Canoo (GOEV -1.80%) and Nikola (NKLA -1.48%) are both electric vehicle makers that went public by merging with special purpose acquisition companies (SPACs) in 2020. Both stocks initially attracted a lot of bulls, but were mauled by the bears over the past two years.

Canoo's stock hit an all-time high of $22 per share in December 2020, but it now trades at about $1. Nikola's stock closed at a record high of $79.73 in June 2020, but it's now worth about $2 a share. Let's see why these two EV stocks crashed, and if either one is still worth salvaging as a turnaround play.

Canoo's electric van.

Image source: Canoo.

Lots of overpromising and underdelivering

Canoo produces electric delivery vehicles. Prior to going public, it claimed it would start shipping its first vans in 2021, and that its annual revenue would soar from $120 million in 2021 to $4.13 billion in 2026 as it scaled up its business. It also expected its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive in 2024.

Yet Canoo hasn't delivered a single vehicle yet. It racked up an adjusted EBITDA loss of $338 million in 2021, and it posted an even wider adjusted EBITDA loss of $348 million in the first nine months of 2022. It ended the third quarter with just $7 million in cash and equivalents, along with $4 million in restricted cash, and a whopping $217 million in total liabilities -- which gives it a debt-to-equity ratio of 0.95. It now expects to start delivering its first vehicles in the first half of 2023.

Nikola produces battery-powered (BEV) trucks and hydrogen-powered fuel-cell (FCEV) trucks. It's also building a network of hydrogen charging stations that can recharge vehicles a lot faster than electric charging stations. During its pre-merger presentation, Nikola claimed it could generate $150 million in revenue in 2021 by shipping 600 BEV trucks. It also claimed its adjusted EBITDA would turn positive by 2024.

But in reality, Nikola only shipped its first two BEVs for a pilot program last December, and it posted an adjusted EBITDA loss of $303 million for 2021. It delivered 115 BEVs in the first nine months of 2022, but it expects to fall short of its previous target of 300 BEV shipments for the full year.

Nikola generated $44 million in revenue in the first nine months of 2022, but its adjusted EBITDA loss widened year over year from $212 million to $279 million. It has more liquidity than Canoo -- it ended the third quarter with $404 million in cash, cash equivalents, and restricted cash -- but its $595 million in total liabilities give it a higher debt-to-equity ratio of 1.06.

Which company has a better shot at a comeback?

Both of these companies face tough near-term headwinds. Rising interest rates will make it more difficult (and more expensive) to secure fresh funds, while the ongoing supply chain constraints will make it tough to ramp up their production. Nikola's brand was also tarnished after its founder and former CEO Trevor Milton was convicted on fraud charges in October. Nikola's current CEO Mark Russell repeatedly tried to distance the company from Milton and those charges.

Despite all those macro challenges, Canoo's order book more than doubled sequentially to over $2 billion (including $750 million in binding orders, which will generate guaranteed revenue upon delivery) in the third quarter.

Most of that boost came from Walmart's order of 4,500 Lifestyle Delivery Vehicles (LDVs) in July, which comes with an option to buy an additional 5,500 LDVs, as well as binding orders for an additional 12,300 vehicles from the work rental van provider Kingbee and the national fleet leasing company Zeeba. It believes that it can ramp up its annual production capacity to 20,000 vehicles by the end of 2023.

Nikola also expects to increase its annual production capacity to 20,000 vehicles next year, but it's only received about 600 BEV orders so far. It also continues to ramp up the expansion of its hydrogen charging stations, even though the technology serves a niche market and its BEV shipments remain far behind schedule.

The valuations and verdict

Nikola trades at 4.6 times next year's sales, while Canoo looks a lot cheaper at 1.6 times next year's sales. That higher valuation suggests that investors are more optimistic about Nikola's turnaround potential, since it's already producing vehicles, and less optimistic about Canoo's plans to actually kick off its production before it runs out of money.

I'm not a fan of either of these speculative EV stocks right now. But if I had to choose one over the other, I'd buy Nikola instead of Canoo because it's already shipping vehicles and has more liquidity. Meanwhile, Canoo's dwindling cash, broken promises, and its failure to deliver a single vehicle so far make me skeptical of its ability to ramp up its production next year.