Buy Fisker shares because the electric vehicle maker is a ‘light asset’

Fisker shares were up around 6% at the start of the session. the

S&P 500

and

Dow Jones Industrial Average

were near the breakeven line.

“Fisker plans to bring [battery electric vehicles] to market in a differentiated way, using third-party BEV platforms and contract manufacturing, ”Spak wrote in its coverage initiation report. Fisker will not own its auto factories. Essentially, it will be about designing and marketing cars.

The company uses

Magna International

(MGA) to build its first product, an electric sport utility vehicle called the Ocean. He has a partnership with Foxconn, the company that assembles iPhones, to build his second car.

“It takes advantage of the billions of dollars the industry is pumping into the market,” Spak wrote. Rather than spending to build factories, Fisker can save his money and buy batteries developed by third parties. In addition, Foxconn wants to get into the automotive business, so it is willing to spend the money to build assembly facilities.

The switch from traditional automakers who own all of their own manufacturing is possible because electric vehicles could be less complicated than traditional cars. Batteries and electric motors are more like commodities than the four-cylinder engines common in cars today.

“Yes [Fisker] can meet our expectations… we see potential for significant equity value creation, ”Spak said. He projects $ 10 billion in revenue by 2025. “We see a 5: 1 risk / reward ratio in our positive / low case.”

In its most bullish case, Fisker shares could hit $ 61. Its more bearish forecast puts it at $ 8. That’s an increase of about $ 42 from Wednesday’s levels and a drop of $ 11, meaning the potential gain is about four times the possible loss. This number is a little lower than the 5: 1 ratio cited by Spak, but it remains attractive. Risk / reward ratios are a good way to think about investing in startups that don’t have revenue.

Ocean shipments are expected to begin in 2022. Spak models 3,000 shipments in 2022, reaching 216,000 by 2025. With its lightweight operating model, Spak believes the company can generate $ 875 million in free cash flow in 2025.

Spak isn’t the only one with a bullish outlook. Seven out of 11, or 64%, of analysts covering the stock rate stock at Buy. The average purchase ratio of S&P shares is around 55%.

EV companies don’t have to be light assets to excite investors. Fisker stock is worth around $ 6 billion, but Lucid Motors, which merges with

Churchill Capital Corp IV

(CCIV), is worth around $ 43 billion. Lucid, like Fisker, doesn’t have sales, but he has his own manufacturing facility and believes manufacturing control is a competitive advantage.

Fisker shares are up around 23% year-to-date, better than the market. Still, stocks are down 43% from their 52-week high. The stock of electric vehicle start-ups was volatile in 2021.

Write to Al Root at [email protected]