The electric vehicle (EV) industry is going through a tumultuous period and even market leader Tesla has reported a YoY fall in deliveries for two consecutive quarters. The Elon Musk-run company can still survive the slump given its strong balance sheet and profitable operations. However, things have been particularly bleak for startup EV companies and Fisker, Lordstown Motors, Electric Last Mile Solutions, Arrival, Proterra, and Bird Global are among the ever-growing list of EV companies that have filed for bankruptcy.

Fisker is now seeking the approval of the bankruptcy judge overseeing its Chapter 11 proceeding to liquidate its inventory for as low as $2,500 per car. Overall, the company is looking to liquidate 3,321 EVs to New York-based leasing company American Lease for $46.25 million which implies an average price of just under $14,000.

Here’s everything we know about Fisker’s bankruptcy and the current state of the EV industry.

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Fisker Opted for Third-Party Manufacturing For Its Electric Cars

Fisker went public in October 2020 and opted for a special purpose acquisition company (SPAC) merger – which was the preferred listing mechanism back then. At its peak in Q1 2021, Fisker’s stock price almost reached $30, thrice the SPAC listing price.

Fisker opted for third-party manufacturing, unlike the self-manufacturing that Tesla, Rivian, and Lucid Motors opted for. Fisker chose automotive parts manufacturer Magna to produce its Ocean SUV while Foxconn was supposed to produce the second model Pear.

While Foxconn is famous for assembling Apple products and is the world’s largest contract manufacturer of electronics it has ambitions in the EV industry where it seeks to replicate the success of electronics contract manufacturing. It has also partnered with Saudi Arabia to build electric cars in the kingdom.

Ocean SUV Received Moderate Reviews

Fisker Ocean promised a good driving range and had an EPA-estimated range of 360 miles. The company’s Ocean SUV had good reviews and in its review Car and Driver said, “We were surprised and impressed with its zippy acceleration, balanced handling, and overall competence.” The publication was also all praise for the model’s features and driving range.

However, it also perhaps best summed up the company’s woes. In its review, Car and Driver wrote, “Given the company’s unproven status and recent financial troubles, buying an Ocean will require an ocean-sized leap of faith. Especially so, considering that that there’s no shortage of impressive alternatives in the electric SUV segment—all of them from well-established automakers.”

Top Gear also echoed similar views in its reviews and doubted whether Ocean SUV was worth the risk considering Fisker’s financial instability.

How Fisker Went from Boom to Bust

Things were not that bad (even if not outright rosy) for Fisker until mid-2023 even as the EV industry was going through turmoil, at least in part due to Tesla’s price war. However, in November, the company slashed its 2023 production guidance from 20,000-23,000 units to 13,000-17,000 units. Fisker struggled to sell cars through the direct model that Tesla followed and moved to a dealer model to sell its cars.

These unsold cars were a drain on Fisker’s already strained financials as a lot of its precious cash was parked in the inventory. The company even slashed car prices this year to spur sales but it was perhaps too late to revive the company.

Meanwhile, in February while releasing its Q4 2023 earnings Fisker gave a “going concern” warning and said, “there is substantial doubt about its ability to continue as a going concern.”

Fisker however said that it is in talks with a large automaker (which was rumored to be Nissan) for a partnership. The deal never materialized and Fisker was pushed towards an imminent bankruptcy due to its fast-depleting cash pile.

In April, tech YouTuber Marques Brownlee, better known as MKBHD reviewed Ocean SUV and dubbed it “the worst car I’ve ever reviewed.” His scathing 20-minute video was posted on his smaller Auto Focus channel, where he reviews cars with just a phone camera. It has been viewed by no less than 5.8 million people thus far.

Although he praised the car’s looks, the materials that were used to build it, its storage space, and comfort, Brownlee also went on to identify and highlight some key issues with the car’s software that were disconcerting. The review only seems to have amplified Fisker’s woes.

Fisker Is Selling Electric Cars at a Massive Discount

Fisker is now seeking permission to sell over 3,000 cars to American Lease. The price of the car would depend on its condition with the leasing company paying only $2,500 for a “damaged car” and $16,500 for cars whose “ownership is evidenced by a Manufacturer’s Certificate of Origin (“MCO”) and are in reasonably good working order.”

Nonetheless, even the top price that American Lease is willing to offer is way below what Ocean SUV previously sold at. The model was initially priced between $40,000-$70,000 based on the variant, and in March Fisker lowered the price to as low as $24,000.

Buying a vehicle from a bankrupt company has its own set of risks though – especially related to warranties and repairs. For instance, in its filing, Fisker said, it “shall have no obligation of repair or maintenance of the Vehicles, and Vehicles will be sold “as is” with no express or implied warranties.” It added that it won’t be obliged to update the software beyond v.2.1 (which is already problematic).

Meanwhile, the sale offer is not for the general public as of now and is limited to American Lease. However, as a buyer one has to be careful when buying a vehicle from a bankrupt company as baked in the vehicle’s price are the embedded warranties that the producer provides. These are typically absent when the company goes out of business and the buyer could then face troubles with parts and services in the future.

In fact, one of the reasons some startup companies are struggling to sell cars is that buyers doubt that they will be around after a couple of years given their precarious financial condition.

Can Startup EV Companies Survive the Slump?

To withstand the EV industry slump, startup EV companies need an exciting product that can lure buyers from established brands. Also, they should have the financial strength to withstand the slump which is not withering away anytime soon.

Fisker had a reasonably good product (even as some reviewed the product as poor) with an attractive price and good range. The Ocean SUV however did not have enough pull to attract buyers towards the brand.

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As for financial strength, Fisker’s falling stock price made its job of raising cash by selling shares almost impossible while it did not had the assets to opt for debt financing.

Meanwhile, startup EV companies are also looking at partnerships with automakers. For instance, Volkswagen has invested in both Rivian and Chinese EV company Xpeng Motors. Lucid Motors has partnered with Aston Martin to supply electric motors and batteries. The Peter Rawlinson-led company is anyways backed by Saudi Arabia’s cash-rich sovereign wealth fund which has poured billions of dollars to fund the loss-making electric vehicle company.

Chinese EV startup NIO has also secured billions of dollars from UAE’s CYVN Holdings. In 2020, arms of the Chinese government bailed out NIO when it too like Fisker gave a “going concern” warning.

Fisker unfortunately did not have such backers and the company also couldn’t sign up a large automaker for strategic partnership and met its fate in the form of bankruptcy. The EV industry turmoil looks far from over and many other struggling startup companies risk going bankrupt if they don’t get cash infusion.