Fisker stock is higher after the electric-vehicle start-up announced plans to raise money. Shares had been in the red ahead of the market open, and while a dip after any capital raise isn’t surprising, the move shows Fisker has access to the one precious resource all start-ups need: cash.
Monday, Fisker (ticker: FSR) announced it was raising $300 million in convertible notes by selling $340 million in face value at a 12% discount to an institutional investor. Fisker has the right to require the investor to buy another $113 million of the notes, and the investor has the right to buy another $227 million. The deal is expected to close Tuesday.
The convertible notes can be converted at $7.80 a share, subject to deal terms. Fisker stock closed Friday at $6. Shares were down more than 5% in premarket trading, but have rebounded quickly and are up 1.5% at $6.09 a piece, while
S&P 500
and
Nasdaq Composite
futures are off 0.1% and 0.3%, respectively.
It’s not a surprise that shares were slipping. The convertible debt could potentially become about 100 million more Fisker shares, diluting the 367 million shares outstanding today. Each share now represents a little less of the company than before the issuance. As a consolation, however, investors don’t have to worry about interest payments, as the notes don’t pay any, one reason why they were sold at a discount to the face value.
Investors can also take solace in the idea that Fisker still has access to capital, even if the stock has dropped 36% over the past 12 months headed into Monday trading. Lack of capital claimed an EV start-up in June when
Lordstown Motors
(RIDEQ) filed for bankruptcy protection.
Building a car company from scratch is difficult and requires a lot of money.
Tesla
(TSLA) used roughly $9 billion before it began generating consistent free cash flow around 2019.
Fisker has chosen a more capital-efficient way to launch. It doesn’t own a manufacturing plant. Instead,
Magna International
(MGA) is assembling Fisker’s first vehicle, the Ocean SUV.
Still, Fisker has spent about $1.1 billion developing its business over the past couple of years, and Wall Street expects another $300 million in cash flowing out of the company in the final three quarters of 2023.
Fisker ended the first quarter with roughly $650 million in cash, which seems like more than enough for now. But make no mistake—it’s important to raise money before the need is critical.
Thankfully, Fisker seems to understand that.
Write to Al Root at [email protected]
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