Fisker (FSR) stock on the rise despite plans to raise funds, diluting investors

California-based EV startup Fisker’s (FSR) stock is trending higher Friday despite announcing plans to raise funds by offering $170 million in convertible notes.

Fisker announced in a press release Friday its intentions to offer $170 million in senior convertible notes to existing institutional investors.

The convertible notes are due in 2025, securing roughly $150 million in cash for the company. With 0% interest, Fisker is selling the notes at a 12% discount to attract investments.

Although the annual payout (less than 6%) for holding the note may not be great, converting to stock could be worth it. According to the SEC filing, the initial conversion price is $7.60, which would make more sense. But that’s if Fisker’s stock hits the mark.

The company says it’s raising funds to “accelerate deliveries, expand growth, and expedite the company’s vehicle programs.”

Fisker’s stock was surprisingly on the rise in Friday morning’s trading session following the news. Shares of Fisker are still down around 16% over the past 12 months, settling at about $6.40.

Will plans to raise funds impact Fisker stock?

Typically, when a company issues convertible notes, its stock tends to fall as investors fear dilution. The more shares being offered, the less each shareholder owns of the company.

Fisker held a special meeting on August 30, 2023, where stockholders approved the potential issuance of up to 19.99% of outstanding shares. In other words, potential dilution.

Unless the company gets additional shareholder approval, a maximum of 42,125,083 million shares (19.99%) of Fisker common stock) will be issuable upon conversion.

If investors decide to hold, Fisker will have to pay them back. The announcement comes after Fisker revealed separate plans to raise funds in July with a convertible note offering of $340 million.

Fisker ended the second quarter with $521.8 million in cash and equivalents (excluding the convertible bonds).

Electrek’s Take

Fisker began deliveries of its first EV, the Ocean electric SUV, in the US and Europe earlier this year. Although net losses fell from Q1, Fisker has yet to turn a profit.

Fisker’s plans to launch several new electric models while ramping production will be costly. The new funds will help accelerate growth, but at what cost to investors?