Electric vehicle maker Canoo (NASDAQ:GOEV) is worth 58% more than its Jan. 11 closing price $17.05. It recently closed its merger with Hennessey Capital Acquisition Capital IV and GOEV stock now has a $4.02 billion market capitalization.
With the transaction, Canoo raised $607 million in equity capital in order to make its unique EVs. I wrote about the company last month, its subscription model for its Canoo EV models and its valuation. It was worth $30 then when GOEV stock was at $18.90.
The valuation forecast is based on my analysis of the company and its own valuation from the company’s slide presentation.
Canoo’s Business Model
The company projects 2024 revenue of $1.43 billion, 2025 revenue of $2.341 billion, and its first profit at $188 million. Canoo expects to build 10,000 vehicles in 2022, increasing to 60,000 in 2024, and to 95,000 in 2025.
But even more interesting, Canoo will not sell its vehicles. It only offers a subscription model. This is a lease of the EV, but with no definitive lease term and no down payment, both of which are traditionally central elements in car leases. Moreover, subscription “owners” of Canoo vehicles do not have to pay registration costs, maintenance costs or deal with the issues surrounding residual value.
Canoo says that this business model will be much more profitable than a one-time sale of the vehicle and with higher margins. It believes that it will make four times the margin of normal one-time sale manufacturers. This is why Canoo’s business model is different than the average EV maker.
For one, Canoo believes that this lowers the barriers to entry. It is the “simplest way to have a single all to yourself for as long as you want (minimum 1 month)” (p. 39 of the slide presentation). The bottom line is what the company says: “One monthly payment, no commitment.” This could clearly transform the way people think about electric vehicles. Tesla (NASDAQ:TSLA) said in its Battery Day event in late September that it would have a $25,000 car in three years. That may or may not happen.
But Canoo plans on being able to deliver its first consumer subscription-based EV model named the canoo by 2022. Shortly after that, it will deliver a last-mile delivery vehicle and a sport vehicle.
Second, all of these models will be based on an architecture of what the company calls a “skateboard platform.” This delivers the highest usable interior space in its class. Essentially, people will sit facing each other with this flat structure using its proprietary battery and drive-train technology. Canoo says these EVs will be highly efficient to produce and can allow them to modularly design new EVs for different end-users.
However, the jury will be out on whether consumers will really like this or not.
What GOEV Stock Is Worth
The slide presentation indicates 244.8 million shares are now outstanding (p. 52). Therefore, at yesterday’s $17.05 close, GOEV stock carries a market value of $4.173 billion.
Moreover, as the company will receive $607 million in the merger, the pro forma enterprise value (EV) is $3.566 billion (i.e., $4.173 billion minus $607 million).
Therefore, we can determine its value using an EV-to-sales model and compare this to what the company says its peers and sum-of-the-parts value should be.
Canoo’s 2025 revenue is forecast to be $2.341 billion. After discounting this at 15% over five years, the present value is 49.7% of this amount. Therefore, the present value of $2.341 billion today is $1.164 billion.
As a result, the EV-to-sales multiple of 3.01x (i.e., $3.566 billion divided by $1.164 billion). This is way too cheap. Its enterprise value should at least five times sales to be comparable to other EV makers.
That would put its enterprise value at $5.682 billion (5x $1.164 billion). After adding back the $607 million in cash, the market value would be $6.427 billion. Therefore, with 244.8 million shares outstanding GOEV stock is worth $26.25 per share.
Moreover, the company itself says that its sum-of-the-parts valuation should be at least $6.592 billion. This is based on comparisons with Tesla and Netflix (NASDAQ:NFLX), a subscription-based business model company.
Now this $6.592 billion or $26.93 per share value is close to my estimate of $26.25. Therefore, we can say that GOEV stock is worth about 58% more than today or $26.93 per share.
On the date of publication, Mark R. Hake had a long position in Tesla (TSLA).