Fisker Stock: Is There Any Value Left?

Granted, there have been times when a stock lost the majority of its value but then proceeded to make 2x, 5x or even 10x moves to the upside. However, for that to occur, the market has to somehow be wrong about the stock or company.

It remains to be seen whether the market is wrong to assign a very low value to Fisker, but the old phrase “cheap for a reason” seems to apply to FSR stock now.

Remembering the good times

When investments go awry, one can at least wax nostalgic about the sense of hope that accompanied the impulse to buy in the first place. In the case of Fisker stock, buying it hand over fist surely made perfect sense in 2021, when easy-money policy ruled the day and the electric-vehicle market looked like a wide-open field.

Then came not-so-transitory inflation, high borrowing costs and the Darwin-esque narrowing of the EV industry. Along with that, Tesla (NASDAQ:TSLA) enacted a series of price reductions that put tremendous pressure on its EV competitors.

Even with those contributing factors in mind, it’s hard wrap one’s head around the brutal drawdown in Fisker stock. It once traded above $29, but now, if you can believe it, the stock sells for just 13 or 14 cents.

The issue wasn’t with Fisker’s vehicles, which are sleek and powerful and have industry-competitive ranges. Furthermore, Fisker isn’t one of those pre-revenue start-ups that often go bust; in fact, Fisker’s revenue has actually grown over time.

Yet, evidently having fancy vehicles and growing revenue isn’t necessarily enough in a fiercely competitive EV market. In late February, Fisker raised doubts about its ability to continue as a “going concern” (two of the most frightening words on Wall Street).

With that bombshell, the automaker announced a 15% workforce reduction. It’s funny how job cuts are sometimes received well by investors but can also be viewed as an act of desperation. In this case, the layoffs weren’t well-received, and FSR stock tumbled.

Moreover, despite its growing revenue, Fisker acknowledged that its resources were “insufficient” to cover the next 12 months. The automaker admitted that unless it secures additional financing, it may have to reduce production of its flagship Ocean electric SUV.

On top of all that, a Form 12b-25 revealed that Fisker would be late in filing its Form 10-K annual report for 2023. Apparently, it needed “additional time to finalize the Company’s consolidated financial statements, finalize the assessment of its internal control over financial reporting and related disclosures, and complete its procedures for the Report.”

There was a potential light at the end of the tunnel, however. According to Reuters, Fisker teased that it was “in talks with a large automaker for a potential investment and joint development partnership.” Soon afterwards, it came to light that the automaker in question was Nissan (OTCMKTS:NSANY).

From bad to worse

The situation didn’t improve from there. Citing “people familiar with the matter,” The Wall Street Journal reported that Fisker had “hired restructuring advisers to assist with a possible bankruptcy filing.” Perhaps the only two more frightening words than “going concern” are “bankruptcy filing.”

You may remember how Fisker warned that it might have to reduce the production pace of its Ocean SUV. That wasn’t just an empty statement as it recently announced that it’s halting vehicle production for six weeks.

Additionally, Fisker announced a “financing commitment” consisting of the sale of up to $166.67 million worth of senior secured convertible notes. That’s fancy language for debt which Fisker will have to pay back with interest, and in today’s high-interest-rate environment, one shouldn’t be too surprised to learn that all that debt won’t be cheap.

To be more specific, the company revealed that the “2024 Notes will accrue interest at a rate equal to the 3-month secured overnight financing rate… plus 12% per annum, payable at the Maturity Date.” Additionally, Fisker “will pay interest on any overdue principal, installments of interest and Undrawn Investment Fees at a rate equal to 3% per annum in excess of the then-applicable interest rate on the 2024 Notes.”

Thus, it will be extremely important for the automaker to repay this debt in a timely manner — if possible. Whether that will actually happen is one of many known unknowns for Fisker, and its investors are taking a huge gamble even at the current, rock-bottom share price.

As a result, while beaten-down FSR stock might look like a good value, just remember that the appearance of value isn’t the same thing as actually being valuable.

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.