A Look At The Fisker Inc./Spartan Energy Acquisition Inc. Merger (NYSE:SPAQ)

This article first appeared on Trend Investing on July 16, 2020; therefore all data is as of this date.

Recently it was announced: “Fisker Inc. to list on NYSE through merger with Apollo affiliated Spartan Energy Acquisition Corp. (SPAQ).” Essentially this is a merger deal for Fisker Inc. to raise capital and achieve a listing via a special-purpose acquisition company [SPAC] (in this case SPAQ). Investors can buy SPAQ now and become Fisker Inc. shareholders after the transaction completes in H2 2020; when I expect a company name change to Fisker Inc.

Note: SPAQ initially listed at $10 per unit, and included a warrant (SPAQ-WT) exercisable at $11.50. SPAQ-WT currently trades at US$3.85.

Spartan Energy Acquisition Corp. [SPAQ] stock price chart (Price = USD 14.75)

Source: Yahoo Finance

Details of the SPAQ/Fisker Inc. transaction

  • The transaction to provide more than $1 billion of gross proceeds to the company [SPAQ], including $500 million fully committed common stock Private Investment In Public Equity [PIPE] at $10.00 per share anchored by existing and new investors – including Moore Strategic Ventures, Alliance Bernstein, funds and accounts managed by BlackRock and Federated Hermes Kaufmann.
  • Proceeds to fully fund the development of the all-electric Fisker Ocean through start of production in 2022.
  • Pro forma equity value of the merger is approximately $2.9 billion, at the $10.00 per share PIPE price and assuming minimal Spartan shareholder redemptions.
  • Combined company Board of Directors will be comprised of existing Fisker Board members and an Apollo designee.
  • Transaction advances on Fisker’s mission of creating the world’s most emotional and sustainable vehicles – and upholds its vision of a clean future for all.
  • The deal is expected to close in Q4, 2020.

Source

About Fisker Inc.

Fisker Inc. state that they are “revolutionizing the automotive industry by developing the most emotionally desirable and eco-friendly electric vehicles on Earth, supported by advanced mobility solutions”. The proposed transaction is anticipated to provide Fisker the necessary funding to bring its first product, the Fisker Ocean, to production in late 2022.

The background on Fisker Inc.

Wikipedia summarizes well stating:

Fisker Inc. is an American electric vehicle automaker founded by Henrik Fisker. Launched in 2016 and based in Southern California, Fisker Inc. is the relaunch of the Fisker brand previously known as Fisker Automotive (founded in 2007 by Henrik Fisker), which produced the Fisker Karma. Fisker Inc. is developing the Fisker EMotion, an all-electric sedan that will have a 400-mile electric range; an autonomous, all-electric shuttle called the Fisker Orbit; and a mass-market electric vehicle SUV called the Fisker Ocean. In addition to designing and developing electric vehicles, Fisker Inc. has filed patents pertaining to solid-state battery technology for use in automotive, consumer electronics, and other industries.

Note: Fisker Inc. founder Henry Fisker’s first company Fisker Automotive ran into problems. Production of the Fisker Karma was suspended in November 2012 due to bankruptcy of its battery supplier A123 Systems.

About Henry Fisker

Wikipedia quotes:

Henrik Fisker (born 10 August 1963) is a Danish-American automotive designer and entrepreneur residing in Los Angeles, California. He is best known for designing luxury cars including the BMW Z8, Aston Martin DB9, Aston Martin V8 Vantage, Fisker Karma, Galpin-Fisker Mustang Rocket, VLF Force 1 V10, VLF Destino V8, Fisker EMotion, Fisker Ocean, and Fisker Orbit.

Source: Fisker

Fisker Inc.’s points of difference

Fisker Inc. plans to be the world’s first digital car company, sitting in the “premium affordable” category, competing with other fully electric car manufacturers such as Tesla (TSLA). Being digital, this means sales will be done online (including a mobile app). Fisker Inc. does intend to have numerous immersive brand experience centers where customers can visualize and buy Fisker cars. Fisker Inc. will be more a car designer and seller, as the Company intends to outsource manufacturing and after sales servicing.

The manufacturing outsourcing is currently at the advanced stage of talks with Volkswagen [Xetra:VOW](OTCPK:VWAGY) (OTCPK:VLKAF), with the intended plan to use VW’s MEB electric vehicle platform and take advantage of VW’s economies of scale and supply chain. This includes at least the batteries, the chassis, and software with further details and a final agreement expected in July 2020. A Fisker Inc./Volkswagen MOU was completed in 2017.

By outsourcing manufacturing and servicing, Fisker Inc. aims to reduce initial CapEx, production risks, and focus on car design, marketing and selling.

