Canoo Stock Looks Too Risky Given Concerns Over Its Business Plan

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Canou (NASDAQ:GOV) has been a volatile EV stock in 2021. It rallied in November, but GOEV was down in March and April. It has seen gains of around 38% in the last 3 months, but it’s down around 52% in the last 12 months.

Source: shutterstock.com/rafapress

Volatility isn’t just news-driven, as it should be, but also emotion-driven, thanks to the Reddit frenzy and short-term trading.

Canoo is a pre-revenue electric vehicle start-up; In my previous article, “Canoo faces several key risks, which make it too risky”, I highlighted some of the main hurdles such as growing losses, lack of revenue, consumption of cash, poor fundamentals and a vague business plan strategy.

To me, these factors make this EV stock “too expensive, too risky, and too uncertain.” I didn’t like the GOEV stock back then and truth be told, I still don’t.

Canoo Business News

Investors were thrilled to learn that Canoo will ramp up production of its first all-electric minivan named Lifestyle Vehicle (LV) to the fourth quarter of 2022 instead of 2023. But many other factors combine to paint a grim picture for the stock of GOEV.

Starting with positive news first, the electric vehicle maker has announced that its headquarters and R&D facilities will be in Bentonville, Arkansas. The company chose Panasonic as its battery supply partner and expanded its partnership with Oklahoma to include important strategic operations such as software development and customer and financial support centers. It will also receive $100 million in additional non-dilutive anticipated state and local financial incentives.

On top of that, Canoo has expanded its workforce as it nears the production phase. And once the engineering design is complete and over 500,000 miles of beta testing has been completed, the company will move into Gamma testing.

All this news shows that there is a determination to start generating income in 2022. The question is whether GOEV stock is worth investing in now, waiting about a year for any significant improvement in key metrics. financial?

Business model changes: good or bad?

Canoo has made several changes to its business model over the past year. Unfortunately for Canoo, most of these changes seem questionable at best.

Let’s start with the decision to suspend any engineering services contract to protect its intellectual property. Licensing its platform to other EV manufacturers would be an additional source of revenue. the platform developed by Canoo has many positive characteristics that allow the development of new vehicles, faster and at lower cost.

In my first article on Canoo, I questioned its “expertise” to sell this technology to other EV manufacturers. Canoo is both a small and a new player in the hot electric vehicle industry. My point was that without large-scale production, how can an EV startup claim and sell its IP know-how to other EV manufacturers? It seems unrealistic to me.

The decision to change its subscription program and make it optional, rather than a key source of sales, is also questionable to me. The top priority for any new business, especially for EV makers like Canoo that need capital, should be revenue.

The focus is now on accelerating production of GOEV’s first lifestyle vehicle. And a previously announced strategic partnership with VDL Nedcara Dutch-based company that was supposed to build 15,000 cars for Canoo by 2023, has since failed.

This is another major change to the business model, signaling either Canoo feels very confident in what he’s doing or he’s confused. Time will tell in 2022 the outcome of these decisions.

When it comes to finances, has anything changed for the better?

Third quarter 2021 results: Nothing as a surprise

Cano reported broadening of adjusted EBITDA and Q3 2021 net losses of $85.8 million and $80.9 million respectively. For comparison, in the third quarter of 2020, reported figures for Adjusted EBITDA and Net Loss were $20.1 million and $23.4 million, respectively.

Cash used in operations was $180.6 million in Q3 2021, compared to $65.1 million in Q3 2020. Meanwhile, Q3 2021 capital expenditure reported was $74 million. In my view, Canoo will likely soon turn to equity offerings to fund its operations. Why?

The answer is that GOEV burns money fast. In fiscal 2020, Canoo reported free cash flow of $114.17 million. In the first nine months of 2021, Canoo reported free cash flow of $254.6 million.

So, what is the balance sheet of GOEV shares now? The fundamentals are not inspiring, but is it enough to buy the stock based on information about the start of production earlier in 2022 than in 2023?

The answer is no, as the title is now highly speculative. Wait and see what happens in the coming quarters, as production will better determine the attractiveness of this EV stock. Without meaningful earnings, its $2 billion market capitalization is too high.

Rising operating expenses and high capital expenditures will likely increase further to reach production in 2022, which raises many concerns. I expect GOEV stock to be volatile, too risky for investors with a risk averse investment philosophy. Finally, the question of when Canoo will achieve profitability remains highly uncertain. There are simply too many serious risks to ignore now.

As of the date of publication, Stavros Georgiadis, CFA does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Stavros Georgiadis is a CFA charter holder, equity research analyst and economist. He focuses on US stocks and has his own stock market blog. thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be reached on Twitter and on LinkedIn.

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