Canou (NASDAQ:GOEV) has been a volatile VE stock in 2021. It rallies in November, but GOEV was down in March and April. It has seen gains of around 38% in the past 3 months, but has fallen by around 52% in the past 12 months.
The volatility isn’t just driven by current events, as it should be, but also emotions, 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 makes it too risky”, I highlighted some of the main obstacles such as increasing losses, lack of income, depleted cash flow, poor fundamentals and a vague business plan strategy.
For me, these factors make this stock of electric vehicles “too expensive, too risky and too uncertain”. I didn’t like the GOEV stock back then and frankly still don’t like it.
Canoo Business News
Investors were delighted to hear that Canoo will ramp up production of its first all-electric passenger van named Lifestyle Vehicle (LV) in the fourth quarter of 2022 instead of 2023. But many other factors combine to paint a grim picture of the future. GOEV stock.
Starting with positive news, the electric vehicle maker announced that its headquarters and R&D center will be in Bentonville, Arkansas. The company chose Panasonic as its battery supply partner and expanded its partnership in Oklahoma to include important strategic operations such as software development and customer support and financing centers. It will also receive $ 100 million in additional non-dilutive state and local financial incentives.
On top of that, Canoo has expanded its workforce as the production phase approaches. And once all of the engineering design is complete and over 500,000 miles of beta testing has been completed, the company will embark on Gamma testing.
All of this news shows that there is a determination to start generating income in 2022. The question is whether GOEV stock is worth investing now, while waiting around a year for a significant improvement in financial metrics. keys?
Changes in the business model: 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 all contractual engineering services to protect their intellectual property. Licensing its platform to other electric vehicle 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” in selling this technology to other electric vehicle manufacturers. Canoo is both a small and new player in the hot electric vehicle industry. My point was that without any large-scale production, how can an EV startup claim and sell their IP know-how to other EV manufacturers? It seems unrealistic to me.
The decision to change their subscription program and make it optional, rather than a key source of sales, also poses a question to me. The top priority for any new business, especially for electric vehicle makers like Canoo who need capital, should be income.
The focus has now shifted to ramping up production of GOEV’s first lifestyle vehicle. And a previously announced strategic partnership with VDL Nedcar, a Netherlands-based company that was due to build 15,000 cars for Canoo by 2023, has since failed.
This is another major change to the business model, signaling either that Canoo feels very confident in what he is doing or that he is confused. Time will tell in 2022 the outcome of these decisions.
When it comes to finances, has anything changed for the better?
Q3 2021 results: nothing surprising
Canoo announced a widening of Adjusted EBITDA and net losses in the third quarter of 2021 of $ 85.8 million and $ 80.9 million respectively. By comparison, in the third quarter of 2020, the published figures for Adjusted EBITDA and Net Losses were $ 20.1 million and $ 23.4 million, respectively.
Cash used in operations was $ 180.6 million in the third quarter of 2021, compared to $ 65.1 million in the third quarter of 2020. Meanwhile, capital expenditures reported in the third quarter of 2021 amounted to $ 74 million. In my opinion, Canoo will most likely soon turn to equity offerings to fund its operations. Why?
The answer is that GOEV is burning 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’s the end result of GOEV’s stock now? The fundamentals aren’t inspiring, but is it enough to buy the stock based on news about starting production earlier in 2022 than in 2023?
The answer is no, as the title is now highly speculative. Wait and see what happens over the next few quarters, as production will better determine the attractiveness of this stock of electric vehicles. Without significant income, its market cap of $ 2 billion is too high.
The rise in operating expenses and high capital spending will likely increase further to reach production in 2022, raising 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 reach profitability remains very uncertain. There are just too many serious risks to ignore now.
As of the publication date, Stavros Georgiadis, CFA does not have (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 the publication guidelines of InvestorPlace.com.
Stavros Georgiadis is a CFA Chartered Equity Research Analyst and Economist. He focuses on US stocks and has his own stock blog at thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be contacted on Twitter and LinkedIn.