• Canoo (NASDAQ:GOEV) filed for Chapter 7 of the U.S. bankruptcy code.
• Recently, the company’s executives were in discussions with foreign sources of capital. However, as these efforts were unsuccessful, the Board has made the decision to file for insolvency.
• “We are truly

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• Canoo (NASDAQ:GOEV) said on Wednesday that the company has furloughed 82 employees, both salaried and hourly, and idling its factories in Oklahoma while it works to finalize securing the capital necessary to move forward with its operations.
• The company is

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• Canoo is running out of cash, with $5.7 million in cash & short-term investments and a $43 Mln loss. I think the company will face issues in raising more funds.
• Canoo raised $383 million in net debt and $304 million through stock issuance since Q1 2022, while burning nearly $1 billion in cash.
• Despite years of capital raises, Canoo is still not disclosing production numbers or car shipments, and faces operational inefficiencies.
• Management has expressed “substantial doubt” about continuing operations in the latest 10K, with limited financing options and dwindling retail investor interest.
• Shorting Canoo or using long puts offers potential but carries high risks due to the stock’s volatility and illiquidity. I rate Canoo a STRONG SELL.

I believe Canoo Inc. (NASDAQ:GOEV) is facing significant financial distress, which could lead to a further decline in its stock price and possibly put at risk the survival of the company. In this article, I will explore recent developments that lead me to this conclusion and examine the dire financial state of a company that has historically relied heavily on shareholder dilution and excessive debt to fund a capital intensive business which has so far failed to produce any EV at scale.

This article is part of Seeking Alpha’s ‘Top 2025 Long/Short Idea’ competition, as Canoo represents in my opinion an intriguing short position (or long put opportunity, as I will outline later).

I covered Canoo in June of this year, arguing how the company has an interesting product, but lacks any credibility in executing its strategy. I have also covered other EV and traditional automakers, which readers can find on my profile.

Understanding Canoo’s runway

Canoo reported a loss of $43.1 million in Operating Income for the three months ending September 30, 2024, consistent with the negative Operating Income from the prior quarter.

The company’s cash and short-term investments currently total $5.7 million, with an additional $800,000 in accounts receivable—approximately half the amount reported in the previous quarter.

When evaluating unprofitable, capital-intensive startups like Canoo, I prefer using metrics commonly employed in the Venture Capital industry rather than those suited for profitable companies. One key metric I focus on is the “runway”—the length of time a company can sustain its operations with available cash.

A company’s runway is calculated with the following simple formula:

Runway (months) = Cash Balance / Monthly Burn Rate​

Canoo has $5.7 Million in cash and short-term investments, and it is burning roughly $15 Million per month, based on its latest quarterly earnings. Based on what Canoo has on its balance sheet as of its latest earnings, the company has a runway of less than 2 weeks:

• Canoo’s Runway (Q3 balance sheet figures) = 5.7 / 15 = 0.38 months (~11 days)

Accounting for a further $12 Million credit facility that management discussed in its latest earnings (and that I will cover later), Canoo’s runway grows to 5 weeks:

• Canoo’s Runway (with announced funding) = 17.7 / 15 = 1.18 months (~5 weeks)

Accounting for a further $45 Million Convertible Stock Purchase Agreement (which again, I will cover later), Canoo’s runway grows to 18 weeks:

• Canoo’s Runway (with announced funding and stock agreement) = 62.7 / 15 = 4.18 months (~18 weeks)

To be clear – this is not the first time Canoo finds itself in a situation where it needs to raise cash, and quickly. The company might be able to find more funding than what they announced until the time of writing this article – something I will cover in the risk section. However, I do believe this time might be different as the company is running out of financing options and problems are compounding.

Was Canoo ever a viable business?

Historically, Canoo has heavily relied on raising capital to finance its operations. The company has achieved this in two ways:

• Issuing new shares. In 2024 alone, Canoo’s outstanding shares have increased 2.5 times, rising from just under 38 million to over 97 million shares, significantly diluting existing shareholders.

• Incurring in short- and long-term debt. The company has accumulated nearly $80 million in total debt and an additional $81 million in accounts payable, reflecting its reliance on borrowed funds to finance its operations.

Based on Seeking Alpha Cash Flow data, Canoo’s debt issuance since Q1 2022 totaled roughly $436.4 million, with net proceeds of $383.5 million after debt repayments. Stock issuance during the same time period, including both common and preferred, amounted to approximately $304.4 million. During this same period of time, Canoo burned a total of $935.5 Million.

Spending almost $1 Billion in 2 years might seem a lot of money at first glance, but it is worth reminding this is an automotive company. Automotive is a very capital-intensive business. For reference, during the same time frame, Lucid Group, Inc. (LCID) has burned $10.9 Billion in cash, partially financed by issuance of new shares worth $6.4 Billion. Rivian Automotive, Inc. (RIVN), another young automaker, spent $19.7 Billion in the same time period.

This stark difference in cash burn between Canoo and other EV startups, in my view, represents a red flag that the company has never actually built a viable and scalable business. This worry is compounded by the fact that Canoo only shipped 22 vehicles in 2023, and still does not release official figures about shipments.

While Canoo avoids disclosing the number of vehicles it has shipped (or plans to ship), it frequently announces agreements with companies promising future purchases and production targets for its factories. Recent examples include deals with USPS and Kingbee.

In summary, Canoo is a company that has historically relied on heavily indebting and diluting shareholders to finance its capital-intensive operations. Despite this, the company has also fundamentally failed to prove it can actually create a viable mobility business, in my opinion.

Why this time might be different

I believe Canoo’s strategy of raising capital from shareholders to finance its capital-intensive operations is nearing its end. This belief is based on several developments that have surfaced in recent months, which I will outline in the following paragraphs.

