Fisker’s Implosion: Why It Happened

Fisker Inc., as expected, has filed for Chapter 11 bankruptcy. And the bottom line may be that the demise of Henrik Fisker’s second automotive company was inevitable.

Since the future of automotive mobility has been centered on electrification, there has been a fallacy that establishing a new electric vehicle company and brand is so much easier than trying to do it with internal-combustion-engine vehicles – that the risks and costs are far lower. While aspects of building out a new EV company may be cheaper and easier, those costs and difficulties are more than made up for in battery costs and supply-chain management, as well as the enormous challenge faced by any new car company of overcoming regulatory hurdles, achieving consumer awareness and consideration, and ultimately making the sale.

Based on the company’s bankruptcy filing and interviews with former employees, the demise of Fisker Automotive is rooted in the mismanagement of founder Henrik Fisker, and the lack of proper checks on the company’s operations by board members and financial backers.

Power at the automaker, which went public in 2020 via a reverse merger, has been concentrated with Fisker and his wife, Geeta Gupta-Fisker, who has experience in general finance and a background in science, but came to assume the responsibilities of a chief operating officer and a decision maker on matters of logistics and even software strategy, quality control and production for which she has no experience.

“Geeta’s background was well-known to Fisker’s investors, business partners and employees following the company’s founding and prior to its 2020 public offering,” says Fisker spokesman Matthew DeBord.

Fisker’s previous automotive venture, Fisker Automotive, went bankrupt in 2013 after its battery supplier, A123 Systems, issued a recall, followed by a loss of vehicles at port from Hurricane Sandy.

Henrik Fisker has long wanted to establish a lasting brand around his name. A designer by trade who had some successes at BMW and Aston Martin, designers, it can be said, are not known for having the business chops to lead an entire automotive operation and all its moving parts and financial and operational challenges.

Interviews with former employees paint a picture of a “mom-and-pop” operation and a lack of fundamental processes to properly bring vehicles to market Marketing, they said, a key function in driving consideration by credit worthy buyers, was not something the organization seemed to know how to do.

While the decision to outsource manufacturing of the Fisker Ocean to Magna Steyr looked good on paper, freeing Fisker Inc. up from nettlesome manufacturing ramp-up and quality control, the ultimate quality of execution was reliant on sound engineering design of the vehicles and the manufacturability of the vehicles in the first place. Adam Jonas of Morgan Stanley, one of the leading automotive analysts in the world, was persuaded in 2021, for example, to say, “There’s one electric-vehicle startup that stands out from the rest…Fisker, we think, from a risk-reward basis, is a lot more attractive than meets the eye,” Jonas said in a CNBC interview.

Earlier this year, though, Jonas said: "While we like the FSR story and strategy (design, engineering and supply chain and their relationship with Tier 1 supplier Magna Steyr), (Fisker’s) need for capital, an unfavorable re-balancing of supply and demand in the EV space (where even Tesla, the current market leader, has announced sharp and unprecedented price cuts globally), and a potentially crowded EV market during a time of ongoing deterioration in the macro environment drives us to downgrade the stock.”

Fisker ran into three buzzsaws that have bedeviled many a start-up in and out of the auto industry: cashflow, governance and slow ramp-up of consideration.

Placing so much of the operational decision-making with his wife, as Fisker did, is a red flag for many investors – or should be.

No law prohibits a husband and wife from serving on a board of directors. If an association’s bylaws are silent regarding director qualifications, then spouses can serve together on the board, according to law firm Adams-Stirling. But a conflict of interest may emerge when it comes to good governance, “because the joint owners may act as a voting bloc on all issues rather than acting independently.”

Fisker’s board of directors, who were compensated with a comparatively high $420,000 per year, include former Los Angeles City Controller Wendy J. Gruel, IT Services company ServiceNow CEO William J. McDermott, Roderick K. Randall, executive partner of Siris Capital Group and attorney Mitch Zuklie. WardsAuto reached out to Randall and McDermott. Randall declined to be interviewed, while McDermott did not return WardsAuto’s query by press time. There are no experienced auto or auto supplier executives on the Fisker board.

Experts agree that cashflow management is the enemy of every auto startup. Companies always tend to underestimate cash burn while the organization builds up brand awareness and credibility and, ultimately, revenue from actual sales.

In part because of Fisker’s previous bankruptcy, the Fisker name has not carried much currency with the buying public.

In 2023, Fisker built 10,193 Ocean SUVs, according to company documents. But the company only delivered 4,929 of them, or less than half of its annual production. Magna Steyr cut off Fisker earlier this year, and as March 15 production totaled 1,000 vehicles, deliveries were 1,300 vehicles and inventory was 4,700 vehicles. That inventory was worth over $200 million, but that value plummeted when the company announced price cuts of up to 39% on its Ocean trims. Demand plummeted when YouTube reviewer Marques Brownlee called the Ocean “the worst car” he had ever reviewed. Consumer Reports recommended against buying a Fisker Ocean.

And in May, NHTSA opened a fourth investigation into the Ocean, that one to probe multiple claims of “inadvertent Automatic Emergency Braking.”

The agency’s Office of Defects Investigation had already opened investigations of Ocean customer complaints about braking loss, vehicle rollaway and doors that would not open.

“The whole organization was overwhelmed with production and delivery problems, while word of mouth was killing the company and marketing of the brand to drive consideration was amateur hour,” said one industry executive doing business with Fisker who spoke on the condition of anonymity because of a nondisclosure agreement.

The company, for example, had lost track of millions of dollars in sales revenue while employees were stuffing their luggage with parts such as key fobs to avoid import taxes by going through regular shipments on their way back from the supplier.

Vehicle production is extremely cost-intensive. Fisker has had to plow hundreds of millions of dollars into production costs with Magna Steyr while dealing with intense competition, slow orders and EV price wars driven by better-known carmakers such as Tesla, Ford, Hyundai and Kia cutting prices and out-marketing Fisker.

Earlier this year, Fisker was in talks with Nissan for a $400 million cash infusion for which Nissan would get access to the start-up’s BEV platform for a pickup. In the end Nissan passed, even though that cost for an EV platform is far cheaper than developing one. One Nissan executive told WardsAuto that the platform was not up to Nissan standards. In truth, $400 million would have been a Band-aid at best based on the rate of cash-burn and slowness of sales revenue.

In its bankruptcy statement, Fisker limped to the sidelines of the BEV battles, saying, “Like other companies in the electric vehicle industry, we have faced various market and macroeconomic headwinds that have impacted our ability to operate efficiently…After evaluating all options for our business, we determined that proceeding with a sale of our assets under Chapter 11 is the most viable path forward for the company.”