Fisker, a startup in the electric vehicle industry (NYSE:FSR), has recently made significant announcements pertaining to its expansion in the European market. The company is aggressively entering new territories and is focused on establishing an extensive service network across Europe. Despite a production outlook adjustment for FY 2023 due to delays from a key supplier, I believe that the risk profile has improved, and Fisker shares present an appealing speculative buying opportunity.
Previous Rating Adjustment
Fisker previously reduced its production outlook for the current year from 42,400 to a range of 32,000 to 36,000 electric vehicles (EVs). The company has now further lowered its production forecast for FY 2023 due to supplier issues. However, Fisker’s expansion plans in Europe and its commitment to growth in new markets present opportunities for improved brand recognition and revenue growth.
Fisker’s Expansion in Europe
Fisker is making significant progress in expanding its presence in Europe. The company has begun delivering EVs in Denmark, Germany, and the United States in the second quarter, and it is set to introduce the Fisker Ocean electric vehicle in Belgium, the Netherlands, and Switzerland. Fisker is heavily investing in building Fisker Lounges and centers throughout Europe to support its expansion plans. Regional deliveries in Belgium, the Netherlands, and Switzerland are expected to commence at the end of September.
Fisker’s revenue base has quadrupled from the first to the second fiscal quarter of FY 2023. Although the revenue volume is still relatively low compared to established EV manufacturers, the company’s positive trajectory and projected increase in deliveries, particularly in Europe, indicate significant revenue growth in the second half of FY 2023.
Second Downward Revision in Production Target
Fisker’s production progress has been slightly lower than expected. However, the company’s expansion in Europe and its successful $340 million senior unsecured convertible notes offering in Q2 provide reasons for upgrading Fisker shares. In July, Fisker produced 1,009 Fisker Oceans, reflecting a 36% month-over-month growth compared to June. Earlier this year, Fisker adjusted its production target due to supplier challenges. Now, the company expects to deliver 20,000 to 23,000 EVs in FY 2023, representing a 37% decline from the previous outlook.
Fisker’s valuation is primarily based on projected revenue potential as the company is currently in the early stages of production and delivery ramps. Analysts have reduced revenue estimates for the current fiscal year, with a consensus estimate of $1.2 billion. However, significant growth is anticipated over the next four years, with projected annual revenue exceeding $10 billion, representing a 73% annual growth rate.
Compared to other EV manufacturers, Fisker’s shares are currently undervalued, with a price-to-revenue ratio of 0.6X forward revenues. Lucid Group has a forward P/S ratio of 7.1X, while Rivian Automotive trades at 3.2X forward revenues.
Risks and Final Thoughts
While Fisker successfully raised fundings through senior unsecured convertible notes offering, the company’s cash position and production ramp timeline pose risks. Fisker’s cash reserves, totaling $522 million at the end of Q2’23, should be sufficient to finance production until mid-FY 2024. However, compared to other well-capitalized EV companies like Lucid Group and Rivian Automotive, Fisker may need additional financing in the future. The reduction in production expectations may also test investor patience, potentially leading them to turn to other promising EV manufacturers.
Despite the downward revision in production outlook, Fisker’s progress in scaling its presence across multiple European countries is noteworthy. As the company initiates deliveries in new markets, sentiment towards Fisker may improve. With increasing revenues and the launch of Fisker Ocean deliveries in Europe, Fisker is poised for significant growth.