Reason #1: retail interest has almost dried up

Historically, Canoo has relied on issuing new shares as one of the prime ways to finance itself. This, however, might no longer be the case very soon. Readers don’t need to take my word for it, but simply refer to one of Canoo’s recent press releases, where management states:

At this time, there are not present, by remote communication or by proxy, a sufficient number of shares of the Company’s common stock to constitute a quorum.

Canoo’s management has recently adjourned its last annual meeting to give more time to shareholders to vote on its proposals. This indicates, in my view, that such a heavily diluted and discouraged retail shareholders’ base is so disengaged with the company that it does not even bother to vote on its quarterly resolutions.

Readers who are not convinced yet of the fact Canoo will hardly find new investors to buy more of its stock can also refer to the company’s latest 10K, where management states:

The resulting market price of our Common Stock following the Reverse Stock Split may not attract new investors, and it is not certain that the Reverse Stock Split will result in a sustained proportionate increase in the market price of our Common Stock.

In other words, management is well aware that they will have a hard time finding retail investors buying stock in their company. I think the reason is fairly simple: everyone is catching up with the fact that Canoo’s business does not seem to be viable long term.

Reason #2: No specifics about future debt financing

The other way Canoo has historically financed itself—besides issuing new shares—is through various forms of debt.

In the latest earnings call, Kunal Bhalla, Canoo’s new CFO, stated that the company secured a $12 million credit facility during the past quarter. However, management did not specify whether this has already been fully utilized or not.

Additionally, CEO Tony Aquila mentioned ongoing discussions with Tier 1 banks about purchase order financing (borrowing against confirmed customer purchase orders). However, once again, no specific timelines or amounts were disclosed.

Overall, I find it concerning that management provided no clear details about future debt financing plans, instead focusing on past achievements. In my view, this may reflect limited financing options available in the upcoming months.

The only other financing option I found from Canoo is a $45 million convertible preferred stock purchase agreement announced in late October. While this could provide significant funding and could help Canoo survive another quarter, it is not debt-related but rather a dilutive measure for existing shareholders. The agreement allows an undisclosed “foreign institutional investor” to purchase up to $45 million in preferred stock.

What I find particularly concerning is that management made no mention of this deal during their earnings call, despite its size.

Reason #3: Management is disclosing concerns about their ability to continue running the business

Canoo’s latest 10K report offers other insights on what management sees as key risks of running this company. I am particularly worried by the following statements:

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.

[…]

We have not achieved positive operating cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.

When management tells investors they have “substantial doubt” and the company’s ability to generate a positive cash flow is “uncertain”, I choose to believe them.

There are several more interesting statements in Canoo’s latest 10K, indicating in my view how management acknowledges the risks the company is facing. The picture above provides a snapshot of some of these statements.

Reason #4: No turnaround plan in sight and founders abandoning ship

Canoo’s latest shareholders’ presentation struck me for how short and generic it felt. The deck is only 10 pages long, with only 3 slides dedicated to strategy. These three pages are focused on Canoo’s supposed international expansion to the UK, with fairly generic information about the growing demand for EV trucks in the country, and the opportunity that this represents for Canoo.

I view this deck as yet another major red flag. Canoo should not be discussing international expansion when it has yet to successfully produce and sell EVs at scale in the US market. Instead, I would have preferred to see management provide clear timelines for fulfilling existing orders from clients like USPS and Kingbee.

I believe it is also worth noting that Canoo’s last founder left in late September, together with the company’s CFO and top lawyer.

No free lunch: how a Long Put trade with Canoo might look like

Canoo’s shares saw a 35% spike on December 12th, 2024. The reasons for this surge are up to anyone’s interpretation, as no significant news about the company emerged on that day to justify the move. It is also worth noting that with a market cap of just $14 million, the stock is highly susceptible to sharp fluctuations when even a small amount of capital flows into it.

Readers may wonder how they could capitalize on Canoo’s current stock rally, and considering the company’s financial woes. In the following paragraphs, I will outline how long puts could be utilized for this trade. While this is not the only possible approach—shorting the stock is another option—I will use long puts as an example. As noted in the risk section, I strongly advise that only investors experienced with options consider this strategy.

Canoo’s stock options are relatively illiquid, and the market is already pricing in the likelihood of the company facing significant shareholder dilution in the coming months. After reviewing the available long put options for GOEV, I see only two viable strategies to approach this trade.

The first one is to buy Long Puts with expiration dates in January 2025. For example, 24th Jan 2025 with a $0.50 strike price, as shown in the image above. This trade has a potential upside of around 30%, should the stock drop from its current price to $0.01. Given the fact Canoo has performed a reverse stock split in the past, I don’t think this is an unlikely scenario.

This is the riskier of the two strategies, as Canoo could secure new financing before January, potentially causing another spike in the stock price, similar to the one seen in early December, which could lead to significant losses.

The other option is to buy LEAPS. For example, buying Long Put Options with expiration in Jan 2027. This trade has an upside of up to 18.5% at the time of writing, and it is relatively less risky as today it seems unlikely the company will be able to survive for another two years.

In both cases, the upside is relatively limited because the market is discounting Canoo’s dire financial situation and pricing for Long Put options takes that into account. Yet, I, personally, found long puts preferable to shorting the stock, due to the more limited risk exposure.

Risks to my thesis

Trading long put options or shorting a stock, particularly one like Canoo, carries significant risks. As a highly volatile micro-cap stock with a market cap of only $14 million, GOEV is prone to large, unpredictable price swings that can quickly erode the value of put options or lead to substantial losses in a short position.

