Fisker Looks Like a Good Bet in the Crowded EV Industry

Fisker, which went public through a reverse merger with Spartan Energy Acquisition Corp. in October 2020, is down sharply from its highs. Is Fisker a good EV (electric vehicle) stock to buy and bet on the booming industry?

The EV industry is getting very crowded. On the one hand, most legacy automakers are launching electric cars. Then we have pure-play EV companies like Tesla, NIO, Li Auto, and Xpeng, which are producing electric cars. The third category belongs to companies like Fisker that are in the pre-revenue stage and plan to launch EV cars.

There has been a massive sell-off in EV stocks as well as SPACs. FSR stock fell to a low of $8.70 and joined several other stocks that have fallen below the SPAC IPO price. While FSR stock has recovered from its lows, it's still down almost 61 percent from its 52-week highs.

Fisker stock has rebounded after it announced a partnership with Foxconn for its second electric car project named project PEAR. Its first electric car, the Ocean SUV, will be made by Magna. Unlike Tesla and Lucid Motors, which are making cars at their captive plants, Fisker is going for tie-ups with third parties.

While I find companies with their captive manufacturing plants to be attractive plays, getting cars made at a third party makes sense for a lot of startup EV companies. Startups lack the capacity, skill sets, and funds to set up their own plants.

According to the estimates compiled by MarketBeat, Fisker has an average target price of $26.30, which is a 110 percent premium over the current prices. The stock has received seven buy, two hold, and two sell ratings.

Analysts have different views on the startup EV company. In April, Bank of America initiated coverage on FSR stock with a buy rating and a lofty $31 target price. However, only two days later, Goldman Sachs downgraded the stock from neutral to sell and slashed its target price from $15 to a street low of $10. Morgan Stanley has a street-high target price of $40 on FSR stock and the brokerage reiterated its ratings in April.

Since FSR is in the pre-revenue stage, we can’t value it based on near-term earnings. The company expects to start delivering cars in 2022. The analysts polled by TIKR expect it to generate revenues of $416 million in 2022.

Currently, Fisker has priced the Ocean SUV at a starting price of $37,499, while it intends to offer Project PEAR at $30,000. The pricing looks very competitive looking at other prices offered by other EV companies. The Ocean SUV is expected to have a range between 250–300 miles, which looks decent even though it's lower than what Tesla offers.

Meanwhile, Bank of America analysts find FSR stock undervalued. They based their estimates on the multiples for Tesla when the Elon Musk-led company was in its early stage. With expected deliveries of over 1.2 million in 2022, Tesla is now a full-fledged automaker.

FSR stock looks like a good buy at these prices. While it has seen a sell-off amid the bloodbath in growth names, it looks set to bounce back. Also, if you are looking at a cheaper alternative in the EV industry where companies like Tesla and NIO trade at exorbitant valuations, FSR could fit the bill.