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The fact that the electric vehicle (EV) industry is undergoing massive turmoil grows more obvious by the day. Last week, EV startup Fisker (FSR) - which, like most of its peers, opted to go public via a special purpose acquisition company (SPAC) merger - issued a “going concern” warning, which is often the boilerplate language that comes before a bankruptcy filing.
Already, several startup green energy companies have gone bankrupt over the last two years. The list includes names like Arrival (ARVLF), Bird Global (BRDSQ), Lordstown Motors (RIDEQ), Electric Last Mile Solutions (ELMSQ), and Proterra (PTRAQ) – all of which rode the SPAC wave to go public, just like Fisker did.
Fisker’s going concern warning hasn’t come out of the blue, either, as the company is on the list of financially strained EV companies with a fast-depleting cash pile. Could Fisker be the next EV company to go bankrupt, or will it stage a turnaround, like Chinese EV company NIO (NIO) did back in 2020? We’ll discuss in this article.
Fisker Issues a “Going Concern” Warning
While releasing its Q4 earnings, Fisker cautioned, “there is substantial doubt about its ability to continue as a going concern,” and its current resources won’t “satisfy its requirements over the next 12 months.”
Fisker is taking several measures to address this, like shifting to a dealer model from direct sales, trimming its headcount by 15%, and cutting back on capex to lower its cash burn, as CEO Henry Fisker warned of “another difficult year.”
Those assurances failed to cut any ice with markets, and FSR stock fell to an all-time low of 38 cents on Friday before recovering slightly to close at 48 cents. This puts the startup EV company’s market cap at around $284 million, based on the outstanding share count that the company outlined during the Q4 call.
How Is Fisker's Current Financial Position?
Fisker had cash and cash equivalents of $325 million, plus another $70 million as restricted cash on its balance sheet at the end of 2023 - but that cash pile has since dwindled by an amount the company did not specify. In addition, the company had $530 million in the form of finished cars and prepaid raw materials on its balance sheet, which it is looking to monetize in the first half of the year.
What Is Fisker Doing to Fend Off Bankruptcy?
In addition to changing its business model from direct sales to the more traditional dealer model that legacy automakers like Ford (F) and General Motors (GM) use, Fisker announced a flurry of measures that will help to strengthen its balance sheet. These include:
- Rationalizing capital allocation: Fisker is prioritizing its capital allocation by focusing on Alaska pickup trucks while delaying Project Pear – the low-cost SUV platform on which it partnered with Apple (AAPL) supplier Foxconn.
- Strategic partnerships: During the earnings call, Fisker said that it is in “negotiations with a large automaker for a potential transaction which could include an investment in Fisker, joint development of one or more electric vehicle platforms, and North America manufacturing.” While the company did not name the company for obvious reason, Reuters reported that it is in “advanced talks” with Nissan (NSANY), which could invest over $400 million in its truck platform.
- Raising more cash: In its earnings release, Fisker admitted that it would need to raise cash, either through debt or equity. It is making some progress on that front, and said that the company is in “discussions with an existing noteholder about potentially making an additional investment in the company.”
Along with the massive cash burn, which is a problem that the entire startup EV industry is facing, Fisker is also in the crosshairs of the U.S. National Highway Traffic Safety Administration (NHTSA). The regulator has received 63 complaints about the Fisker Ocean, and opened two preliminary probes earlier this year into claims of loss of braking performance and unintended vehicle movement, respectively.
Can Fisker Pull a NIO and Get Over the “Going Concern” Debacle?
We have at least one example where an EV company overcame the “going concern” debacle. It was almost four years ago, in March 2020, when NIO issued its own going concern warning amid continued cash burn and the COVID-19 pandemic.
Soon enough, the company secured funding from strategic investors, including the Chinese government. Its financial performance also turned around, and the company’s gross margins turned positive in Q2 2020, with further improvement to double digits in the back half of the year.
Markets also rewarded NIO for the turnaround. The shares jumped over 1,100% in 2020, and the Chinese EV company soon became a $100-billion market cap behemoth. That said, NIO’s fortunes have since nosedived, and it has closed in the red in all subsequent years. NIO stock is trading with a YTD loss in 2024 so far, as well.
To be sure, NIO’s rise in 2020 was aided by a broad-based optimism towards EV stocks. Cut to 2024, and market sentiments towards EV stocks are quite pessimistic. To stage a recovery, Fisker needs to raise capital at terms that aren't too unattractive - and at the same time, improve its deliveries as well as margins. None of these tasks will be easy, especially given the macro situation and the brutal EV price war, which has only been escalating.
A Fisker Bankruptcy Is Not Imminent Yet
While Fisker’s bankruptcy is not imminent as of yet, I believe EV bankruptcies will eventually become a self-fulfilling prophecy, as the troubles at startup EV companies might discourage buyers from purchasing cars from financially troubled companies.
A car buyer looks for years in terms of commitment from the manufacturer for post-sales support and service – and with newer cars, even software updates. As concerns grow over the viability of startup EV companies, I fear more buyers might choose models from financially strong companies like Tesla (TSLA), which makes the survival of startup EV names - especially those with a “me-too” sort of product proposition - even tougher.
As for Fisker, a partnership with a large automaker could be the first step as it strives to recover from its record lows. The shares are indeed in the green today on reports of Nissan investing in the company, but I believe the partnership - if it were to happen at all - would be the initial step, and not the final destination, as Fisker tries to fend off a bankruptcy which could sadly be the fate for more EV startups.
On the date of publication, Mohit Oberoi had a position in: NIO , TSLA , AAPL , F , GM . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
