TD Cowen downgraded Fisker Inc. (NYSE:FSR) to a Market Perform rating (From Outperform) and cut their 12-month price target on the stock to $1.00 (From $11.00) after the company announced Wednesday that they may be facing a possible NHTSA probe stemming from complaints associated with the Ocean's braking system.
TD Cowen’s initial assessment of the company was positive, recognizing promise in Fisker's robust contract manufacturing relationships, appealing vehicle price point, and asset-light production approach. However, due to the increasing number and frequency of challenges faced by the company, analysts have taken a step back in their evaluation.
The adoption of a new distribution strategy, persistent delivery issues, delays in meeting timelines, and a general softening in the broader EV market have collectively diminished the appeal of Fisker in TD Cowen’s eyes.
“While we still believe Fisker has the potential to be a player in the EV market, the inconsistency of delivery cadence, shift in distribution strategy and now an investigation into the Ocean's braking performance, give us pause in recommending the stock.” Wrote TD Cowen analysts in a note.
Yesterday, the National Highway Traffic Safety Administration started looking into braking problems with Fisker's Ocean SUV. Nine complaints, including one crash, led to this investigation.
The probe follows a year of negative news for the company, starting with production delays due to software issues. While regulatory probes are common, they could cause significant delays for a new manufacturer like Fisker, affecting finances and investor confidence.
Fisker also announced, earlier this month, a change in its sales strategy in North America and Europe.
In North America, they're moving to a dealer partnership model, while in Europe, they'll use a hybrid approach with both direct sales and dealers. They plan to start delivering vehicles to dealers in the first quarter of 2024.
However, their 8-K filing warns of risks, including potential cancellations and delays due to acquiring necessary licenses and permits for the new dealer model. State regulations might prevent direct-to-consumer sales during this transition, adding pressure to delivery timelines.
The financial impact of this shift is unclear, but in the long run, it aims for higher sales and lower cash flow intensity, with potential impacts on gross margins due to dealer incentives.
Shares of FSR are down 10.3% in mid-day trading on Wednesday.