Why Pricing, Not Design, Could Be the Key for Fisker Stock

Stock Market

Although I haven’t performed a full-scale assessment, recent opinions on InvestorPlace suggests that electric vehicle upstart Fisker (NYSE:FSR) doesn’t have too many fans. For instance, Thomas Niel suggests there are better options than Fisker stock in the EV space. Yes, the underlying company may have an intriguing business model but that alone doesn’t guarantee success. That’s especially true with competition screaming down the pipeline.

The Fisker logo hangs on display at the November 2011 International Auto Show.

Source: Eric Broder Van Dyke / Shutterstock.com

Even the articles that are technically supportive of Fisker stock don’t express their support with gusto. That’s perhaps best exemplified recently with Todd Shriber, who suggested to readers that FSR offers upside but that it probably won’t be a game-changing company like Tesla (NASDAQ:TSLA). Throughout these criticisms or heavily caveated compliments, there exists lingering skepticism.

And you can “blame” Fisker founder Henrik Fisker for that. As almost everyone will be quick to remind you, this isn’t his first rodeo. Several years ago, he introduced one of the world’s first luxury EV, which many still regard today as an artistic (if not technical) achievement. Yet as you know by now, the original company that bore the legendary automotive designer’s name failed.

Sadly, with failure comes a reputation for it, even if it was only that one time! Not helping matters is that current-generation Fisker has a similar aura to the original: a beautiful design that should attract customers, but will they actually come?

You never get a second chance to make a first impression. Fair or not, Henrik Fisker did not deliver in the initial round. Therefore, until this redemption arc reaches a satisfying crescendo, you will probably have more skeptics than outright supporters for Fisker stock. And to be perfectly honest, there is a long road ahead.

Look, FSR is part of my portfolio but on the “speculation” account. It’s something that I hope will pleasantly surprise me but won’t kill me if it doesn’t. But there just might be a chance here beyond the feel-good redemption angle.

The Design IQ of Fisker Stock Is More Important Than You Think

As I’ve mentioned in prior reports about Fisker stock, compelling design is one of the key elements of the underlying business model. Of course, aesthetics is subjective. However, I believe most people will agree: Fisker’s upcoming (hopefully) Ocean SUV is gorgeous, borrowing elements of premium European SUVs layered with some unique accoutrements.

Previously, I mentioned that design is also a competitive advantage. Basically, when everything looks the same as anything else, it’s hard to get consumers excited. Yes, the Tesla faithful will always buy anything that Elon Musk creates, even if it (I’m sorry) looks like crap. But how sustainable is such faith?

That’s a different story for a different day. What matters for Fisker stock is that the company can bolster its aesthetic appeal with its near-perfect price point. Assuming that everything else comes along in terms of production – of course, that’s a huge if – Fisker can make a huge impact in what my colleague Thomas Niel referred to as the mass-affluent (as opposed to the super-rich) market.

This is evident when you consider the average household income of buyers of select car models. For instance, when the Ford (NYSE:F) Fiesta was sold in showrooms, buyers had an average income of $59,000. Considering the starting MSRP of $14,260, the price-to-income ratio is 24%.

Interestingly, Tesla Model 3 owners, while operating at a much-higher income, have a similar ratio of 27%. This suggests that Model 3 owners are pragmatic, not wanting to break the bank for their vehicle purchase. The outlier is the Toyota (NYSE:TM), with a ratio of 35.5%. However, this is likely a function of buyers trusting Toyota’s reliable reputation than anything else.

Now, where it really gets interesting is the BMW X3 (a combustion engine SUV) and the Tesla Model Y. Both models feature a price-to-income ratio of at least 36% (from deduced data), indicating that consumers love the combo of SUV platform and attractive exterior, enough so to pay more money than they really should.

But the Fisker Ocean provides both elements at a lower cost of $37,499.

Very Interesting, Very Risky

If the Ocean can go to production and if these SUVs operate without unreasonable issues, Fisker stock would be a no-brainer. We’re talking about feeding America’s love of the SUV and of environmental sustainability at a lower price than the highly desirable (though “combustible”) BMW X3. This sells itself.

But as I said, and I’ll repeat it again, these are massive ifs.

To me, the narrative of Fisker stock revolves around whether you believe that Henrik Fisker has learned his lesson. I think he has. While he’s a creative genius, that doesn’t mean he’s a complete fool in other disciplines. But the aura of failure will continue to cloud the picture until Fisker does succeed.

Then again, if he does, then FSR probably won’t be such a great deal. That’s the choice you have to make.

On the date of publication, Josh Enomoto held a long position in FSR and F.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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