 Hello, Andrew here. Welcome to my channel on investing. Today, I would like to talk about a failing EV company you may have heard about called Fisker Inc. After going public in 2020 and rising to almost 8 billion in market cap, Fisker shrank to a measly 73 million. Its shares are at risk of getting delisted from New York Stock Exchange. In 2024, the company issued a warning of a so-called doubt to continue as a going concern. In other words, Fisker is running out of money. If no further funding is secured, bankruptcy could be imminent. I think learning on mistakes of others is the most important thing in investing. History can teach us a lot and point us in the right direction. By the way, this entire video is my opinion based on my own research, so let's get started. A quick primer on Fisker Inc. Fisker was started by Danish automotive designer Hendrik Fisker in 2016. Hendrik Fisker is famous for designing luxury cars for BMW and Aston Martin. Some of his cars were featured in James Bond movies. This is not the first foray by Hendrik Fisker into car making on his own. He started a company with a similar name Fisker Automotive in 2007. After failing to make production progress, Fisker Automotive declared bankruptcy in 2013. Later, a Chinese car maker bought some of Fisker's automotive assets. So think of Fisker Inc. as a second attempt by Hendrik Fisker in producing cars. In my opinion, this failure could be a red flag if you were thinking of investing in Fisker back in 2020. The quality of management is one of the most important factors in stock analysis. We will talk about that later. The company went public when SPAC Bonanza was speaking in 2020. By the way, have you heard about SPACs or Special Purpose Acquisition Companies? They are all shell companies that can take firms public through so-called reverse mergers. We typically have 18 to 24 months to find a suitable acquisition target. For instance, take a case of Spartan Energy Acquisition Core. First, this SPAC pulled capital from investors and listed shares on New York Stock Exchange at $10 a share under the symbol SPAQ. Later, they combined with Fisker Inc. with only Fisker surviving after the merger. Later, the trading ticker changed from SPAQ to FSR. This is another red flag right there. They were known issues with SPACs before. These include potential conflicts of interest and pressures to complete merger before SPACs expire. A later study found that SPACs that completed mergers from July 2020 through December 2021 declined by over 60% by December 2022. This was 26% worse performance than a traditional IPO stocks. Of course, this could be a selection by asset play. Probably companies that decided to go the traditional IPO route were of a better quality. Fisker raised roughly $1.3 billion through stock issuance. They also incurred another $1.1 billion in convertible debt. So about $2.4 billion in total. As it stands at the end of 2023, only $395 million was left, including restricted cash. Compare this to the negative free cash flows of roughly $800 million in the 12 month drilling period. Fisker began production of cars in 2023 and made 10,193 Fisker Ocean EVs in total. The company remains gross profit negative. The first lesson to learn here is to be very careful with hyped up investment trends. If you remember back in 2020 or 2021, the EV IPOs were very hot and everyone thought that EV cars are going to the moon or something. But all these startup companies had only prototypes and no real production and mounting losses. As Elon Musk likes to say that it is very easy to show prototypes, but it's a completely different matter to produce this prototype at scale and profit. But many investors still bought into the trend and unfortunately got burned. Lordstown Motors is bankrupt, Faraday Future is on the brink of bankruptcy, and Fisker is trading 12 cents a share. So no matter how hyped up is something and formal getting into your psyche, it is key to stay critical. Probably the same thing applies with AI hype that is present today. In my previous video on AI ETFs, I covered three questions to ask yourself before investing in any investment thing. Once you start thinking about valuations or durability of a thing, the whole picture gets very muddy. And that's good. It forces an investor to be critical and selective. The second lesson from Fisker is that investors miscalculated competitive landscape for EVs. Let's say if Fisker started production in 2015, there was probably little competition. But fast forward today and almost every major car maker offers AV models. What's more, Tesla has been on a tier with cost reductions of about 50% every five years and offers less expensive models. And all this created lots of competition for Fisker. Curiously, major EV car makers such as Tesla or BYD are into vertical integration. Why? Because producing your own batteries and refining your own lithium generates cost savings and Fisker doesn't have these cost advantages. Moreover, for any EV maker to succeed long term, they must offer inexpensive mass market cars. And Fisker was starting with its initial models, mostly upper income households. And unfortunately for Fisker, Tesla and