What happened
Shares of electric vehicle (EV) start-up Canoo (GOEV 2.59%) spiked one day after fellow start-up Lordstown Motors filed for bankruptcy protection. Investors seem to think one less EV maker in the market could be a big positive for Canoo. Its shares were trading 4.8% higher as of 10:35 a.m. ET today.
So what
Canoo's EV lineup includes a van-like lifestyle vehicle as well as its version of a commercial pickup truck. Lordstown was also focusing on the commercial pickup market, so investors seem to think bad news for Lordstown is good news for Canoo. But that may be aggressive thinking. Canoo has its own financial issues, and is far from getting beyond its own risk of failure.
Now what
Yesterday, Lordstown announced it was filing for a Chapter 11 restructuring process, which will aid in its plan to sell the company. But investors shouldn't move so fast in thinking that business's failure will result in benefits for Canoo.
That's because Canoo has its own financial issues. In its most recent quarterly filing last month, Canoo declared, "Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern."
The so-called "going concern" notice means that without additional capital the company "could be required to terminate or significantly curtail our operations."
As of March 31, Canoo had cash and equivalents of just $6.7 million. Yet the company expects capital expenditure needs of between $10 million and $20 million in the second quarter. The key for Canoo will be to ramp up production at its new Oklahoma facility and begin generating revenue from several existing vehicle orders. But there's no way to know if that will be accomplished quickly enough, and any investor optimism sparked by Lordstown's bankruptcy filing seems premature.