Additionally, the illiquidity of GOEV’s options market can result in wider bid-ask spreads, making it costly to enter or exit trades. Shorting the stock outright is even riskier, as potential losses are theoretically unlimited if the stock price surges, driven by speculative activity or unexpected positive news, such as securing new financing.

These factors make trading in GOEV particularly hazardous, requiring careful risk management and a willingness to accept significant downside risks.

I believe that only investors who are highly experienced and confident in shorting stocks should consider this trade. Personally, I will not enter a short position on Canoo, as it goes against my investment principles. Avoiding such a position also ensures that there is no perception of a conflict of interest in writing this article.

An additional risk of holding a long put option is if Canoo ceases operations and its stock becomes delisted. In such cases, while the stock price may drop to near-zero, the illiquidity of the market can make it difficult to close the position, as there might be no buyers for the option. This could prevent investors from fully capitalizing on the expected decline in value. Furthermore, the process of liquidation following ceasing operations can be unpredictable, and the timing of settlements may not align with the expiration of the option, potentially leaving the trade worthless despite the anticipated outcome.

Finally, while this article focuses on buying long puts as an example of how to benefit from the current situation, there may be alternative approaches that I have not covered. Some of these strategies could potentially be more efficient or better suited to individual risk profiles and market conditions.

Conclusion

In this article, I have focused on the key facts and financial metrics surrounding Canoo. Based on these, I do not believe the company can survive much longer. Despite years of raising capital and engaging in questionable investments, Canoo has fundamentally failed to bring its EVs to market at scale or shown a realistic path to becoming a functioning, profitable mobility company.

While shorting the stock should only be considered by experienced investors who have thoroughly researched the company, I assign Canoo a STRONG SELL rating.

Editor’s Note: This article was submitted as part of Seeking Alpha’s Top 2025 Long/Short Idea investment competition, which runs through December 21. With cash prizes, this competition — open to all analysts — is one you don’t want to miss. If you are interested in becoming an analyst and taking part in the competition, click here to find out more and submit your article today!

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article is for informational purposes only and does not constitute financial advice. Shorting stocks carries significant risks and can lead to losses exceeding the capital invested. While I believe Canoo is in significant financial distress, a single positive catalyst—such as securing new financing—could temporarily boost the stock and result in substantial losses for short sellers. I strongly recommend that only experienced investors consider any trade on Canoo at these levels.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Canoo’s stock has plummeted since December 2020 due to a myriad of issues.
• The company has never generated positive net income.
• Canoo’s low P/B ratio of 0.16 and negative investor sentiment highlight skepticism about its future prospects.
• Many discounted cash flow models indicate 100% overvaluation.
• I am assigning a sell rating to Canoo.

While canoes typically float, the stock price for Canoo Inc. (NASDAQ:GOEV) has been sinking since December 2020. In this article, I discuss Canoo’s declining fundamentals, lackluster valuation, and negative sentiment. These factors tell a story of consistent underperformance and mounting red flags, making a bleak outlook for investors. I have given the company a sell rating until it demonstrates tangible progress in stabilizing its leadership and securing better production. Without these changes, the risks far outweigh any speculative potential.

Canoo’s Declining Fundamentals

Let us review Canoo’s balance sheet from 2020 to 2023. Total assets have declined by 28%. Total liabilities increased by 39%, while shareholder equity decreased by 55%. The number of shares outstanding more than tripled, rising from 10 million to 38 million. After examining the income statement, things are not much better. Canoo has had no positive net income. 2023 operating expenses were approximately 50% higher vs. 2020, while revenue has not seen any meaningful growth. I do not intend to provide a comprehensive review of the financial statements in this article. If you choose to look further, you will find more of the same as I have described above.

The fact that Canoo has faced ongoing financial struggles for years is nothing new to investors. For some, that may be part of the appeal of owning a part of this company. After all, high risk comes with high reward. In this case, however, I think the writing on the wall tells us that the company will face further decline. Canoo has been marred with challenges in scaling operations and securing stable funding. For instance, in 2021, the company shifted its focus to manufacturing electric delivery vans and trucks. The idea sounded great, but the company posted a significant net loss of $346.8 million, while revenue was only $2 million. The bulls may say, “It takes time to make money!” or “They’re just getting started.” Sometimes that’s true; Amazon, for example, was not profitable for at least a decade. The problem Canoo has is that big ideas like a strategic shift require stable leadership. TechCrunch and The Verge have consistently reported on Canoo’s executive departures over the years, such as the resignations of co-founders Ulrich Kranz and Stefan Krause. More recently, Canoo’s CFO and their top attorney have also resigned.

These challenges set the stage for evaluating how Canoo’s market value compares to its financial fundamentals.

Low P/B Ratio Indicates Skepticism

The book value per share is calculated by dividing the company’s equity by the number of shares outstanding. The book value per share is objective and calculable. The market price per share, on the other hand, is only equal to what someone is willing to pay. Rarely does the stock price equal the book value per share due to speculation. When looking at a strong company that has a solid competitive edge, market value is typically higher than book value. Tesla, for example, has a book value of $21.80 per share, but the market value is $345.16. Dividing the market value by the book value equals a price/book (p/b) ratio of 15.83. A p/b ratio greater than 1 can indicate that investors feel the company will have an improved financial position in the future, while a p/b ratio less than 1 may indicate that investors feel the financial performance will degrade.

Canoo has a p/b ratio of .16. The market rate per share is about $0.38, while the book rate is $2.38 per share. Canoo has a p/b ratio that is significantly lower than its competitors, as shown in the table below.

