With 1 Thing to Prove, Canoo Remains Interesting

Canoo (NASDAQ:GOEV) stock is certainly an interesting one. The company is more compelling than many other SPAC funded EVs to have come to market in many ways. Yet, some of its assumptions are plainly troublesome. 

an electric vehicle charging. image represents electric vehicle overvalued stocks
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The company has showcased that it is innovative in what it has developed as a vehicle platform. The stock becomes interesting because of that. 

However, its business model, while also innovative, does have the potential to backfire. 

Platform Asset

Canoo’s “skateboard” platform is unique in several ways. One of the reasons that Canoo’s skateboard platform is different is that it integrates more of the car’s electronics than platforms from other EV competitors. The upshot is that more space remains, allowing for greater degree of flexibility in design. 

Another important reason that Canoo’s skateboard platform is a distinct advantage is in ownership. Canoo developed the platform in house in 19 months for a total cost of $250 million. Canoo mentions in its investor prospectus that the platform is the lowest and flattest in the industry as well. Perhaps the height will allow some specific advantages in loading payloads into future vehicles. This should clearly be advantageous in the B2B delivery vehicle scheduled for 2023 delivery. 

Canoo has intellectual property rights associated with the development of the platform, which gives it strength during negotiations. This was likely on display in the first half of 2020. 

Apple Revelation

It was recently revealed that Apple (NASDAQ:AAPL) held talks with Canoo in the first half of 2020 regarding a potential investment partnership. Markets regarded this news as validation of Canoo as a legitimate innovator given Apple’s pedigree and history. Market interest in Apple’s so-called Project Titan has really heated up. Headlines regarding it are increasingly common these days. Therefore, any company associated with the project is going to receive an immediate bump upward. 

And that is what happened. When the news broke of the ultimately failed collaboration between Canoo and Apple on Jan. 12, GOEV stock rose by roughly 20%. Although Canoo is clearly attractive to Apple, the question becomes what caused a deal not to materialize?

What Happened?

While Canoo CEO Tony Aquila declined to elaborate on the reasons that a collaboration did not result, it is clear the two parties couldn’t agree. Speculation is that Canoo was interested in investment capital from Apple while Apple was likely to have been considering an acquisition of Canoo. 

GOEV stock did quickly come down to its previous levels only two days after the Apple revelation, however.

And even though interest in the news was only fleeting in that stock price simply jumped up for a day, I believe this does give extra validity to Canoo. It is proof that the company’s development and ownership of the platform may be very powerful moving forward. 

Subscription Business Model

Canoo is attempting to position itself as a leader in the Transportation-as-a-Service (TaaS) sector. To do so the company plans to offer a subscription business model on its vehicles. 

The idea is that consumers will download the app, apply to be a member, and then go pick up their vehicle. 

This subscription model differs from the traditional lease model in that users can have access to the vehicle for terms from a month. Canoo is clearly betting on the idea that consumer adoption of subscription based business models will also apply to vehicles. The company does include registration of the vehicle in the subscription service. If it can build out a seamless service, consumers will certainly be interested. 

Demand Dynamics

Consumer demand may be important for Canoo and its subscription service, but it’s also clear the company isn’t only interested in the idea for the sake of satisfying customer demand. The company states that margins will be four times higher under a subscription model compared to a direct sale (page 45). 

To me though, this seems like a bit of wishful thinking. Clearly car companies make more money leasing vehicles than selling them outright. So it makes sense that chopping that lease up into smaller pieces therefore increases profitability even further. I can’t argue with Canoo’s logic there.

But such a business model must require a unique set of market dynamics. The question becomes one of mass applicability. 

Verdict

My takeaway is this: Canoo has at the very least developed an attractive EV platform in its skateboard. It is clear that it has potential and may well end up having industry applicability. Apple was interested, the company retains IP rights which give it strength, and it does open up options. Canoo may profit handsomely from it. 

However, markets should really show skepticism in regards to the subscription model. While the skateboard platform’s options open up markets for Canoo, the subscription model limits Canoo. It makes sense in more densely populated urban areas. That’s why I’d stay away from GOEV stock for now.

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

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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