Jubilation has turned to agony in the electric vehicle space. Particularly for EV names that came public via special purpose acquisition companies (SPACs), we’ve seen unrelenting declines for three straight months now. Fisker (NYSE:FSR) stock has gotten caught up in the bloodbath; its shares are down from a high of $32 to just $14 now.
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Yet, while some of these EV stocks are never going to recover, it’s too early to give up on Fisker entirely. The company still has a decent shot at success, given its stylish vehicle designs and differentiated business model.
Fisker: All Eyes On 2022
Fisker doesn’t yet have commercial production of its vehicles. The company, if all goes to plan, intends to start selling its Fisker Ocean vehicles later next year. So, like many other EV companies, investors have to take a wait-and-see approach here.
CEO Henrik Fisker previously led an automobile start-up that went bankrupt. This could be a plus or a minus. A failure may indicate a lack of sound business judgment. However, it’s quite possible the CEO learned from mistakes and will chart a better course this time.
In addition, the market for EVs has grown substantially in the interim. Success should be easier now than it was a decade ago.
While Fisker’s business acumen remains to be seen, his capability in actual vehicle design is not in doubt. He has designed numerous famous vehicles, such as the BMW Z8 which played a central role in one of the James Bond films.
Given that most EV companies aren’t producing revenues yet, so much of the game currently comes down to which story seems more credible. Fisker, with a track record of sleek well-received vehicle design, is well ahead of many rivals at least on that front.
Differentiated Business Model
Another key element to the Fisker story is that it won’t manufacture its own vehicles, at least not from the beginning. Rather, it will use large contractors, such as Foxconn, to build Fisker’s vehicles. This will allow the company to focus on design and marketing rather than getting trapped in manufacturing quagmires.
Looking at Tesla (NASDAQ:TSLA) and its journey over the years, Elon Musk could have saved a great deal of headache by letting other people handle production instead of doing it at Fremont.
By having contractors do the industrial work, it also frees up Fisker’s capital. Factories are expensive, as is holding inventory and raw goods. Fisker should have a healthier balance sheet and avoid any near-term bankruptcy risk by not saddling itself with huge capital expenditures.
Instead, Fisker seeks to earn higher profit margins by going heavy on a leasing model for its vehicles. In charging consumers for financing, Fisker aims to earn its profits in part that way while being able to offload the manufacturing bit. We’ll see if Fisker achieves financial success once the Ocean launches.
In any case, it should be a lower-risk business model than doing everything in-house.
A High-Yield Options Strategy
Are you confident about Fisker’s long-term outlook but not sure about its short-term price fluctuations? FSR stock looks a decent opportunity to sell volatility. Given the massive decline in FSR stock, traders have bid up crash protection in Fisker through the roof. That is to say, implied volatility is extremely high.
For example, as of this writing, Fisker’s January 2022 $10 puts are selling for $2.20. The put seller would earn $220 per contract, and get to keep that outright if FSR stock is above $10 in January of next year. Meanwhile, if shares end up below $10, the put seller would keep the $220 and get stock assigned at $10, thus getting an effective cost basis of $7.80 per share of FSR stock.
Given that Fisker is currently at $14, this gives the put seller a ton of downside room before running into any trouble. If you like the stock at $14, it should be especially attractive at $7.80, after all.
Meanwhile, if Fisker rallies from here, the put would generate $220 of profit on $1,000 of deployed capital, working out to a greater than 25% annualized yield. If you are generally optimistic on Fisker and wouldn’t mind owning FSR stock at a much cheaper entry point, put writing looks attractive right now.
FSR Stock Verdict
Fisker finds itself in a bit of a difficult position. EV SPACs are now guilty by association. After watching so many SPACs get hammered, everyone now assumes the worst. Until a company has revenues and cash flow, valuations may stay depressed. Fisker’s first vehicle launch isn’t coming until next year, so expect more choppy waters ahead for FSR stock.
If you do want to play the long side here, consider using options strategies. Bears are so confident that Fisker is heading for a crash that they’ve driven up option prices to the moon. That sets up some ways to profit from Fisker stock even if shares remain at a relatively low level in coming months.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.