While starting to make revenue is usually a positive catalyst for any startup, that wasn’t the case with Fisker which is down more than 80% since delaying the release of its Q3 2023 report despite eventually releasing the report. That said, Fisker’s actions to increase the efficiency of its deliveries showed in its Q4 performance, and with its recent decision to adopt a Dealer Partnership model in North America, I expect sales to further ramp up in 2024. As such, I believe Fisker is a strong buy in 2024 as its valuation severely discounts its potential revenues in 2024.
**Q4 2023 Performance Is A Step In The Right Direction**
Fisker ended 2023 with 10,142 produced vehicles while delivering only 4700 vehicles. At first glance, that delivery figure could be considered as a sign of weak demand since it means that the company delivered only 46.34% of its produced vehicles. However, I don’t believe that is the case. In Q3 2023, Fisker produced 4752 vehicles and delivered 1097 vehicles, only 23.22% of the quarter’s production, due to the inefficiencies in the delivery process. Since then, Fisker’s management quickly addressed these inefficiencies by adopting a new strategy which led it to deliver more than 100 vehicles per day multiple times in Q4.
The results speak for themselves. Fisker’s deliveries per day nearly quadrupled from Q3 to Q4. With 63 working days in Q3 2023, Fisker’s 1097 deliveries were good for 17 deliveries per day. That figure spiked to 59 per day in Q4 which had 61 working days. However, what’s more positive is that Fisker’s deliveries are starting to be more aligned with production, which was why management scaled back on production in Q4.
During Q4, Fisker produced 4395 vehicles and delivered 3592, meaning that it delivered 81.37% of its production, a huge improvement from Q3. This percentage is even better than the more established EV maker Rivian which delivered 79.65% of its Q4 production since it produced 17,541 vehicles and delivered 15,564 during the same period.
The significance of that feat is that it should improve Fisker’s cash flow performance in Q4 and beyond if this trend continues. One of the negative aspects in Fisker’s Q3 report was the $305 million in operating cash outflow. This was mainly due to the company producing 4752 vehicles while only delivering 1097. This means that a significant portion of the cash used in operating activities went into production that wasn’t delivered yet.
However, since the company is now operating more efficiently, I don’t expect Fisker to report such a negative operating cash flow in the near future if its deliveries continue to be in line with production. As such, the growing talks of Fisker potentially going bankrupt soon are an overreaction in my opinion.
**The Advantages Of The Asset Light Model**
On that note, I believe Fisker’s asset light model is already successful since it doesn’t need a lot of cash to scale production. As is, Fisker had a COGS to sales ratio of 1.46 in Q3 2023. Meanwhile, its more established peers Rivian and Lucid had ratios of 1.36 and 3.41, respectively.
||LCID|RIVN|FSR|
|:-|:-|:-|:-|
|Q3 23 Revenue|$137,814,000|$1,337,000,000|$71,800,000|
|Q3 23 COGS|$469,722,000|$1,814,000,000|$104,548,000|
|COGS/Rev|3.41|1.36|1.46|
However, since Q3 was Fisker’s first full quarter of deliveries, comparing its performance during that quarter to Rivian and Lucid in Q4 2021 paints a better picture since it was their first full quarter of deliveries. At the time, Rivian’s COGS to Sales ratio was a staggering 8.09 while Lucid’s was 5.74. So with Fisker outperforming both of its peers when they were at the same stage as it is, and even outperforming Lucid after more than 2 years in the market, Fisker’s business model should allow it to reach profitability earlier than its peers in my opinion.
||LCID|RIVN|FSR|
|:-|:-|:-|:-|
|Rev|$26,392,000|$54,000,000|$71,800,000|
|COGS|$151,473,000|$437,000,000|$104,548,000|
|COGS/Rev|5.74|8.09|1.46|
*\*Each company’s first full quarter of deliveries*
**Dealer Partnership Model Will Boost Sales**
Although Fisker’s deliveries per day figures in Q3 and Q4 are still far from management’s target of 300 per day, it’s still an improvement and I expect that figure to further improve in 2024 due to the new dealer partnership model in North America.
According to CEO Henrik Fisker, the company’s sales were severely impacted by the lack of physical stores. Per the Q3 report, Fisker has around 63,264 reservations based on $15.8 million in deposits and a reservation fee of $250, most of which are from customers in the US. However, Fisker has only 2 showrooms in Los Angeles and New York which isn’t convenient for many customers. These locations also don’t sell vehicles or offer test drives but they allow potential customers to see and touch the vehicles.
So with the new dealer partnership model, more customers would be able to see Fisker’s vehicles and test drive them which is positively correlated to sales. A recent survey by CDK Global found that a staggering 88% of customers won’t buy a vehicle before test driving it first.
