The electric vehicle (EV) market is speeding up quickly, thanks in part to recent investments by the U.S. government to move the industry along. The Biden administration has already invested billions of dollars into the EV sector, and the EPA recently proposed new tailpipe regulations that could accelerate EV adoption, resulting in 67% of all new vehicles sold in the U.S. being EVs by 2032.
This is certainly welcome news for EV start-ups, but not all will benefit equally. Canoo (GOEV 2.59%), which is working on multiple EV models, has some grand plans for the EV market, but there are three reasons why this electric vehicle maker could miss out on the industry's growth over the next few years.
Image source: Canoo.
Reason 1: Canoo's production schedule is a mess
One of the biggest problems facing Canoo right now is the company's lack of production. While Canoo went public back in 2020, it wasn't until just a few months ago that the company delivered its first-ever vehicle to a customer.
A Canoo tactical vehicle prototype was delivered to the U.S. Army in December for "analysis and demonstration," and while it was good news for the company, there's no guarantee it'll lead to significant vehicle sales. Canoo does have an order for 4,500 vehicles for Walmart, but as of right now, the company has yet to begin those deliveries.
Part of the problem for Canoo has been its inability to get mass production up and running. Despite being a publicly traded company for more than two years, the company just signed a lease for a manufacturing facility in Oklahoma earlier this month. This puts Canoo massively behind its original goal of producing 3,000 to 6,000 vehicles in 2022 and between 14,000 to 17,000 in 2023.
Considering it delivered just one vehicle in 2022, Canoo already missed its original goal by a long shot, and at this point, its 2023 production ambitions seem like a pipe dream.
Reason 2: Canoo is losing money hand over fist
Because Canoo hasn't yet begun significant vehicle production, the company doesn't generate any revenue or profit. At the end of 2022, it reported a net loss of $487.7 million and had just $36.6 million in cash and cash equivalents.
Back in February, the company had to sell an additional $52 million in stock in order to raise money, and most recently Canoo said that it's raising additional capital by converting previously issued warrants into common stock. Canoo could receive up to $36 million from the conversion.
An additional financial problem for the company is that the days of cheap money are over. With inflation still elevated and the Federal Reserve raising interest rates, it's become much more costly to cover the cost of materials and labor, and also more expensive for small companies to borrow money.
When you factor in the fact that the company still isn't mass-producing vehicles, it's hard to envision Canoo being in a strong financial position anytime soon.
Reason 3: Canoo has significant management issues
Seasoned investors know that it's important to find companies with stability in their leadership. Some managerial changes are inevitable, of course, but a revolving door among leadership is a red flag. Unfortunately for Canoo, that appears to be what's going on here.
Eight senior employees and one executive left the company in January, including its CIO, and those departures came after several other senior leaders left the company last year and its CTO and cofounders departed back in 2021. Making matters worse, the company also filed a lawsuit against some of its former executives for allegedly stealing trade secrets.
The management turnover at the company would be a troubling sign on its own, but paired with the company's lack of substantial vehicle production and financial issues, it's yet another indication that Canoo doesn't have its act together.
Sit this one out
While it can be tempting to look at growth in the EV market and government support for the industry and think that Canoo should be able to benefit along with its peers, the aforementioned problems prove otherwise.
Canoo is a very risky bet right now and could be for a long time, which means that investors would be best to steer clear of this stock right now.