Click to enlarge

Investors should consider the driving forces behind the p/b ratio of each company. Niu Technologies is the only company in this comparison to have had a positive net income in the past 5 years, which likely explains why it has the highest p/b ratio. None of these companies have a high p/b ratio like Tesla because they are struggling to secure a spot in a highly competitive environment. They all face similar issues of scalability, but because of Canoo’s negative sentiment among investors, I think that Blink Charging, Gogoro, and Niu Technologies potentially serve as better prospects.

Altindex is a website that utilizes alternative data when analyzing stocks. Their sentiment metric analyzes posts on various internet stock forums for things such as tone, keywords, and the overall context of mentions. Each post is determined to be positive, neutral, or negative, and then all the posts are aggregated into a score ranging from 0 to 100. Although they did not have data available for GGR and NIU, I was able to compare Canoo (one-time registration required) and Blink (one-time registration required).

Canoo has seen more fluctuation in sentiment than Blink, but Blink has consistently had twice the amount of positive sentiment than Canoo. I believe that Canoo has garnered a negative sentiment for the reasons outlined in the next section, which informs my opinion that Canoo should receive a sell rating.

Negative Sentiment Takes Flight

In Canoo’s Q3 2024 conference call, Tony Aquila, the company’s CEO, was asked, “Is there substantial progress on obtaining governmental program loans for non-dilutive capital?” Tony responded with, “We have received our first letter of encouragement for accessing non-dilutive capital from government programs. We are optimistic about receiving appropriate funding as the current administration wraps up its programs. We have applied for multiple programs but have received one letter so far.” A letter of encouragement is just that, a document encouraging the company to try again in hopes that they might get something on the next attempt. It does not sound promising.

Investors have likely been monitoring the state incentives that Canoo could gain as a result of shifting its workforce from California to Oklahoma. However, Canoo did not point to these incentives as their primary motivation for relocating, instead suggesting operational efficiencies. This could be deliberate. It is possible that Canoo does not want to draw attention to the fact that at least three prior deals with the State of Oklahoma have fallen through. To quote an article published by The Frontier, “The EV-startup Canoo Inc. says it can reap more than $100 million in incentives and tax breaks to manufacture its vehicles in Oklahoma, but three previous economic development deals with the state have fallen through in as many years.” In another article by The Frontier, it was stated that it was unclear if the furloughs at Canoo’s Oklahoma City factory could cause any of the $1 million to be clawed back.

In a publication by local news outlet KFOR, one of the furloughed employees reportedly stated, “They don’t have the paint body area up. General Assembly doesn’t even have the full protocols on how to assemble that. It was still training for that. There’s robotics which they don’t have, a lot of them aren’t even configured to run and operate. There has not been one single vehicle that has been wholeheartedly produced here in Oklahoma.” To me, it sounds like Canoo is going to need a lot more encouragement than just a letter from the government.

Investors may also harbor negative feelings over payments that were made by Canoo to rent the CEO’s private jet. As reported by TechCrunch, the rent payments cost more than double Canoo’s annual revenue for 2023. With declining fundamentals, were rental payments for a private jet really the best way to bring value to shareholders? I don’t think this sits right with investors.

Negative Discounted Cash Flow Estimates

Aside from looking at the p/b ratio and market sentiment, discounted cash flow “(DCF)” is another method by which to value a company. With this method, the future cash flows of a company are calculated, and then discounted to the present value, to arrive at a stock price. If the discounted cash flow is worth more than the cost of the investment, this could suggest that the investment is worthwhile. Though, this does not paint a better picture for Canoo. Under Alpha Spread’s DCF model, they have calculated that the stock price is worth -$24, which means the stock is 100% overvalued since the price of a share cannot go below $0. Another company, Value Investing, calculated that the stock price is worth -$214.00, also a 100% overvaluation. Guru Focus’s DCF model also suggested the stock is 100% overvalued. Financial Modeling Prep arrived at a figure of -$5 per share.

Risk Factors to Consider

While I am confident that a sell rating is the right decision here based on Canoo’s remaining financial struggles, leadership instability, and operational missteps, several risks could affect the thesis and its sell rating. One major risk is the potential for positive sentiment shifts due to new government incentives or partnerships (although, it does not appear that the incoming Trump Administration is likely to be friendly toward the EV sector). Canoo has applied for various governmental programs aimed at supporting electric vehicle production, and if it successfully secures funding or operational advantages, investor outlook could improve dramatically. Historically, even struggling companies in high-growth sectors like EVs can see stock prices rally on the back of favorable policy changes or new contracts.

Another risk is the possibility of a leadership turnaround. While the company has suffered from executive departures and the negative consequences of prior management decisions, it is possible that new leadership or a restructuring could help stabilize operations. If Canoo were to appoint a team capable of executing its plans and gaining investor confidence, it could reduce skepticism surrounding the company’s future prospects, even if its financials remain bleak for the time being.

Finally, Canoo could potentially overcome its current financial difficulties through an unexpected technological breakthrough, or if its shift toward electric delivery vans gains traction faster than expected. Many early-stage EV companies face scalability issues, but some, like Tesla, have overcome them with the right combination of funding, timing, and consumer demand. If Canoo secures the necessary resources and partnerships, it could experience a rebound despite the current pessimism surrounding its stock.

Ultimately, while the risks to this thesis exist, they require significant positive developments for Canoo to reverse its fortunes. In my opinion, these are unlikely to materialize, and the current downward trajectory remains the most likely outcome.

Summary

Canoo has seen its stock price plummet since December 2020, primarily due to its worsening financial situation, poor valuation, and negative sentiment. The company’s fundamentals and bad press have led me to assign a sell rating to this stock. Canoo has failed to generate positive net income amidst growing operating expenses and unsatisfactory revenue.

