The Big Risk to Canoo Stock Might Be Too Much, Too Fast

As far as the public markets go, the electric vehicle sector has become quickly and increasingly crowded. But few EV investments are as intriguing as Canoo (NASDAQ:GOEV) stock.

a charging station for an electric vehicle (EV)
Source: Shutterstock

To some extent, every EV manufacturer is trying to revolutionize the industry. Electric vehicles still account for less than 5% of global new car sales. Obviously, investors expect that to change quickly, given the massive gains this year not only in Tesla (NASDAQ:TSLA) but smaller stocks across the sector. But the industry still has to convince the majority of consumers — and businesses — to switch to electric.

Canoo’s ambitions go much further. The company has developed a completely different automotive design, even relative to other EV players. It’s trying to revolutionize the ownership process as well.

The sheer amount of change makes GOEV stock intriguing. After an 80% rally from the merger price, it also makes it exceptionally risky.

The ‘Skateboard’

The most distinctive feature of Canoo’s business model is its development of a technology stack it refers to as the “skateboard.” The skateboard is a unique, proprietary chassis with an extremely low profile.

The advantages of the skateboard are myriad. The low profile allows for customized, modular vehicles with more space than their traditional counterparts. The chassis includes battery modules, among other features, and on its own goes a long way toward satisfying regulatory crash test standards.

Canoo will use the skateboard to target multiple markets. The first vehicle will be the company’s “lifestyle vehicle,” which Canoo considers an extension of the evolution from station wagons to minivans to sport utility vehicles (SUVs). Canoo can also target the commercial market with a delivery vehicle for “last mile” services, which can compete with the likes of Workhorse Group (NASDAQ:WKHS). Down the line, a so-called “sport vehicle” — essentially a smaller, if roomer, sedan — is expected to arrive in 2025.

Technologically, the offerings are intriguing. Aesthetically, the lineup is a bit more questionable. On this site, Josh Enomoto described the lifestyle vehicle as having a “boxy toaster look.” He’s not wrong. It’s not just the chassis that represents a notable departure from industry norms.

The Subscription Model

Canoo also is looking to upend how vehicles are sold. For its consumer vehicles, Canoo plans to offer a subscription program — and only a subscription program.

No leases. And, notably for American consumers, no ownership option.

Canoo has argued, including in its merger presentation, that subscription models are better for consumers. Leases, after all, generally are more expensive. The subscription model should benefit Canoo as well; it can take back its own vehicles and offer them elsewhere, instead of giving up value in the wholesale re-sale market after a lease expiration.

That may all be true. But, particularly in the U.S., vehicles aren’t bought solely on practical considerations. Many fewer of us need 300-horsepower engines than own cars with that kind of power. Pickup trucks and SUVs are as much status symbols as necessities for many owners.

Perhaps the shift works. In the merger presentation, Canoo cited projections that the subscription model would quickly become the de facto standard in urban areas. General Motors (NYSE:GM) nameplate Cadillac, Volvo (OTCMKTS:VLVLY), BMW (OTCMKTS:BMWYY) and other auto manufacturers have subscription offerings at the moment.

But those offerings are optional. Canoo’s isn’t. And the company may well be leaving some sales on the table once it gets to production, if consumers would prefer — or demand — the full ownership experience.

The Case for GOEV Stock

To be fair, the flip side of these concerns is precisely the bull case for Canoo stock. Clearly, the company is aiming high. Whether it’s the chassis, the sales process, or even the customizable “skins” that can decorate the car, Canoo is going big.

And we know what “going big” looks like in the electric vehicle space. Incredibly, Tesla has a market capitalization over $600 billion. That’s precisely why so many investors are looking for the “next Tesla.”

Canoo, in contrast, is valued at less than $5 billion at the moment. And so, if there’s even a chance that Canoo can be the next big EV manufacturer, and a legitimate rival to Tesla, the bet could be worth taking.

There is a chance. But it’s a slim one. There already is a Tesla, after all. GM, Ford (NYSE:F), and other automakers worldwide are moving aggressively into EVs as well.

To battle that competition, Canoo is trying to carve its own path. To some investors, that’s the core of the bull case. But asking for a start-up to deliver that many changes that quickly seems like an awfully big risk, too.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for and other outlets.

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