many other car makers were saturating this segment of consumers with their own luxury models for years. On top of all these troubles, the rising interest rates made Fisker's entry into US EV market even worse. The monthly payments on car loans got more expensive. And up to the injury also does slow down in EV demand. The growth rate is still positive in EV market, but it's falling. And this compelled many car makers, especially Tesla, to lower prices on its EV models, undercutting Fisker. The other thing that caused problems for Fisker was pursuing asset-light model. Instead of manufacturing their own cars, they had a contract producer. They hired Magna Steyr out of Austria to produce EVs for them. There's nothing wrong with this model if it's done right. But in my opinion, Fisker had many things not going right for them. First, Fisker had to import vehicles out of Austria, which made them ineligible for the federal tax credit of $7,500 and potentially other state tax credits. Also, this level of outsourcing made it very hard for Fisker to put things together. For instance, if you own your production, you know what's going on there and you can fix things quite easily because you know what's going on there. But when you have so many contractors doing so many things for you, it's very difficult to find where's the problem and bugs are inevitable. They were documented problems with Fisker Ocean Car. And to be fair to Fisker, they fixed those problems with time. But in my opinion, Fisker was too much in a rush to get those vehicles out to sell. And I think in the process, things didn't go as planned. The other lesson to learn from Fisker is that if one thing worked for one company, it may not work for the other. Like many other EV startups in Tesla, Fisker pursued a direct-to-consumer model to sell its cars. So in other words, instead of relying on auto dealers to sell its cars, Fisker was doing all these things on its own. These things include order handling, delivery, marketing and car registration. Last year, problems surfaced that Fisker was unable to handle these things. At Q3 of 2023, Fisker set on $530 million worth of completed vehicles at cost. Overall, Fisker produced 10,193 cars, but delivered only $4,929 in 2023. That is less than half. The typical gap between production and deliveries stands at less than 10%. That was a big miscalculation. Only with two facilities in Los Angeles and New York to deliver its cars, it was a tough going from the start. Moreover, I think Fisker has a low brand awareness. I think the reason why Tesla was able to pull it off is because of the brand and strong brand awareness among consumers thanks to Elon Musk. But Fisker you may have heard about Fisker, but many people don't even know about its existence. Relatedly, Fisker decided to pivot to dealership partnership program in 2023. And this could be for the better. But as with everything, this decision comes with trade-offs. Of course, auto dealers would want their piece of the pie in return for the work that they will do for Fisker. And Fisker would have been probably better off with higher margins had it succeeded with direct sales. And the final point has to do with management. Capable management is one of the main reasons whether a startup company fails or succeeds. And in my opinion, something went wrong with decision making at Fisker. Fisker's CEO is Henrik Fisker and his wife Gita Gupta Fisker is the COO and CFO. It's very unusual for family members to run business in public companies. It's more prevalent among private companies. But given the amount of mistakes, it's very surprising that Fisker didn't appoint a new CEO. But of course, in that case, Henrik Fisker would have to fire himself. But is it even possible, given that the Fisker family has 78% control over the company? On top of that, Fisker lost two chief accounting officers in a matter of month in 2023. And recently, they appointed a third one. Fisker deserves a lot of credit for introducing EV cars in a tough competitive and macroeconomic environment. They also have a plan for a less expensive car called Fisker Pair. But it takes a lot more than just to design a car, as I said. Scaling and selling at profit is the hardest thing in car manufacturing. According to Bloomberg, Fisker is in talks with Nissan to secure additional funding. They may also form a partnership to make Fisker cars. Fisker announced 15% job cuts, which partially reflects its shift to a dealer model. As of now, the fate of Fisker as a standalone company remains in question. So, the takeaway is this. Investors got too excited with EV hype back in 2020 and lowered their guard. There were plenty of early signs of trouble, but they were largely overlooked and ignored until it was too late. And of course, all this is easy to say with the benefit of hindsight. But still, we as investors can learn a lot from Fisker and we can learn from its mistakes to steer clear of losing propositions in the future. That is it for this video. I hope you got something out of it and you learned something new today. If you did, please give this video a like and subscribe to my channel for more content on investing. Thanks for watching!