Canoo’s market value has been undermined by its poor financial performance, as evidenced by its low price-to-book (P/B) ratio of 0.16, which is significantly lower than that of similar competitors. This suggests that investors lack confidence in the company’s future prospects, a sentiment supported by alternative data on investor sentiment, which has been overwhelmingly negative. Furthermore, Canoo’s executive turnover, including the resignation of co-founders, top executives, and even an attorney, has raised doubts about the company’s leadership and long-term vision.

While risks to this thesis exist, such as the potential for positive shifts due to new government incentives, leadership changes, or technological breakthroughs, these would require significant improvements that seem unlikely to me, given the company’s track record. Until Canoo demonstrates tangible progress in stabilizing its leadership, meeting operational targets, and addressing its financial challenges, the outlook remains negative. Canoo looks destined to stay adrift in the investment seas, so accordingly, I have assigned the company a sell rating.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Shares of commercial EV manufacturer Canoo (NASDAQ:GOEV) are gaining ground in after-hours trading as Q3 results showed a sizable improvement in the company’s profitability as revenue nearly doubled from a year ago.

“While we focus on our core markets, we must

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• Canoo’s poor balance sheet, heavy losses, and unsustainable cash burn have materially clouded its future outlook.
• The company is heavily dependent on dilution to plug a liquidity gap that remains wide.
• Bears face some risk if consecutive rate cuts spark a revival of positive investor sentiment.

Canoo Inc. (NASDAQ:GOEV) has staged a rally hot off the heels of its reverse stock split, which I flagged in my last article on the company as a reason to sell the EV upstart. The short case for GOEV has always coalesced around the company’s poor balance sheet, heavy losses, and unsustainable cash burn. The figures from fiscal 2024 second quarter earnings are not great, with revenue of $610,000 and an adjusted EBITDA loss of $38.6 million. This loss was a year-over-year improvement of 38%, with GOEV’s comprehensive net loss during the second quarter at $6 million. The company expects its adjusted EBITDA loss for the second half of 2024 to be between $120 million to $140 million.

GOEV ended the second quarter with cash and cash equivalents of $4.5 million, down $500,000 from its year-ago comp. The company had another $5.4 million in short-term deposits against convertible debt of around $47.2 million. There is another $32.3 million in short and long-term financing liabilities. Critically, GOEV’s current liabilities of $195 million were far ahead of current assets of $33.4 million. Both capture amounts come due within 12 months, and mean that the company faces a glaring liquidity gap that has so far expressed itself as an aggressive dilution of its common shareholders.

Liquidity, Dilution, And Operations

GOEV’s weighted average diluted shares outstanding was 69.6 million, up 600.8% over the last three years and a remarkable 217% over GOEV’s year-ago comp. The pace of this dilution is not sustainable, with GOEV in June filing to sell 5.6 million shares even as its commons have dropped 99% over the last 3 years. With the commons now trading hands for $1.31 per share, the market cap at $91.17 million will progressively be less able to raise the required amounts to meet a liquidity gap that has recovered from its worst levels but still sits well within a point of being extremely unsustainable.

In terms of operations, the company is following Tesla and is moving its corporate headquarters to Texas. GOEV will relocate 137 engineering positions to the Lone Star State and Oklahoma starting in the fourth quarter of 2024. Oklahoma houses the company’s manufacturing capacity, with the move being a positive, if it drives cost savings. GOEV’s core headwind is posed by its excessive losses compared to the money generated by its operations, everything the company does has to be through this lens, as the list of now-defunct EV companies continues to ramp up. From Fisker, Arrival, Proterra, and Electric Last Mile, the market for EVs has become brutally Darwinistic after the end of ZIRP-rendered liquidity scarce and expensive. GOEV has a poorer balance sheet than several companies on this list before their filings, including Proterra, which filed for Chapter 11 with $130 million of cash on its balance sheet.

Risks And How The Bulls Could Still Pull A Win

Bears face risks here. Firstly, the company has made some progress in reducing its costs, with operating expenses of $38.6 million, including stock compensation, down from its year-ago comp of $69 million. GOEV’s continued move to reduce its operating footprint could also help reduce costs further. This is as the Fed funds rate is set for its first dip since 2020, when the FOMC meets on the 18th of September. While the 25 basis points movement has to some extent been priced in by the market, consecutive rate cuts could spark tepid euphoria for investor sentiment in heavily sold-off stocks. A recovery of sentiment and a rise of subsequent liquidity into the commons represents the core risk for the short base, it would also provide a platform for GOEV to issue more shares to bolster liquidity.

Ultimately, it’s hard to see the value here outside of the pie-in-the-sky speculation. GOEV’s balance sheet faces severe funding constraints, with the primary dilution strategy unsustainable, as the commons now sits on the edge of slipping below NASDAQ’s $1 minimum listing requirement once again. This is because revenue remains anemic, and the company faces an intensely competitive market for EVs, where hybrid cars have become more popular with US consumers. GOEV went public in a ZIRP world, and only a return to this would provide the backdrop for the company to recover more broadly, a scenario also faced by Faraday Future (FFIE), which I covered.

GOEV had to engineer a 1-for-23 reverse stock split in March, and now faces the specter of once again running foul of this requirement on the back of the sheer volume of dilution and stock price decline. GOEV has an at-the-market program to sell at least $142 million of new shares, and a shelf registration for the sale of $100 million shares. This continued dilution means the commons are a sell.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Canoo has seen a significant drop in share price from over $572 to just $1.50, with minimal revenues and significant losses.
• The company is working on pilot testing its vehicles with hopes of generating meaningful sales in 2024, but revenue estimates have been continually dropping.
• Canoo’s negative working capital balance, high cash burn rate, and reliance on financing from Yorkville raise concerns about continuous dilution and future prospects.

