The electric vehicle (EV) sector is tough, especially for startups with limited finance, weak demand, and inadequate production capacity. Fisker's (NYSE: FSR) losses and bad events are mounting. The NYSE recently warned that the company may be delisted. Here's what's wrong with the nascent EV company and what delisting would entail for stockholders.
To say Fisker is struggling is an understatement. The company's fourth-quarter net loss was $463 million, while its cash and cash equivalents dropped to $396 million.
Supplier issues and other delays limited 2023 production to just over 10,000 units. Unfortunately, the company's transportation system was too inefficient to deliver half of those vehicles to customers. Management is expanding its dealer network to boost delivery efficiency, but it hasn't worked.
Finally, the NHTSA has opened a preliminary evaluation for 2023 Fisker Ocean car unanticipated vehicle movement claims, adding to its problems. All of these difficulties lead management to say it "expects to conclude there is substantial doubt about [Fisker's] ability to continue as a going concern" when its annual financial statements for 2023 are submitted with the SEC.
The NYSE sent Fisker a non-compliance warning in February because its stock price had dropped below $1 for 30 days. Fisker management wants to keep the shares listed on the exchange and is researching ways to comply.
Consider a reverse stock split. This occurs when a firm replaces all investors' shares with a smaller number of higher-priced shares to preserve shareholders' stakes. This reduces shares outstanding but maintains the company's market cap
Fisker's 4-for-1 reverse split would cut its issued shares by three-quarters and treble their price from $0.34 to $1.36. This would raise the share price above $1 for delisting. Even if Fisker doesn't comply, its shares will move to the OTC market.
However, delisted stocks usually lose value for many reasons. OTC trading is less popular since institutional investors avoid equities not on major exchanges. Since delisting is seen as a sign of financial hardship and bankruptcy, share demand will normally drop.
Fisker investors will still own their shares after delisting, but they may have trouble selling them. Given the additional difficulties and the stock's expected decrease in value following delisting, most investors should sell before delisting. Investors should also trust Fisker management to bring the stock back into NYSE compliance. Fisker would rather avoid delisting, which would be another hassle.
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