It’s rough out there in the electric vehicle (EV) industry lately, especially for start-up companies with dwindling cash, weak demand, and low production capacity. Not only are Fisker‘s (NYSE: FSR) losses piling up, so are the negative developments. Those recently culminated in a notice from the New York Stock Exchange (NYSE) that the company could be at risk of being delisted.
Briefly, here is what has been going wrong with the young EV maker, and what it would mean for shareholders if it were to be delisted.
When it rains, it pours
To say Fisker is facing challenges would be a severe understatement. The company recently reported a fourth-quarter net loss of $463 million, while the cash and cash equivalents on its books dwindled to a meager $396 million.
Issues with suppliers and other delays held its production to just over 10,000 vehicles in 2023. What’s worse, the company’s delivery infrastructure was so inefficient it couldn’t even deliver half of those vehicles to consumers. Management is building out its network of dealer partners to try and improve delivery efficiency, but that strategy has yet to gain traction.
Finally, to add to its headaches, the U.S. National Highway Traffic Safety Administration (NHTSA) has opened a preliminary evaluation for claims of unintended vehicle movement in 2023 Fisker Ocean vehicles.
All of these issues culminated in management admitting that it “expects to conclude there is substantial doubt about [Fisker’s] ability to continue as a going concern” when its annual financial statements for the year ended December 31, 2023, are filed with the SEC.”
Potential delisting
In February, Fisker received a non-compliance notice from the NYSE because its stock price had closed below $1 per share for 30 consecutive trading days. To be clear, Fisker management intends to keep the stock listed on the exchange, and is currently exploring strategies and options to get back into compliance with its requirements.
One option would be a reverse stock split. This is when a company replaces all the shares investors currently hold with a smaller number of new shares that have a proportionally higher price so that shareholders’ stakes keep their prior value. This reduces the total number of shares outstanding, but leaves the company’s market cap unchanged. For example, for Fisker, a 4-for-1 reverse split would reduce its outstanding share count by three-quarters and quadruple the price of the new shares from $0.34 to $1.36. That would push the share price above the $1 delisting threshold.
Now, even if Fisker doesn’t get back into compliance, rest assured that shares of Fisker won’t just disappear — they will simply shift to being traded in the over-the-counter (OTC) market.
That said, typically, delisted stocks tend to decline in value significantly for a number of reasons. Trading OTC means lower trading volume as institutional investors tend to avoid stocks that aren’t on major exchanges. Also, demand for the company’s shares will typically decline as delisting is usually viewed as a signal of financial distress and a harbinger of potential bankruptcy.
What it all means
If you’re a Fisker investor, you will still own your shares of the company even if it’s delisted, although you’ll likely have a more difficult time selling them. Considering that the stock would likely decline in value after being delisted, and the other issues mentioned, most investors would be wise to sell a stock before it gets delisted.
That said, investors should also feel confident that Fisker management will find a way to get the stock back into compliance with NYSE rules. That would be a better option for the company — being delisted would be another headache that Fisker won’t want to deal with right now.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
What Happens If Fisker Is Delisted? was originally published by The Motley Fool