One of the worst performing names in the markets in recent years has been Canoo (NASDAQ:GOEV). The electric vehicle manufacturer saw its shares peak at a split-adjusted price of over $572 in late 2020, only to fall back to just a dollar and change these days. After the close of trading, the company reported its Q2 results, and the numbers show a name that’s still in tremendous trouble.

Canoo describes itself as a “high tech advanced mobility technology company with a proprietary modular electric vehicle platform and connected services initially focused on commercial fleet, government and military customers”. It believes that its “breakthrough EV platform” will be able to bring new products to market faster and cheaper than its competitors. To date, the company has produced very little in terms of revenues, but it has racked up sizable losses and significant cash burn. As a result, the balance sheet is in poor shape, and investors have been diluted quite a bit over time.

This year, the company is working with customers on pilot testing of its vehicles, and it hopes that 2024 will be the first year with meaningful revenues generated. In Q2, however, Canoo only reported revenue of $605,000 in total, badly missing street estimates for $1.56 million. As the chart below shows, estimates for next year’s revenues have come crashing down in the past nearly two years. Analysts went into last Wednesday’s report expecting about $65 million in total sales this year. That number was down about 96% in just the past 21 months already, but it plunged to under $20 million after the Q2 report. The company is working to get its production facility to an annual run rate of tens of thousands of vehicles, but obviously progress has been slow and painful.

With very little revenues to work off currently, Canoo has racked up some pretty large losses. Gross margin dollars were negative in Q2, even before almost $42 million in operating expenses. While the quarterly operating loss did improve by about $30 million over the prior year period, the annual run rate here was still for a loss of around $175 million. The net loss was a lot better, but only because of an accounting gain on the company’s warrant liability due to the plunging share price.

Like its operating losses, management did talk in the earnings release about a solid reduction in cash burn. However, free cash flow was more than negative $90 million in the first half of this year, and quarterly trends should continue around those levels or even more in the back half. At the end of June, company’s the total cash balance was more than $19 million, but a lot of that was restricted cash. Short-term convertible debt on the balance sheet stood at more than $47 million.

The company’s main source of financing currently is a pre-paid advance plan with Yorkville, a Cayman Islands exempt limited partnership. Last month, Canoo came to its latest agreement with Yorkville, providing for up to $100 million in funding, with $15 million initially. The advances are offset by the issuance of common stock, which as the chart below shows, has continued the surge in the company’s outstanding share count over the past year and a half.

At the end of the June quarter, the company had a negative working capital balance of more than $160 million. With Canoo likely to tap Yorkville for another $10 million or more each month moving forward, massive dilution will continue for some time. With a total market cap of only a little more than $100 million dollars as of Friday’s close, each of these advances is quite costly for shareholders.

In terms of valuation, Canoo finished Friday at about 0.41 times expected 2025 revenues. That put the name a bit above the valuation of names like Ford (F) and General Motors (GM). Most of the Chinese electric vehicle names go for around 0.65 times or so their expected revenues for next year, while other US names like Rivian (RIVN) and Lucid (LCID) average about 3 times. The major difference here is that Canoo’s revenue estimates have been continually dropping, so even with shares trading like a distressed asset, it’s hard to see much upside currently. The average price target on the street was north of $7 entering the Q2 report, but fell to under $6 afterwards. While that still implies tremendous upside, the average valuation was over $81 just a year ago.

With another near zero revenue quarter in the books for Canoo, I am placing a sell rating on the stock today. The company just hasn’t been able to generate revenues at any scale yet, with large losses and cash burn putting a significant strain on the balance sheet. With management likely needing to bring in a lot more capital to ramp up production, investors are facing continuous dilution for some time. If shares continue to be pressured, falling below $1 a share, another reverse split may be needed to remain listed, and that could be an additional negative catalyst in the future.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Canoo: Revenue Struggles Continue appeared first on Up2info.com.

• Canoo has a solid product strategy, focusing on a flexible vehicle platform and the underserved niche of light commercial vehicles.
• The company relies heavily on shareholder dilution for liquidity, raising over $400 million since its IPO. Canoo has access to another $200 million through dilutive agreements with Yorkville.
• Canoo has delivered almost no vehicles in the last 12 months, raising serious concerns about its execution capabilities. Despite opening its Oklahoma production facility, Canoo does not disclose production targets.
• Canoo has between $9 million and $18 million in cash, with a runway of only one to two months. This limited financial cushion and need for further dilution contribute to my “SELL” rating for Canoo stock.

I covered Rivian Automotive, Inc. (RIVN), Lucid Group, Inc (LCID), Fisker and NIO Inc. (NIO) in a recent article, arguing how they do not represent a compelling proposition for shareholders. Some readers reached out asking my opinion about Canoo Inc. (NASDAQ:GOEV). In this article, I examine how Canoo stacks up against other Electric Vehicle “PurePlayers”, i.e. car makers that exclusively focus on producing EVs.

I believe it is worth nothing that since my last article, Fisker has declared bankruptcy. This was a risk I mentioned back then and the reason why I will not compare Canoo to Fisker in this new analysis.

Thesis: Canoo has a solid product strategy but is short of cash and presents no credible execution plans

I believe Canoo has a superior product strategy compared to other early-stage PurePlay EV players. The company developed a flexible and scalable automotive platform, allowing to quickly target different markets with distinct models. More importantly, Canoo has chosen to focus on an underserved EV niche: Light Electric Commercial Vehicles. This is a high-growth EV segment, and neither Tesla, Inc. (TSLA), nor Rivian, Lucid or NIO offer vehicles to tackle it.

However, the good news for Canoo ends with its product strategy. Looking at how management has executed since IPO, a dire picture emerges. The company has raised over $400 million through agreements with Yorkville, leading to significant shareholder dilution. As a result, the company’s stock has plummeted by 99% since its peak in early 2021.

