A Major Electric Vehicle Maker Is Out Of Money?
Fisker Automotive is facing liquidity questions after a short seller’s report said its funds are tied up in bank guarantees on behalf of Magna International. The auto parts giant was recently contracted to build the car maker’s Ocean SUV. Now, the undisclosed legal restrictions could force the company to issue new stock to raise funds. Following the report by Fuzzy Panda Research, shares of the electric vehicle company fell by 5%.
With factory tooling and engineering costs, bringing a new vehicle to market can cost a billion dollars. And most of that total has to be spent before any units are shipped. Established automakers usually maintain cash reserves of $10 billion or more so they can continue to introduce new even if a recession cuts their profits. According to CNBC, a cash reserve is crucial to the success of an electric vehicle start-up like Fisker.
As the economic downturn looms, Fisker’s September 30th cash reserve of $824 million has provided some comfort to its investors. But if the company can’t access the funds, those feelings could be fleeting. Fuzzy Panda says that $790 million of the electric vehicle manufacturer’s cash is pledged to ensure that Magna’s factory tooling, manufacturing costs, and contractually guaranteed margins of $2,840 per vehicle are covered.
Because of those guarantees, the short seller says Fisker has been forced to use at-the-market stock offerings to continue funding its operations instead of tapping its cash. In an ATM, a firm issues new shares and sells them via the open market, at the prevailing price. As such, the electric vehicle company filed a registration statement with the Securities and Exchange Commission in May that allows it to raise a total of $2 billion from ATMs over time.
Fisker says it raised $118 million using use at-the-market stock in the third quarter. But Fuzzy Panda added that the electric vehicle maker will need to raise “significantly more” via that facility. The report also lists several indicators that the company has been trying to conserve money since early 2022. It also alleges that the Ocean is based on an SUV that Magna developed with a Chinese automaker, with at least 80% of parts carried over.
The report cites unidentified former Fisker and Magna employees as its sources. However, the electric car maker strongly denies the report’s key allegations. “Fisker Inc. does not have a bank guarantee with Magna, and owns the intellectual property for the Ocean platform,” the automaker said in a statement via CNBC. The company also insists that its Ocean design does not have 80% of carryover parts from any other platform.
Additionally, the electric vehicle start-up said it has sent a cease-and-desist letter to Fuzzy Panda and will take immediate and aggressive action to address these false and misleading claims. A spokesperson for Magna International Inc, the parent of Magna Steyr, declined to comment when quizzed on the matter by Yahoo! Finance. Meanwhile, Fisker said that it expects to build 42,400 Ocean SUVs by the end of 2023.