Fisker (NYSE:FSR) shocked investors with weaker than expected financial results reported for the third quarter and a delayed 10Q report after the company’s Chief Accounting Officer exit. Based on the initial earnings for Q3’23, the company saw a surge in revenues but also a widened loss related to its electric vehicle operations.
The electric vehicle producer also adjusted its production forecast, now expecting to build 13,000-17,000 electric vehicles this year, down by 30% at the midpoint from the previous range of 20,000-23,000 EVs. Despite the revised guidance, I believe Fisker still offers long-term investment potential and with shares trading near their 1-year low, the risk profile remains favorable!
Positive Ratings Upgrade
I upgraded Fisker to buy in September — Finally Going On The Offensive — largely because of the company’s push into a number of European countries where it was ramping up deliveries. While Fisker down-graded its production outlook again, the company is seeing a massive increase in revenues due to deliveries just beginning to ramp up and it recently successfully raised capital through the offering of convertible senior notes. I believe investors are overreacting to the earnings release — which caused shares to slump 14% — and I am up-grading FSR to strong buy.
Weak Q3 Performance and Delayed Report
Fisker reported mixed results for its third-quarter, missing both earnings and top-line predictions. The electric vehicle startup posted adjusted earnings per share of $(0.27) per-share, falling $0.06 short of the average estimate. Revenue stood at $71.8M, missing the consensus by $63.9M.
The 10Q report is delayed due to the recent departure of the company’s Chief Accounting Officer, but preliminary results showed substantial growth as large-scale deliveries began. Revenues for Q3’23 reached $71.8M, up from a mere $825k in the previous quarter. However, the production ramp and increased deliveries led to a negative gross margin of $12.1M and widened operating loss of $99.6M in Q3’23. Fisker is expected to remain unprofitable for the next few years due to continual losses stemming from production and delivery expansion.
Liquidity and Cash Flow Concerns
To finance the production and delivery expansion, Fisker raised $450M in gross proceeds in Q3’23 through convertible notes offerings and covered its liquidity needs by selling $170M in additional notes in October. However, negative operating cash flow reached $520M in the first nine months of the year, with $308M in Q3 alone. With production and deliveries still in the ramp-up phase, high negative operating cash flow is expected for the next few years, potentially leading to additional senior convertible notes issuances in FY 2024.
Fisker is projected to have sufficient resources to sustain its liquidity needs until the end of next year, with an additional $550M available through convertible notes sales. However, the company will likely face substantial operating cash flow challenges given the demands for production growth and scale.
Challenges in Production Guidance
Fisker adjusted its FY 2023 production forecast to 13,000-17,000 EVs, marking the third reduction this year. Despite the downgraded guidance, the company delivered 1,097 electric vehicles in Q3’23, a significant improvement from the 11 delivered in the previous quarter. The promising delivery trend continued after the quarter’s end, with 1,200 Fisker Oceans delivered, showing substantial potential for revenue ramp-up in the near future.
Positive Outlook and Valuation
Although Fisker faces short-term headwinds, the company’s ability to raise cash, favorable valuation based on P/S ratio, and the anticipated tripling of revenues next year suggest high potential. Despite the setbacks, Fisker’s current valuation offers considerable upside with the projected revenue multiplier, reflecting favorable long-term investment prospects in the EV market.
While Fisker carries higher than average risks and a shorter liquidity runway, the potential for strong revaluation and considerable upside in shares makes it a promising but high-risk bet in the EV industry.
Risks including weaker financial stability and greater production and timeline risks compared to larger EV rivals should be considered, but the overall investment outlook remains positive despite the recent setbacks.
Encouraging Future Amid Challenges
Fisker’s recent setbacks may cast a shadow, but the company’s potential to ramp up revenues and continue to raise capital makes it an attractive long-term investment. The current market sentiment may be bearish, but Fisker’s strong potential in the EV market suggests that brighter days are ahead, making it a high-risk, high-reward opportunity for investors.
A brighter outlook may be on the horizon for Fisker, promising future growth and resilience despite the current challenges, offering a potentially rewarding investment opportunity in the EV industry.
