Fisker on the brink of insolvency?

Fisker’s insolvency is becoming more likely. As California-based electric car manufacturer Fisker announced in a stock exchange listing, talks with a major car manufacturer about an investment have failed. As a precautionary measure, the shares have already been suspended from trading.

Just recently, Fisker announced that talks with an unnamed car manufacturer about a strategic partnership had been canceled. The potential partner was reportedly Nissan. The reason for the breakdown in negotiations is not known.

The end of the talks has prompted the company to “look for strategic options, including in-court or out-of-court reorganizations and capital market transactions”.

Trading suspended

In light of the failed investment, the New York Stock Exchange has suspended trading in Fisker shares and plans to delist the electric car manufacturer due to the “unusually low” value of its shares. Fisker shares had closed at a price of 0.13 dollars on Friday and were trading at 0.09 dollars on Monday before the halt.

As Reuters writes, in the event of a delisting, Fisker must offer to repurchase its unsecured 2.50% convertible bonds due 2026. An event of default will be triggered for its senior secured convertible bonds due 2025. Without external funding, which should come from the automotive industry partner, among others, it is very unlikely that Fisker will be able to finance this buyback.

The company also states, “We do not currently have sufficient cash reserves or financing sources to satisfy all amounts due under the 2026 Notes or the 2025 Notes, and as a result, such events could have a material adverse effect on our business, results of operations, and financial condition.”

The financial situation is extremely tight

It has been known for weeks that Fisker’s financial situation is extremely tight. Not only did Fisker fall well short of its original delivery targets for 2023, but it also questioned its own future when presenting its financial figures at the beginning of March.

Such a statement is mandatory for listed US companies if current resources are insufficient to cover operations for the next twelve months. After this warning to investors, companies often still have time to find investors and turn things around.

However, in the case of Fisker, this has now become less likely. The potential partnership with a major car manufacturer, which would also include an investment, was mentioned in the balance sheet presentation.

In the middle of the month, it became known that Fisker was also preparing for possible insolvency with the help of lawyers. The biggest alarm signal came a few days later when production of the Ocean was stopped at Magna in Graz.

Officially, the six-week production pause was intended to “equalize stocks”. However, in view of the known financial situation, there were already fears at the time that Fisker might not have enough money to continue contract manufacturing.

Not a single copy of the Ocean was built in January. If the production of the only model and sales driver is interrupted, this emphasizes the seriousness of the situation.

The US stock market is now firmly expecting a Fisker insolvency, with only speculation about the timing. “I can’t say whether it is next week or next year, but it is inevitable,” Reuters quotes Thomas Hayes, chairman of hedge fund Great Hill Capital.

Not an easy task

Fisker Inc. was founded in 2016 and went public via a SPAC merger, with a valuation of 2.9 billion dollars. It is the second automotive company founded by Henrik Fisker. The first company, Fisker Automotive, developed a range extender saloon called Karma.

However, the company did not survive the 2008 financial crisis and was declared insolvent in 2013 despite millions in loans from the US government and a sale to investors.

It’s not an easy task to start a new car company in an already overcrowded automotive world. One of the big problems is the enormous amount of money required before revenues are coming in. A lot of start-ups in electric mobility are currently burning significant amounts of cash to try to survive.

An additional problem is that the electric car market is also getting overcrowded. Apart from the classic car manufacturers with much deeper pockets than Fisker, a stifling number of Chinese electric start-ups, often backed by the Chinese authorities, are flooding the EV market, which is also temporarily slowing down. The latter has also seriously tempered the initial enthusiasm of big financers for electrification.

Big dreams

The well-known Danish car designer had big dreams. Apart from its first car under the new company, the Ocean SUV, which subcontractor Magna produces in Austria, Fisker wanted to build a much smaller and cheaper car, the innovative Pear, with the help of Chinese giant Foxconn in the States.

Other projects included developing an electric super sedan (called Ronin) in England and an electric pick-up truck. It’s the latter that triggered Nissan’s interest in looking for an electric successor to its Navarra, leading to the negotiations between the two companies that apparently failed very recently.

When we had a long talk with Henrik Fisker a year ago, the flamboyant Dane was still very enthusiastic about his company’s future. It’s a pity that such a skilled designer is facing insolvency again.

Perhaps he should have stayed with Tesla at the time because Fisker drew the first sketches and proposals for what was later to become the Model S, a starting point for Tesla. But an independent and overtly confident mind like Fisker wouldn’t have lasted long at Elon Musk’s side.