Even more worryingly in my view, Canoo has delivered no more than 25 vehicles in the last 12 months, despite opening its Oklahoma production facility in November 2023. Canoo also does not disclose numbers on expected deliveries or how many vehicles they expect to produce in 2024. I view these as red flags that the company is failing to mass produce EVs and start generating cash flow from its operations.

The company has access to another $200 Million, which also comes in the form of agreements that will keep diluting shareholders. There is no doubt in my mind that management will need to dilute shareholders further, given the company has limited Cash on Hand at the moment, and an expected runway of 2 months at best, in my calculations. Canoo has actually very recently announced the sale of up to 13 Million more shares, which are outside of the agreements with Yorkville.

For these reasons, I can only recommend a “SELL” for Canoo’s stock. I like the product strategy and a possible risk to my thesis is that the company could be acquired for someone else to execute on it. However, with current management needing to raise capital and dilute shareholders, I see no upside in entering Canoo at these levels.

What I like: Canoo has a scalable EV platform and focuses on an under-served EV niche

I like Canoo’s product strategy, because I see it as fairly unique, targeting a well defined niche. More specifically, I see Canoo’s product strategy as based on two pillars.

The first pillar concerns the development of a flexible, cheap and scalable automotive platform for producing EVs. This is a similar approach to what Tesla’s pioneered with the Model 3 and Model Y – which share up to 75% of components together. While Canoo does not reveal exactly how many components are shared between its different models, a visual comparison like the one below shows just how similar their vehicles are.

At the time of writing, Canoo is advertising 5 different EVs that are either planned for the future or can be booked with a deposit. These vehicles are targeted at very different customers:

• The LDV130 and LDV190 (on the left in the image) are two Light Commercial Vehicles that the company calls “Lifestyle Delivery Vehicles”, and they are targeted to commercial users. The LDV190 has been recently sold to the US Postal Services.

• The Multi-Purpose Delivery Vehicle (at the bottom of the image), or MPDV, is a larger version of the LDV190 with significantly higher cargo capacity.

• The Pickup and LV (“Lifestyle Vehicle”, on the right in the image) are two more traditional electric passenger vehicles targeted to consumers.

I think developing such a flexible platform is a solid first pillar of Canoo’s product strategy, as it tackles the issue of the automaker industry being very capital intensive. By developing a flexible, scalable platform that can serve different markets, economies of scale are achieved. This strategy is similar to other PurePlay EV carmakers like Rivian and Lucid, which also developed flexible platforms for their models. However, I think Canoo’s design choices and style take this strategy to an extreme, allowing the company to expand quickly into different niches.

The second pillar of Canoo’s strategy is focusing on the underserved niche of light delivery trucks. The global light commercial vehicle market is expected to grow at a CAGR of over 34% until 2030 . Interestingly, this market remains relatively underserved, as most EV PurePlayers focus on consumers rather than businesses.

With the exception of Nikola Corporation (NKLA), none of the other American EV PurePlayer carmakers focus on light delivery trucks. Tesla does not currently produce any vehicle that can be sold to companies for deliveries. Nore do Rivian or Lucid, which are focusing on competing with Tesla’s models, targeting the same consumers. This is something I covered in more detail in my recent article.

This commercial EV segment is rather served by traditional automakers like Volvo, Mercedes-Benz Group AG (OTCPK:MBGAF) and Chinese manufacturers.

Canoo has recently reached an agreement with the US Postal Service for the future purchase of commercial vehicles. As per Canoo’s Q1 earnings report, the company has also managed to deliver the first vehicles as part of this agreement.

The deal with USPS was signed at a time when Canoo barely produced any vehicles – something I will cover in more detail later in this article. I believe this shows how demand for EV light trucks is strong, and that the product strategy of Canoo is a solid one.

However, it is my opinion that the execution of this solid strategy has left a lot to be desired since the company was listed in 2020, and I have strong concerns about its future execution, as well – something I will cover in the next sections.

What I do not like: very limited runway and historical share dilution

I believe the main issue with Canoo is that the company is experiencing a negative Normalized Net Income of $ 84.5 Million (TTM data from Seeking Alpha), while having between $ 9 and $ 18 Million in cash and equivalents. This discrepancy stems from Seeking Alpha considering Canoo’s cash and equivalents at just below $ 10 Million, while Canoo reports they have $ 18 Million. The difference is that Canoo considers “Prepaids and other current assets” as cash and equivalents in their earnings report. The difference is minimal in my view, and does not change the overall financial picture for the company.

On top of Cash at Hand, Canoo has access to more than $ 200 Million thanks to agreements with Yorkville Advisors Global LP, as outlined in the company 10K report from Q1 2024. Access to these funds comes mostly via a series of agreements with this institution, dating as far back as 2022. More specifically:

• Prepaid Advance Agreement (PPA) worth $300 million, nearly fully utilized.

• Convertible Debentures in the form of multiple notes totaling $117.5 million, with $25 million outstanding.

• Warrant Cancellation and Exchange Agreement representing a potential of $29.2 million from warrant exercise.

• At-the-market (ATM) Offering Program worth $200 million in total, with $149.5 million remaining accessible.

These agreements are all in the form of dilutive convertible debt and will result in the company having to dilute shareholders, should management need to raise more cash.

As per the figures just presented, Canoo has historically exercised its agreements with Yorkville to raise more than $400 Million in capital. This substantial and continued dilution is what’s behind the performance of Canoo stock – which is down more than 99% since its IPO in 2020. Canoo’s shares traded at just shy of $500 in early 2021, and are currently trading at $1.80.

