EV maker Fisker faces liquidity questions after short seller claims its cash is “tied up”

Electric vehicle startup Fisker is facing new liquidity questions after a short seller’s report Thursday claimed the company’s funds are “tied up.”

Fisker says it has plenty of cash, about $824 million as of Sept. 30. But undisclosed legal restrictions could mean the EV startup can’t access much of that cash hoard, forcing it to issue new stock to raise funds, short seller Fuzzy Panda Research wrote in the report.

Shares of Fisker fell about 5% following the report’s release on Thursday.

According to the report, much of Fisker’s cash balance is tied up via bank guarantees on behalf of Magna International, the auto parts giant that began building Fisker’s Ocean SUV under contract last month. The report also alleges the design of the Ocean is based on that of an electric SUV that Magna designed with a Chinese automaker, with at least 80% of parts carried over. The report cites unidentified former employees of Fisker and Magna as its sources.

Fisker strongly denied the report’s key allegations.

“Fisker Inc. does not have a bank guarantee with Magna, and Fisker owns the intellectual property for the Fisker Ocean platform,” the automaker said in a statement after the U.S. markets closed on Thursday. “The Ocean platform does not have 80 percent carryover parts from any other platform.”

Fisker said it has sent a cease-and-desist letter to Fuzzy Panda, and that it will “take immediate and aggressive action” to address the short seller’s “false and misleading claims.”

Access to cash is crucial for any automaker. Between factory tooling and engineering costs, bringing a new model to market can cost a billion dollars or more — and much of that total has to be spent before a single new vehicle ships. Established automakers generally maintain cash reserves of $10 billion or more to ensure that they can continue to bring new products to market if a recession takes a bite out of their profits.

For a startup like Fisker, a cash reserve is critical to its success. With a potential downturn looming, that cash has provided some comfort to its investors. But if the company can’t access it, that comfort could be fleeting.

Fuzzy Panda estimates at least $790 million of Fisker’s cash is pledged to ensure that Magna is paid for factory tooling, manufacturing costs and its contractually guaranteed margins, a total of about €2,700 ($2,840) per vehicle. Fisker said last month that it expects to build 42,400 Oceans by the end of 2023.

Because of the guarantees, the short seller wrote, Fisker has been forced to use “at-the-market” stock offerings to continue funding its operations instead of tapping its cash.

In an “at-the-market” offering, or ATM, a company issues new shares and sells them via the open market, at the prevailing price. Fisker filed a registration statement with the Securities and Exchange Commission in May that allows it to raise a total of $2 billion from ATMs over time.

Fisker said it raised $118 million via ATMs in the third quarter, but Fuzzy Panda added the EV maker will need to raise “significantly more cash” via that facility.

The report cites a number of indicators that Fisker has been moving to conserve cash since early in 2022, including a note that the company’s employee-lunch program was “downgraded from high-end salads to mostly pizza.” (Fisker said in a statement it is “happy that we can continue to offer our employees lunch at a time when many startups are struggling.”)

Fuzzy Panda said it has a short position in Fisker’s shares. The firm previously published similar reports about Electric Last Mile Solutions, which filed for bankruptcy in June, and Ohio-based electric van maker Workhorse Group.