Fisker (NYSE:FSR) stock has been seen by many as an EV play whose time has come, but that seems to be the pitch on many if not most EV stocks.
The automobile industry is going through a massive change since the proliferation of electric vehicles.
As countries continue to work towards a better environment, there is a push for cleaner technologies which has led to a surge in the use of electric vehicles.
The EV industry is expanding and companies like Fisker are working towards making a mark in the crowded EV market. FSR stock has shown volatility lately and is trading at around $13.50 today.
Despite being unprofitable and not having a single car on the road, Fisker has garnered a lot of attention and publicity. However, the stock has been tanking over the last few months.
It went from $24 in March 2021 to $19 in May and has been trading in a similar range since then. I do not think there is much hope for the stock at this point in time.
I would avoid investing in FSR stock until production begins. With that in mind, let’s dig deeper into the investment case of FSR stock.
A Closer Look at FSR Stock
China’s recent crackdown on technology companies had a huge impact on EV stocks and we saw a dip in several stocks after the announcement. The regulatory scenario will continue to remain challenging for Fisker as more regulations will be due over the next few years.
The regulations were targeted at technology companies but it could have an impact on EV makers. Even though Fisker has not started production yet, the Chinese crackdown could lead to a dip in the stock in the future.
I have previously written about how everything related to Fisker’s EV is only speculation. Production has yet to begin, and we have not seen a single car on the road. How consumers react to the car will decide the fate of the company is the only thing that matters, and we simply don’t know how that will be.
Additionally, the competition in the industry is intensifying and several EV makers including Nio(NYSE:NIO) and XPeng (NYSE:XPEV) are making strong moves to enter the European market.
Fisker will not have it easy. No matter the type of EV the company manufactures, it will have to incur significant expenses towards marketing and after-sales services.
The company is set to start production in 2022. How the company will fare next year, only time will tell. For now, it does not make sense to bet on speculation. FSR stock could decline further before it rises.
Fisker recently raised debt and issued $600 million worth of convertible notes. The notes are due in 2025 and are available only to qualified institutional buyers. The cash infusion of $600 will strengthen its liquidity position and allow the company to burn cash without any worry.
However, it could be a concern for shareholders. Sure, it may not happen anytime soon but the possibility remains. The potential conversion of debt notes into shares of the company could lead to heavy dilution and it is not something investors will be happy about.
The Bottom Line on FSR Stock
Fisker is certainly taking the right marketing initiatives to ensure that everyone’s eyes are on its production cycle. It has enough liquidity and is working on a model that can beat the top EV makers in the industry. But, to prove its worth, the production should begin on time.
Until then, we are only throwing words in the air.
I believe FSR stock will not show any upward movement until next year when the production begins. It could take another dip before that.
There are several other EV stocks to consider instead of putting your money in FSR stock.
All in all, avoid FSR stock.
On the date of publication, Vandita Jadeja did not have (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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.