In their latest 10K, Canoo’s management also recognizes how the company’s principal source of liquidity is: “access to capital under the Yorkville PPA (as defined in Note 9 Convertible Debt)”.

The fact that Canoo has historically almost exclusively relied on shareholder’s dilution to get liquidity is not the only element that makes me think history is bound to repeat itself. The difference between the company’s Net Income and Cash at Hand results in an expected runway (time the company can operate based on cash available) of 1 month. This figure only doubles to 2 months when taking into consideration what Canoo considers Cash at Hand in their latest earnings.

The earnings of Canoo were released in mid-May. It is now end of June, and it is not surprising – given an expected runway of between 1 and 2 months – that Canoo has just announced they will issue up to $ 13.7 Million shares, equivalent to roughly $ 25 Million at current market prices.

Finally, the company does not currently mass produce any vehicle, and their plans to start production seem unrealistic, as I will cover in the next section.

For the reasons above, I expect Canoo to raise cash using their existing agreements with Yorkville and keep to significantly diluting shareholders as a result.

I see no realistic plan for Canoo to start mass producing and delivering EVs at scale

To put Canoo’s execution plan into perspective, I am comparing the company with Rivian, Lucid and NIO in the table above. The difference is in my opinion quite evident: while I am no fan of Rivian, Lucid or NIO, they are all delivering products, growing sales and have a defined plan to bring more EVs to the market.

In contrast, Canoo barely produces any vehicle as of the time of writing this article, 6 years after the company was founded and 4 years since its IPO. To be clear, Canoo has announced it started production of LDV vehicles in its Oklahoma facility in November 2023. However, the company does not release any figures of just how many vehicles have been produced or are planned to be produced for 2024. In its Q1 Earnings report, the company does not mention at all any numbers related to expected vehicle deliveries, nor its production capacity.

Other than the vehicles delivered to USPS in Q1, the only other delivery of Canoo vehicles to date concerns an undisclosed amount of LVs for NASA mission crew transportation. These LVs are going to be used to transport astronauts for 10 miles to the launch pad in Florida. I believe this amounts to little more than a PR move for Canoo, as these numbers are not enough to prove the company is actually producing vehicles at scale. I think this is also consistent with the fact that Canoo recently appointed Former NASA Chief Technology Officer Deborah Diaz and Veteran EV Transportation Leader James Chen to the Board of Directors.

Ultimately, the strongest data point showing how Canoo is not delivering vehicles at scale is the company’s revenue. Canoo only generated about $ 900,000 in revenue in the Trailing Twelve Months – and no revenue at all in Q1 2024. Even assuming that TTM revenue comes entirely from deliveries, and assuming an average price per vehicle between $35,000 to $40,000, Canoo could not possibly have delivered more than 20 to 25 vehicles in the last 12 months.

A final issue I see with Canoo’s execution relates to pricing. Canoo’s mission is to “bring EVs to everyone”. The product strategy of Canoo – focusing on a flexible, scalable platform – should in my view allow the company to be competitive in pricing their vehicles, as pricing is a key lever of EV adoption.

However, Canoo’s vehicles are not particularly competitive in terms of pricing based on what the company currently advertises on their website. The LV, a consumer-oriented vehicle that could compete with Tesla’s Model Y and Model 3, currently starts at just shy of $43,000, which is slightly above Tesla’s prices. The company currently does not disclose pricing for their LDV models or pickup truck.

The picture emerging, in my view, is that of a company that has raised $ 400 Million since IPO via diluting shareholders, but it has consistently failed to showcase success in producing and delivering EVs at scale, even 7 months after having allegedly opened its Oklahoma factory. Furthermore, the company is not showing price competitiveness on the market, before starting to actually deliver products to consumers.

Given the dire financial state of the company and its track record, I see no reason to trust management’s ability to execute a turnaround and generate enough cash flow from operations to reduce its reliance on shareholders’ dilution.

Risks to my thesis – can Canoo’s product strategy be saved?

The main hope for Canoo – and risk to my bearish thesis – is a company acquisition. As I have outlined, I believe the product strategy of Canoo is solid, and superior in many aspects to that of other early stage PurePlay EV players.

If a company were to acquire Canoo and their existing Oklahoma facility, they could inject the cash needed to boost production numbers and scale operations significantly. Shareholders could benefit from getting their shares purchased at a higher value than the current market price, and possibly future shares appreciation should the resulting legal entity keep being listed.

Another risk to my thesis is that I might be wrong about Canoo’s ability to quickly scale its business. While I do believe management will need to dilute shareholders to survive in the upcoming months, the company might also start showing solid sales and more contracts closed for their LDV models. That might result in the company increasing its ability to survive on cash flow generated by operations, and might translate in positive shareholders’ return in the longer term.

Conclusion

As a car enthusiast and keen follower of the automotive industry, I got genuine excitement when I first started researching Canoo. Their product strategy struck me as a breath of fresh air in an industry that tends to copy Tesla’s playbook a decade and a half too late. I still like Canoo’s product strategy and its focus on an underserved niche.

However, digging into the financials and executional challenges, I quickly changed my mind on this stock. While the product strategy is solid, management’s execution solely relies on diluting shareholders. The results are clear looking at past performance. Canoo has very little to show for the more than $ 400 Million it raised since IPO, and it will inevitably need to raise more money to have a chance at survival in a highly competitive and capital intensive industry.

For these reasons I recommend any investor should avoid this stock, and I assign a SELL rating to Canoo. If you are interested in the automotive sector and in EVs, Stellantis N.V. (STLA) and Tesla are in my opinion more favorable and interesting names to explore.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Canoo: Solid Product Strategy, But Share Dilution And Poor Track Record Should Deter Investors appeared first on Up2info.com.