In addition to boosting sales, the new model would solve an issue Fisker is currently suffering from which is holding unsold inventory. This is mainly due to the dealer partnership model allowing manufacturers to book revenue once the vehicle is shipped from the factory without worrying about selling the vehicles or having to deal with the cost of holding unsold inventory.
Looking at Fisker’s Q3 report, a major negative thing was the $540 million increase in inventory from the beginning of 2023. This inventory included $256.6 million of finished vehicles, meaning that these vehicles are ready to be delivered. At an average price of around $65 thousand based on Fisker’s revenue per delivered vehicle, the company had around 3921 vehicles in inventory at the end of Q3.
By holding such inventory, Fisker could find itself in a similar position to Tesla which has been accumulating inventory over the past year and a half, according to Bernstein Research. This situation has led Tesla to slash its prices to spark demand and even offered additional discounts on cars in inventory since Tesla doesn’t have a network of franchise dealerships to lean on.
**2024 Revenue Prospects & Valuation**
Right now, Fisker is trading around $0.75 per share which gives it a $454.2 million market cap at an outstanding share count of 509.6 million per the latest Q3 report and the deal to convert some of the convertible notes. This is an extremely low valuation in my opinion considering the potential revenues Fisker could realize in 2024. In this section I will provide 3 scenarios for Fisker this year while assuming an average price per delivered vehicle of $51,166 which is the average selling price of the Ocean’s 3 trims.
Given that Fisker delivered on average 59 vehicles per day in Q4 2023, I expect that figure to increase in 2024 due to the new dealer partnership model. Therefore, my worst case scenario would be Fisker delivering 80 vehicles per day. Meanwhile, the most likely scenario is 100 deliveries per day since Fisker was able to exceed that figure multiple times in Q4. The best case scenario would be Fisker delivering 200 vehicles per day this year which would still be below management’s target of 300 per day.
With 251 working days in 2024, the worst case scenario would see Fisker delivering 20,080 vehicles, the most likely scenario would see the company delivering 25,100 vehicles, and the best case scenario would see the company delivering 50,200 vehicles in 2024.
Assuming a $51,166 average price per delivered vehicle, Fisker could realize just more than $1 billion in revenue in the worst case scenario, $1.2 billion in the most likely scenario, and $2.5 billion in the best case scenario. This means that Fisker’s forward P/S ratio in each scenario would be 0.37, 0.3, and 0.15 in each scenario, respectively.
|Scenario|Del/Day|Deliveries|Revenue|P/S|
|:-|:-|:-|:-|:-|
|Worst Case|80|20080|$1,027,406,587|0.37|
|Most Likely|100|25100|$1,284,258,233|0.30|
|Best Case|200|50200|$2,568,516,467|0.15|
As such, I believe Fisker is severely undervalued at its current valuation given that its competitors in the EV space Rivian, Lucid and Tesla are trading at 2024 P/S ratios of 2.4, 5.93, and 5.38, respectively.
**2024 Forward P/S Ratio**
|LCID
|RIVN|TSLA|Average|
|:-|:-|:-|:-|
|5.93|2.4
|5.38|4.57|
If we assume that Fisker trades at the same 2.4 multiple as Rivian, its price target in each scenario could be as in the table below.
|Scenario|PT|Upside|
|:-|:-|:-|
|Worst Case|$4.84|547%|
|Most Likely|$6.05|709%|
|Best Case|$12.10|1517%|
Meanwhile, using the average 2024 P/S ratio of Rivian, Lucid, and Tesla of 4.57, each scenario could result in the following price targets.
|Scenario|PT|Upside|
|:-|:-|:-|
|Worst Case|$8.58|1047%|
|Most Likely|$10.73|1334%|
|Best Case|$21.45|2769%|
**Risks**
While I believe Fisker is an opportunity at its current valuation, there are still some risks to consider. The first risk is that Fisker is trading below the $1 mark. As such, the company may have to resort to effecting a reverse split to maintain its NYSE listing.
That said, the biggest risk facing Fisker in my opinion is its financial situation. While the company has $527 million in cash on hand, I believe it might resort to another convertible debt offering this year if it’s unable to generate enough cash flow, especially with the company still on track to start manufacturing the Pear in the first half of 2025.
**Conclusion**
In conclusion, I expect Fisker to rebound in 2024 thanks to the promising signs it showed in Q4 2023. The EV maker nearly quadrupled its deliveries per day in Q4 from Q3 and its deliveries are now more aligned with production which I expect to have a positive impact on cash burn and inventory. Given that Fisker is now shifting to a dealer partnership model, I expect its deliveries per day to further increase in 2024, especially since it already delivered more than 100 vehicles per day multiple times in Q4 2023. With the stock trading at extremely low P/S multiples relative to projected 2024 sales as shown in my scenario analysis, I’m rating Fisker as a strong buy.
