RBC's EV Pair Trade: Buy Fisker, Sell Lordstown

As electric vehicle developer Lordstown Motors Corp. RIDE flagged a "going concern" warning this week, an analyst at RBC Capital Markets is out with a pair trade idea, recommending selling Lordstown and buying Fisker Inc. FSR.

The EV Analyst: Analyst Joseph Spak initiated coverage of Lordstown shares with an Underperform rating and $5 price target. The analyst initiated Fisker shares with an Outperform rating and $27 price target.

Why RBC Is Bearish On Lordstown: Lordstown has clear positives including saving on time and cost to production given its facility acquisition, Spak said in a Tuesday initiation note. 

This likely will allow the company to be among the first BEV startups to deliver vehicles, the analyst said.

The fleet pickup market is small and fiercely competitive despite its attractive characteristics, he said.

Additionally, the hub motor tech the company has chosen to adopt poses a risk, Spak said.

The analyst also said he sees the need for significant capital raises to the tune of $2.25 billion.

The company may have to rely on debt and then fall back on on dilutive equity raises in the outer years, he said.

RBC's delivery forecasts are significantly lower than the management guidance and the consensus, Spak said. 

Related Link: Fisker Strikes Partnership With Foxconn's Sharp Unit To Make EV Displays

Why Fisker Analyst Sees Compelling Risk-Reward: Fisker has a a differentiated business model that takes a clean sheet BEV approach and leverages well-regarded manufacturing partners to become an asset-light, lean cost structure auto company, Spak said.

Fisker can instead spend resources to differentiate the customer experience such as design, software, UX and ownership, the analyst said.

"The easiest analogy to make is to Apple, which designs its products, but has contract manufacturers assemble/ produce them."

Fisker has so far partnered with Magna International Inc. MGA and Hon Hai Precision Industry Co., Ltd. HNHPF, which aside from saving money has also led to a faster time to market, he said. 

The first product Ocean SUV is slated for the fourth quarter of 2022, Spak said.

If it's successful, Fisker should be able to garner solid initial margins, given the more variable cost of goods sold, DTC model and lower operating expenditure associated with contract manufacturing, the analyst said.

Spak said he sees significant equity value creation if Fisker can hit RBC's forecasts, which are currently below management targets.

"We see 5:1 risk/reward on our upside:downside case," he said. 

FSR, RIDE Price Action: Fisker shares gained 3.32% to $18.67 in Wednesday's session, while Lordstown shares closed near-flat at $11.23 after a volatile day of trading. 

Related Link: Fisker, Lordstown Could Be EV Latecomers, Goldman Sachs Says In Downgrade

Photo courtesy of Fisker.