How Much Does Fisker's Financial Position Matter?

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In recent months, the dire financial straits of Fisker Automotive have become even more apparent. Production of the Fisker Karma has stalled, the company missed a payment on its Department of Energy loan, and reports are surfacing that the automaker has hired bankruptcy advisers. With Fisker’s future resting on hopes of a buyout for pennies on the dollar, it is worth examining what, if any, effect this has on the broader automotive industry.

A better electric car

While the Fisker Karma was unable to generate rave reviews, the Model S, made by Tesla Motors (NASDAQ: TSLA), has received top honors from Automobile, Motortrend, and Consumer Reports. Partially because of a superior product, but also because of smart management and more than its fair share of luck, Tesla has done the opposite of Fisker. Where Fisker is missing DoE loan payments, Tesla has paid its loan back nine years ahead of schedule after raising over $1 billion in capital from the private markets.

Where Fisker has halted production, Tesla is now producing its Model S at an annualized rate of over 20,000 units per year. And, most critical for shareholders, Tesla's stock has tripled in value over the last year, valuing the Silicon Valley automaker at over $10 billion.

At this point, Tesla can’t keep up with demand for the Model S and the halting of Fisker production reduces the existing supply of high-end electric vehicles. Tesla is trying to capture buyers otherwise purchasing a conventionally powered car in the $70,000 plus price range but, without Fisker, Tesla becomes a near monopoly on electrified luxury transportation.

There’s no substitute (or is there?)

Tesla is trying to steal bits of market share from high-end automakers and Fisker’s goal was the same, just not executed as well. A four door high performance sedan like the Fisker Karma could have threatened sales of Porsche’s (NASDAQOTH: POAHF) Panamera sedan. The Panamera represents part of Porsche’s expansion beyond the sports car segment, partially facilitated by Porsche’s majority owner, Volkswagen AG (NASDAQOTH: VLKAY) which is building on this expansion to increase Porsche’s profits.

Beyond the Panamera, Porsche is selling a performance luxury SUV called the Cayenne, an SUV that is strongly outselling the Panamera sedan. The Cayenne would not have been likely to be threatened by the Karma, but Porsche will need to watch out for the Model X, Tesla’s electric crossover offering due out in 2014.

Had Fisker got as far as mass producing the Fisker Atlantic, it may have begun to threaten some of the market share of Volkswagen’s Audi and the $50,000 plus segment targeted by the company. But, like Tesla, Fisker would take a considerable amount of time to ramp up production and the Atlantic would still target only part of the segment. Thus, I believe that Audi would not have seen Fisker as a major threat had it succeeded, and its failure to scale Atlantic production does not create a major benefit for Audi.

Opportunity from failure

As a result of Fisker’s inability to pose a major threat to the automotive industry, established players will see less upstart competitors threatening their market share. However, the biggest beneficiary of Fisker’s production halt may be Tesla Motors since the two electric automakers would have been competing for the high-end auto market and in the electric segment of that market.

As a Tesla shareholder, I hope Tesla can continue its current winning streak and capitalize on offering the only high-end all electric car currently in mass production. For the rest of the auto industry, less competition is better for their financial health, but they may need to watch out for a growing Tesla in the coming years as it fills the void left by Fisker.

Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.

Alexander MacLennan owns shares of Tesla Motors . The Motley Fool recommends Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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