Electric vehicle (EV) company Canoo (GOEV 9.40%) sizzled in the month of November, when its stock gained an astounding 49.3% according to data provided by S&P Global Market Intelligence. Although companies in the EV sector hit some crazy valuations in November, Canoo's rally stood out, as the stock had been languishing since it crashed in March.
Unfortunately for shareholders, though, the euphoria is already dying down. As of this writing, Canoo shares have declined by 28% so far in December.
Canoo shares started taking off on Nov. 15 -- the day the EV start-up reported its third-quarter numbers and revealed key production timelines.
Canoo has yet to deliver any vehicles or generate any revenue, and although the company's Q3 net loss more than tripled year over year to $80.9 million, analysts had been expecting an even bigger loss. The better-than-anticipated bottom-line result, however, wasn't the real reason Canoo shares jumped after the report was released.
The automaker said it is accelerating its schedule and now expects to start manufacturing its Lifestyle Vehicle at its Oklahoma factory before 2022's fourth quarter.
The Lifestyle Vehicle, an all-electric passenger van, will be the first model built on Canoo's proprietary "skateboard" platform, which packs all the powertrain systems onto a flat chassis that underlays the cabin, delivering maximum interior space on a smaller exterior build. Canoo is currently taking pre-orders for four variants of the Lifestyle Vehicle, from a two-seater cargo delivery van to five- and seven-seater passenger vans.
The markets cheered Canoo's plan to speed up its path to production at a time when competition is intensifying in the EV space. Canoo also announced plans to expand its Oklahoma site even as it sets up its headquarters, a research and development center, and a production facility for package delivery vans in Arkansas. Not only did both states' governments offer Canoo financial incentives to site their operations within their borders, but they are also expected to place vehicle orders with the company worth around $100 million.
So far, so good for Canoo -- so why is the EV stock plunging now? Apparently, that's due to the loss of a contract manufacturing partner, which may not really be much of a "loss" after all.
In June, Canoo chose Netherlands-based VDL Nedcar as a contract manufacturer for the Lifestyle Vehicle, with a production target of 1,000 units in 2022 and 15,000 units by 2023, primarily to be sold in Europe. Canoo, however, just said it doesn't expect to sign a definite contract-manufacturing agreement with VDL, and their term-binding agreement will expire on Dec. 15.
Not many outsiders saw this coming, but to be fair, Canoo's management had dropped subtle hints during its recent earnings call. For example, management said it was going to "reprioritize" its relationship with VDL, as it's now focused on "reducing execution risk as Europe and the Netherlands are still struggling with pandemic inflation, shipping, and taxation." CEO Tony Aquila even emphasized how management prefers to use its own manufacturing facilities over hiring contract manufacturers, given the inherent risks in the latter strategy.
So although Canoo may not be able to enter or expand into the European market as planned if it breaks up with VDL, terminating this relationship appears to be a calculated move on Canoo's part based on its other recent announcements.
However, at a time when others in the EV space are racing ahead, investors may want to wait for more clarity about Canoo's manufacturing capabilities and plans before they put their money into a company that hasn't delivered its first vehicle yet.