Source: Fisker

Fisker Inc.’s first electric car the Fisker Ocean

The Fisker Ocean is a fully electric SUV with premium styling and features and has been designed to be the world’s most sustainable vehicle, including extensive use of environmentally friendly and recycled materials. The Fisker Ocean will also be available to consumers through an innovative leasing package, optimized for driver convenience and accessibility. The vehicle has won numerous awards since its debut at the Consumer Electronics Show earlier in 2020, highlighting strong market reception for this type of vehicle and for the Fisker ethos of appealing design and sustainability.

The Fisker Ocean fully electric SUV will come in 3 versions and have a range of 250–300 miles. It is now available for orders and selling from ~US$30,000 after US subsidies, or ~US$37,499 if no subsidies for the base model. Upgraded models include Sport (US$47,999), Power Sport (US$59,000), and Extreme (US$69,900).

The Fisker Ocean – ~US37,499 (~US$30K after subsidies), production aim to begin by Q4, 2022

Source: Fisker

As of June 2020, Fisker Inc. has received 5,500 reservation deposits for the Fisker Ocean, 90% from North America, amounting to US$275m of indicative revenue. The Fisker Ocean was the most awarded new automobile of CES 2020.

Fisker Inc.’s next vehicles and estimated timetable for development

After the Fisker Ocean SUV in late 2022 will be the Fisker Emotion sedan planned for ~2023. At this stage Fisker Inc. is planning to release 8 BEV’s including affordable luxury SUV’s, sedans, crossovers, and pickups; as well as other luxury and performance vehicles. Future Fisker-led manufacturing facilities also are a possibility.

Fisker Inc. key management

Valuation discussion

Valuing a new EV start up these days is not easy given the complexity of assumptions and risks involved.

The Fisker Inc’s pro-forma ‘equity’ valuation guide is US$2.9b and is based on ~290m shares outstanding (also when the SPAQ price was US$10.00). Fisker Inc. existing shareholders will retain about 60% pro-forma equity in the new merged company which is a good sign. There may be some trading from early investors in SPAQ or later Fisker Inc. wanting to take profits as well as warrant holders possibly causing some minor dilution, so I would expect some volatility along the way.

When we consider Tesla who is about 10 years ahead of Fisker trades on an enterprise value of ~US$290b, then one can argue that buying Fisker at US$3-4b is either crazy or a good bet. I think the later, but investors should not invest more than they can afford to lose as the risk is high.

Below is a comparison by market cap which shows Fisker Inc./SPAQ to be priced relatively well by comparison to the main peers of NIO Inc. (NIO), Nikola Corp. (NKLA), and Tesla.

Market comparison of pure EV peers

Company

Fisker Inc./SPAQ

(SPAQ)

Workhorse

Group

(WKHS)

NIO

Inc.

(NIO)

Nikola

Corp.

(NKLA)

Tesla

Inc.

(TSLA)

Market cap [USD billion] pro-forma 3 to 4 1.49 16.16 19.7 286

Risks

  • The usual completion risks involved when using special-purpose acquisition companies.
  • Fisker Inc. has numerous challenges and risks ahead. For example the Volkswagen manufacturing deal is not yet finalized or approved by Volkwagen (expected to hear on this July 2020).
  • EV production risks – Delays, costs overrun, supply chain issues etc. In this case Fisker Inc. will most likely be relying on a third party partner.
  • Competition – There are numerous EV start-ups as well as the existing EV and ICE companies all fighting for market share in what can be a low margin industry.
  • Management risks (Henrik Fisker is a great designer, but can he run a car manufacturing business. Fisker Automotive failed to succeed.)
  • Business risks – Debt, currency etc. At least Fisker Inc. appears to now be well funded (Cash ~US$1b) to reach production of the Ocean EV assuming they succeed with an outsourcing manufacturing partner.
  • The usual stock market risks (liquidity, dilution, sentiment etc).

Further reading

Conclusion

The best thing about the SPAQ/Fisker deal is that the US$1b funds raised is expected to fully fund Fisker to reach production of the Fisker Ocean BEV by late 2022, thereby significantly reducing pre-production funding risk for Fisker’s first EV.

Fisker is still at the early stages with a 5,500 reservation deposits on a great looking and popular ‘affordable luxury’ prototype BEV (Fisker Ocean SUV) due for a late 2022 production start. All going well the Company will have accelerating revenues from 2023. Fisker expect to make a profit on every new car due to their low CapEx/overhead outsourcing strategy also involving digital sales with no dealers.

Valuation is difficult due to the early stage and many assumptions. Despite this SPAQ/Fisker Inc. [SPAQ] looks to be a worthwhile asymmetric risk versus reward bet, with risk being 100% capital loss and reward being a possible multi-bagger.

I rate SPAQ (aka Fisker Inc.) a worthwhile speculative buy, using only money that investors can afford to lose.

As usual all comments are welcome.

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Disclosure: I am/we are long SPAQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.

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