Specialty EV maker Canoo (GOEV -1.08%) reported its first-quarter financial update last night, and it gave investors a warning they didn't want to hear. The initial reaction Wednesday morning was for shares to tank more than 17%. While the stock recovered somewhat, it still remained down 8.3% as of 11:10 a.m. ET.
The drop extended the stock's downward trend this year, with it dropping over 35% in just the last month. It wasn't so much the first-quarter report itself that is likely driving the pessimism today. Rather it was a warning in the company's Securities and Exchange Commission (SEC) filing. Management said that after an analysis of the business, it "has identified substantial doubt about our ability to continue as a going concern." That warning doesn't mean that bankruptcy is imminent, but it does put Canoo on investors' radar.
The maker of special-purpose EV products including a van-like lifestyle vehicle, delivery van, and pickup truck said it ended the first quarter with about $105 million in cash and cash equivalents. It spent more than $120 million for operating expenses in the quarter. That disconnect is what prompted the "going concern" warning.
The company has addressed that concern by lining up $600 million in financing from a combination of private investment and a potential common stock offering. While it believes that financing will be a bridge to get it to the start of production, the latter could dilute existing shareholders significantly. Canoo has filed for $300 million in funding that could come from issuance of common stock or other means. For a company with a market cap of about $800 million, if it does raise that sum from new common stock, current shareholders will have lost much of their ownership value. That helps explain the tumble in the share price today.