Fisker, the renowned electric vehicle (EV) manufacturer, has recently made the decision to reduce prices for its EVs. This move has sparked concern among investors, leading to further speculation about demand and pricing within the industry.
Fisker (FSR), in an official announcement, revealed that it would be slashing the price of its Ocean Extreme trim from $69,000 to approximately $61,500 – a reduction of $7,500. What’s more, customers who had already committed to purchasing the vehicle at the higher price will receive a credit of $7,500.
CEO Henrik Fisker emphasized the importance of adapting to the competitive landscape of the rapidly expanding EV market. He stated in a press release, “It is essential that Fisker responds to competitive realities in the rapidly growing EV market. We want our customers to have greater access to the Ocean and to be able to take advantage of its exciting combination of innovative features, striking design, sustainable materials, and class-leading range.”
The Ocean Extreme represents the top-tier trim level of Fisker’s SUV lineup. The Ocean Sport, with a starting price of around $37,500, serves as its entry-level counterpart. It is common for car manufacturers to initially focus on producing higher-end versions of their vehicles due to the increased revenue potential. In the second quarter, Fisker manufactured just over 1,000 units of the Ocean SUV. However, the company plans to significantly ramp up production to over 20,000 units in 2023. To fulfill this demand, Fisker has partnered with auto parts giant Magna International (MGA), which owns the manufacturing plant.
As a result of this news, Fisker’s stock has declined by 1.5% to $5.36 per share. Concurrently, S&P 500 and Nasdaq Composite futures have also experienced a slight dip, down 0.5% and 0.6% respectively.
Tesla’s Aggressive Price Cuts Reflect the Impact of Higher Interest Rates
Investors generally have mixed feelings about price cuts in any industry, especially when it comes to the automotive sector. On one hand, lower prices can be seen as a sign of reduced demand or increased competition. Unsurprisingly, both factors are at play in Tesla’s recent aggressive price cuts, which aim to counterbalance the impact of higher interest rates on potential buyers.
As interest rates rise, monthly payments for vehicles bought with financing naturally increase. To mitigate this effect, Tesla has been slashing its prices significantly throughout 2023. However, the consequences of these price cuts extend beyond Tesla alone. In fact, this move has put pressure on nearly every other electric vehicle (EV) manufacturer to follow suit.
Nevertheless, there is a positive aspect to lower prices – they help sustain demand growth. In the third quarter of this year, U.S. EV sales reached approximately 313,000 units, marking a 50% year-over-year increase. However, this growth has come at a cost to profitability. Tesla’s operating profit margin for the third quarter was less than 8%, representing a decline of nearly 10 percentage points compared to the previous year.
Fisker’s Reservation Numbers and Stock Performance
Moving beyond Tesla, let’s shift our attention to Fisker, another player in the EV market. At the end of the second quarter, Fisker had around $15 million in customer deposits, which suggests approximately 61,000 reservations. Surprisingly, this number has remained relatively stagnant since the end of 2022. Unfortunately, details about the current state of reservations are unknown as the company has yet to respond to inquiries about order intake.
In terms of stock performance, it has been a challenging few months for Fisker. Over the past three months, Fisker’s stock has experienced a decline of approximately 12%. Looking at the broader picture, its stock has dropped around 28% over the past year. In light of this, it is noteworthy that Fisker’s stock suffered a 4.7% drop in Friday’s trading session, while the Nasdaq fell by 1.5%.
All in all, the recent price cuts implemented by Tesla and the subsequent challenges faced by Fisker demonstrate the difficulties present in the EV market. While lower prices sustain demand growth, they also put pressure on companies’ profitability. For Fisker, reservations have remained relatively unchanged, and its stock performance reflects the obstacles it has encountered. As the EV industry continues to evolve, it is crucial for companies to navigate these challenges effectively.