Wall Street’s Tug of War: Goldman Sachs (GS) Pukes on Fisker’s (FSR) Prospects Even as Bank of America (BAC) and Morgan Stanley (MS) Champion the Bullish Thesis
Fisker (NYSE:FSR), the manufacturer of sustainability-focused electric vehicles, is now in the middle of a brewing tug of war between Wall Street titans as they reveal diametrically opposite theses regarding the direction of the company’s stocks price.
To wit, Bank of America (NYSE:BAC) spurred a vicious rally in Fisker shares earlier this week when analyst John Murphy initiated coverage of the stock with a ‘Buy’ rating. While acknowledging Fisker’s extended commercialization timeline, Murphy identified the company’s "interesting and attractive" Ocean SUV, platform sharing capability, and an industry-wide CAGR of over 30 percent as key bullish catalysts.
Then, Morgan Stanley (NYSE:MS) penned an equally bullish note on the same day, pegging a whopping $40 stock price target. Interestingly, this target translates to an upside potential of over 164 percent relative to yesterday’s closing price. The analyst Adam Jones also identified two thematic price targets, with the bearish scenario target pegged at $10 and the bullish one pegged at $90! The analyst continued to regard Fisker as his "top-ranked EV startup" and cited the company’s partnership with Magna and Foxconn as key catalysts.
Readers should note that Fisker has outsourced the manufacturing of its Ocean SUV to Magna Steyr Fahrzeugtechnik, a subsidiary of Magna International (NYSE:MGA). Magna will build the SUV on its FM-29 EV platform. Additionally, the company has also signed an MOU with Foxconn to manufacture a new EV, codenamed 'Project PEAR' (Personal Electronic Automotive Revolution). To wit, back in October 2020, Foxconn unveiled its own EV platform – dubbed the MIH. The platform will come equipped with a solid-state battery pack and an in-vehicle internet service. As per the details revealed by the company, the MIH platform will be modular and scalable, consist of a lightweight chassis and unibody design, powered by Stable Electrical / Electronic Architecture (EEA), and feature autonomous driving technology. While the Ocean SUV will start hitting the road from Q4 2022, Project PEAR will enter production in Q4 2023. Fisker is still searching for a suitable partner to source the battery packs for its EVs.
This brings us to today’s development. Goldman Sachs has now penned a new investment note on Fisker, pegging a ‘Sell’ rating and a $10 12-month stock price target. Goldman cited increasing competition as a key concern for Fisker, noting that the competitive landscape would become much more “daunting” by the time Fisker commences mass production in Q4 2023.
As a refresher, Fisker expects to start delivering 200,000 to 250,000 units in the “medium-term”. This timeframe roughly equates to 2025-2026. Moreover, by 2023, the company expects to earn a gross profit of $2,000 for every single unit of its base EV model that will retail for $39,000. This means that the company would be producing a gross profit of 5.128 percent on every unit. If we use linear interpolation and apply this multiple to the 2025-2026 ASP of $55,000, we can compute an expected gross profit figure of $2,820.40 per unit. Consequently, based on a sales volume of 225,000 units, which is the mid-point of the company's projected medium-term delivery goals, Fisker will likely earn a medium-term annual revenue of $12.375 billion (ASP of $55,000) and an estimated gross profit of $634.59 million (gross profit margin of 5.128 percent). Interestingly, Fisker is targeting a CAPEX and R&D budget of less than $1 billion, while a typical EV startup requires a budget of around $3 billion to $5 billion.
In light of this epic conflict on Wall Street regarding the future direction of Fisker shares, it is hardly surprising that the stock is under pressure today, currently down over 9 percent in pre-market trading.
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