Many electric vehicle (EV) start-ups went public by merging with special purpose acquisition companies (SPACs) in 2020. But most of those newcomers disappointed investors by falling short of their ambitious production goals, and their stocks were crushed as rising interest rates highlighted their troubled balance sheets and popped their bubbly valuations.

One of those fallen EV stocks is Canoo (GOEV -23.53%), which dropped from its pre-merger high of $22 per share on Dec. 10, 2020 to its current price of about $0.64. But even after that steep decline, Wall Street remains firmly bullish.

Of the five analysts who cover Canoo, four rate it as a buy and only one rates it as a hold. The average price target is $3.11 -- which would represent a near-400% gain from its current price. Canoo might seem like a potential multibagger for bold investors at these penny stock levels, but I believe it's more likely headed to zero than the mid-single digits again.

Canoo's lifestyle delivery van.

Image source: Canoo.

A history of broken promises

Before it went public, Canoo told its SPAC investors it could generate $329 million in revenues in 2022 by selling 10,000 electric vans. But it didn't ship a single vehicle last year, and it still hasn't mass-produced any commercial vehicles yet. Walmart (WMT 0.43%) agreed to buy 4,500 of its lifestyle delivery vans (LDVs) with an option to purchase up to 10,000 units last year, but it hasn't delivered any of those vehicles yet.

Instead, Canoo only delivered a handful of prototype and custom vehicles to potential customers like Walmart, the U.S. Army, and NASA for testing purposes. In other words, it's still acting like a start-up, instead of a publicly traded company that reached a market cap of more than $4 billion in late 2020. It ended its latest quarter with an order book of $3 billion, but it's unclear whether it can actually fulfill all those outstanding orders.

Canoo blamed its production delays on the persistent supply chain constraints for EV makers, and it believes it can start mass-producing its first vehicles at its Oklahoma City plant (which has an annual production capacity of 20,000 vehicles) by the end of 2023. It also plans to double its annual production run rate to 40,000 vehicles by the end of 2024.

Take those estimates with a grain of salt

Unfortunately, it's tough to take Canoo's long-term goals too seriously when it's broken so many promises before. It also simply doesn't have enough liquidity to ramp up its production right now. It ended the second quarter of 2023 with just under $5 million in cash and equivalents -- compared to $36.6 million at the end of 2022 -- and $289.4 million in total liabilities. It raised some additional cash with secondary share offerings over the past year, but that strategy caused its total number of weighted-average outstanding shares to more than double year over year by the end of Q2.

With its shares now trading at about $0.64, Canoo will need to issue a lot more shares to generate fresh cash. But even then, it's unclear if anyone will still want to buy its shares after they plunged 85% over the past 12 months. That dire situation could make it difficult for Canoo to take out additional loans at favorable interest rates.

After factoring in some new debt offerings and its proceeds from a PIPE (private investment in public equity) that occurred after the end of Q2, it would have about $61.2 million in cash and equivalents today. But before breathing a sigh of relief, we should recall that Canoo racked up an operating loss of $155.1 million in the first half of 2023 before it even mass-produced or delivered a single commercial vehicle. To put that into perspective, Rivian (RIVN -2.13%) racked up a full-year operating loss of $6.86 billion in 2022 to produce 24,337 vehicles and deliver 20,332 vehicles.

That's why in its latest SEC filings, Canoo has repeatedly said that it has identified a "substantial doubt" in its "ability to continue" operating. There's also a risk that Canoo's stock will be delisted if it remains under the $1 threshold for too long.

So why is Wall Street so bullish?

All of these red flags suggest Canoo will struggle to remain solvent, so it's shocking that Wall Street is still so bullish on its future. However, it's common for analysts to stubbornly stick with their "buy" ratings on tumbling stocks -- since downgrading to "hold" or "sell" would be an admission they made the wrong call -- while quietly lowering their price targets.

When it comes to Canoo, investors simply need to review the numbers to see it could go bankrupt instead of generating big multibagger gains. So instead of betting on Canoo's longshot turnaround, investors should stick with better EV plays instead.