Though electric vehicles (EVs) have been stealing headlines lately, most of the sentiment has arguably focused on sector king Tesla (NASDAQ:TSLA). On the surface, that doesn’t bode particularly well for EV upstarts like Canoo (NASDAQ:GOEV). Then again, competition is always good, driving more innovation and delivering lower prices for the consumer. So, is GOEV stock a buy for your portfolio?
It’s not a clear-cut answer, as I hope to explain. From the immediate collective emotional state, GOEV stock certainly benefits from compelling tailwinds. First and foremost, it’s official: Joe Biden is the 46th President of the United States.
As you know, Biden has been hammering environmental causes throughout his campaign. With Democrats controlling Congress, he’ll be sure to aggressively push through climate-related issues as he’s already done. Frankly, that’s a huge catalyst for GOEV stock and clean-energy-related companies.
Second, Canoo isn’t just a “linear” competitor to Tesla. Indeed, the upstart rival has brought innovative platforms and thinking to the game. For starters, its “skateboard” architecture that allows myriad vehicle designs under a single base frame not only saves costs, but it also attracted the attention of automakers like Hyundai and Kia.
One of the key characteristics of this skateboard format is that it allows manufacturers to adapt to shifting consumer trends quickly. Given that expectations regarding consumer experiences have never been higher, this architectural innovation could potentially swing GOEV stock higher.
Also, Canoo is deploying a subscription model for its consumer EV. Having such a model would be incredibly convenient for consumers. Theoretically, it will also help transition prospective buyers or those on the fence into EVs from combustion cars. That’s the kind of smart thinking that I like to see from startups looking to disrupt a deeply ingrained industry.
Question Marks Also Hang Over GOEV Stock
Nevertheless, like any endeavor, Canoo has some pros and cons. Right off the top, the design element is going to be controversial. Previously, I described the Canoo EV as a toaster on wheels. Sure, some people will like the look. At scale, I’m beginning to have my doubts.
That’s because automobiles naturally go through an evolution of design over many years. You might even say that the overriding automotive design motif of a set time described the culture of that period. The problem with Canoo’s drivable toaster is that it’s not design evolution but regression.
Will consumers go for it? Maybe. But it’s something to keep in mind before getting too heavily involved with GOEV stock.
More critically, as I study the nuances of electrification of transportation, EV upstarts may have trouble attracting consumers on the reasonable end of the income range. For instance, when people talk about charging at home, they almost always mean that they already installed a level 2 charging system (240 volts) in their garage. Charging an EV with a standard 120V system will take several days.
You can probably get an electrician to do the conversion for around $1,000 or so. But the bigger issue is that homeownership rates for millennials have lagged that of prior generations. So, much of Canoo’s key demographic probably won’t be able to enjoy at-home charging (because they live in restrictive apartments or condominiums).
Therefore, public charging is something that many young Canoo buyers must use. That leads to other inconveniences, because public charging can be confusing and frustrating, especially for non-Tesla drivers. Further, fast charging may improve the inconvenient aspect, but it’s not great for the battery to fast charge all the time.
While these headwinds may not sound like a big deal, add them up over time, and they can drag on customers.
Canoo’s Subscription Risk?
And that brings me to my final concern about GOEV stock, the underlying subscription service. Typically, if you bought an EV from a “standard” automaker, you’re stuck with the vehicle. Essentially, a normal automotive business model forces petrol heads to learn to love EVs.
But with Canoo’s subscription service that requires only a minimum one-month term, why, if you have a problem with the zero-emissions lifestyle, you can return that puppy. You’re just out one car payment — no biggie!
Thus, GOEV stock may have a pre-recovery Best Buy (NYSE:BBY) risk. Before Best Buy transitioned the company to be more relevant to the consumer, it was treated as a showroom floor for Amazon (NASDAQ:AMZN). If that happens to Canoo, and it becomes a try-before-you-buy-something-else platform, it will do a service to EVs, perhaps, but not for itself.
And bringing it back full circle, that’s the risk of having an uninspiring design. Combined with a subscription model, you’re inviting customers with ulterior motives.
However, I don’t want to get too negative. Again, Canoo’s skateboard architecture could be the real deal. Certainly Hyundai thinks so, and that’s not a fly-by-night operation.
Bottom line, I think there’s enough here for speculators. But if you’re a conservative investor, you may want to wait for GOEV stock to lose some of its choppiness and gain some established composure before moving in.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.