The small electric vehicle (EV) start-up Canoo (GOEV 83.33%) went public in the final days of 2020 when the market was booming and investors generally assumed EVs couldn't lose. To say that this previous sentiment has changed would be a huge understatement. While the S&P 500 has gained 12% since then, Canoo's stock has plummeted 95%.
Still, the U.S. is investing heavily in EV infrastructure, legacy automakers are transitioning their model lineups to EVs, and many consumers have warmed to vehicles they can plug in versus fill up.
But while the EV market is beginning to come into its own, Canoo is still struggling. And I think the company's spending and inability to ramp up production could be red flags for potential investors. Here's why.
Image source: Canoo.
Canoo is losing lots of money
All start-ups need tons of cash before they can stand on their own two feet, but Canoo's financial picture seems precarious even by these standards. Consider that the company had a net loss of $487 million in 2022 and no revenue for the full year.
If you're an EV maker, you need to actually sell vehicles to generate revenue, and Canoo isn't doing that (more on that below). The lack of revenue left the company with just $36 million in cash and cash equivalents at the end of last year.
To stay afloat, the company recently sold $52 million worth of additional stock and is raising an additional $36 million by converting previously issued warrants to common stock. But the bigger picture here is that Canoo is losing money, raising more of it, and has little to show for it. The company has delivered just one vehicle, a prototype, to a customer.
If interest rates were low and lending flowed more easily, perhaps Canoo's financial picture would be less concerning. But the company may find it harder to raise capital in this tighter lending environment and as the U.S. looks like it's headed toward a recession.
If that weren't enough, some larger EV players, including Tesla, are now cutting EV prices to stay more competitive. When and if Canoo gets its EV production ramped up, the company may find itself in an even more competitive EV pricing environment than it is now.
OTC: GOEV
Key Data Points
Production has been a problem
As mentioned above, Canoo has delivered just one vehicle so far, a tactical vehicle prototype to the U.S. Army. It's certainly a step in the right direction, but investors should know there's no guarantee that a larger order will come from it.
Canoo has a current order from Walmart for 4,500 vehicles, but no deliveries have been completed from that order yet. In fact, it wasn't until very recently that the company actually locked in a lease for an EV production facility.
That makes me question what exactly Canoo has been doing for the past two years. It's spending a lot of money, its share price imploded, and only now does it have a place to actually make vehicles -- two years after going public.
The company initially hoped to make between 3,000 to 6,000 vehicles in 2022, and with production getting started only now, it's still unclear how much longer it will take to reach last year's production estimates.
Find another EV stock
I'm generally bullish on the EV industry, even with the current headwinds from inflation, high material costs, and rising competition. The next five to 10 years will be pivotal in the automotive industry as stalwart automakers transition to EVs and small EV start-ups try to elbow their way into the auto industry.
And while I think some EV stocks can outpace the market, Canoo isn't one of them. Based on its lackluster approach to getting production on track and its massive spending, the company looks more like a mess to me than a strong EV contender. I've been wrong plenty of times, but I'm perfectly comfortable leaving this EV stock alone as it works to prove itself over the coming years.
