price.

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

Fisker’s asset-light business model enables the company to scale production rapidly and remain product-oriented as they have outsourced manufacturing of EVs. However, their partners will have to execute flawlessly and any delay in timeline will naturally affect projected revenue estimates. Fisker is also relatively unknown compared to established EV brands like Tesla and therefore faces severe competition risk. As Fisker’s timeline for delivery is very aggressive, it is expected that the stock price will gain or fall rapidly and price will be very volatile. Fisker represents an attractive risk/reward play but should only form a small part of any portfolio.

What’s your take on Fisker? Let us know your thoughts on Roshan’s pitch here.

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