Fisker Stock Looks Better in the Long Term After Its Recent Rally

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Electric vehicle start-up Fisker (NYSE:FSR) stock rose by more than 6.2% during Monday's trading session as bullish spirits engulfed electric vehicle (EV) stocks during the day. It trades today at about $17.40 up almost $2 this week.

Source: T. Schneider / Shutterstock.com

Although the Fisker Ocean, the company's first production is still to roll out from a Magna International (NYSE:MG) owned production line by November 2022, FSR stock still surged on an industry leader's production results.

Fisker's stock rose as sentiment on EV stock was moved, boosted and lifted by a strong 13.5% rally in Tesla (NASDAQ:TSLA) stock during the trading session.

Tesla announced record delivery numbers on Jan. 2. The company delivered 308,600 vehicles during the fourth quarter of 2021, up 71% from a comparable quarter in 2020. Annual deliveries for 2021 increased by 87% year-over-year to 936,172 cars.

Actually, Tesla sold more cars than it produced during the past year. This is especially true for Tesla's Model 3 / Y product category.

Production numbers were 305,840 for the fourth quarter and 930,422 vehicles during the past year. It's good that the company kept some inventory.

Fisker Ocean's Model Y Association Lifts FSR Stock

Demand for EVs is evidently growing strong as the world transitions from environmentally unfriendly internal combustion engine (CE) powered vehicles. This is a positive for FSR stock.

Once believed to be a potential Model Y fighter at Motortrend, the Ocean is a vehicle of interest as Model Y sales surge. Customer reservations for the Ocean rose in December to surpass the 23,500 mark by year-end 2021. The company expects to invoice a cool $1.3 billion from the current order book.

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The big question is whether demand will also be similarly strong for Fisker's Ocean as it hits the market later this year. Most critical is whether FSR stock investors will see Henrik Fisker's second attempt at creating a fledging EV company be as profitable as Elon Musk's Tesla, and succeed at picking the best production partners this time around.

Fisker's first car manufacturing company folded in 2013 after a couple of bad breaks. First, its Karma electric sports car failed to gain traction in the premium vehicle segment, then the company's sole battery supplier filed for bankruptcy after two catastrophic product recalls.

Given how the short interest on FSR stock has been rising since January of last year, it's clear that short sellers believe the new Fisker Inc. will follow the same route and trajectory as the old Fisker Automotive which filed for bankruptcy.

They could be very wrong.

It seems like the entrepreneur has pieced every critical together for success this time.

Partnering With Giants for Gigantic Success

The new Fisker believes it is building an "asset-light" automotive business that will be among the first of its kind and aligned with the future state of the automotive industry.

Central to this ambitious claim is the company's proprietary design process, dubbed the Fisker Flexible Platform Agnostic Design. This process allows the company to outsource production to Tier 1 industry giants while avoiding costly investments into manufacturing capacity.

It's a model that has worked profitably for tech giant Apple (NASDAQ:AAPL) which outsources production, as well as rising silicon designer Advanced Micro Devices (NASDAQ:AMD).

It appears unfair to list AMD and Apple in the same category as Fisker today, of course. The two are proven masters at their crafts, while the latter once faltered in the car-making business.

However, considering the successful deals Fisker has inked a turnaround in that attitude might be in order. In addition to its already functional partnership with Magna Fisker inked a deal with key Apple supplier Foxconn. Investors may be confident that earlier product failures could be mitigated with such tried and tested partners on board.

Magna has worked with high-quality global brands including Mercedes Benz maker Daimler, BMW, Toyota, and Jaguar, and has been into EV production since 2018.

Although it's still early days to tell if the company will successfully "use partnerships to drive rapid scale, de-risk execution and preserve capital in areas where differentiation not consumer-critical" as its current investor presentation claims, it's easy to believe that Magna alone can help it exceed the 200,000 – 250,000 annual production target by 2025 for its planned four car model offerings.

The Bottom Line on FSR Stock

Perhaps the biggest challenge investors should worry about is whether the Fisker Ocean and future iterations will find enough favor among customers.

The company will have to rack up plenty of orders to keep Magna and Foxconn interested in working with Henric's "cheap priced" luxury SUV car designs.

If the two key production partners do, then FSR stock could fly much higher over the next five years. Before then, market performance for Tesla's Model Y could provide a gauge for potential demand growth in Ocean's target market segment, and recent category results seem promising.

That said, as long as the company remains a pre-revenue stage project, its valuation remains highly volatile.

As a growth investment, most of FSR stock's value still depends on bullish expected future opportunities and is lifted by some bouts of market enthusiasm – just like during Monday's trading session.

I wouldn't personally bet against the stock, but wouldn't load up the truck creating a significant portfolio exposure either. Small bets in 2022 should suffice as we wait out to study the Ocean's uptake and reviews next year.

On the date of publication, Brian Paradza did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term "madness." You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.

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