Early Trading Suggests Early Caution for Canoo

The good news and bad news for Canoo (NASDAQ:GOEV) stock comes from basically the same place.

electric vehicles charging at a charging station. electric vehicle stocks
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Canoo is trying to revolutionize not just how vehicles are produced, but how they’re sold (or in Canoo’s case, not sold). As a result, there are fewer “go big or go home” cases in the entire market.

If the plan works, the rewards will be enormous. Canoo’s first two vehicles — a “lifestyle vehicle,” which Canoo considers the evolution of the sport-utility vehicle, and then a delivery van — target both the consumer and commercial markets. Its “skateboard” technology can underpin a variety of other models from that point forward.

Given a market capitalization below $5 billion, GOEV stock could be one of the market’s winners if the plan works.

The flipside is that Canoo can wind up going bust in a hurry if the strategy doesn’t work. Because the plan isn’t just to revolutionize manufacturing, but sales. Canoo vehicles will be sold on a subscription basis — and only on a subscription basis.

Canoo’s plans anticipate massive change in a market that typically doesn’t move that quickly. And so the clear risk, as I wrote last year, is that Canoo will wind up being “too much, too fast.

It will take years for ultimate success to be judged. Canoo’s initial vehicle won’t arrive for over a year, even if it’s delivered on time. But we do have a bit of early evidence about that success, and it doesn’t yet look all that promising.

GOEV Stock Struggles

It’s dangerous to believe that because a stock isn’t going up now, it won’t go up in the future. But in the case of GOEV, early trading does seem to matter for two reasons.

First, given that Canoo only recently went public through the SPAC (special purpose acquisition company) route, the company likely has a retail-heavy investor base. At the least, given the rallies in other EV SPACs, it’s a name that should garner interest from individual investors.

The problem at the moment is that it’s not garnering much of that interest. GOEV is down more than 30% from a record close reached in December. The worry is that the same individual investors not exactly turned on by the Canoo business model are also some of the consumers to whom the company will be marketing in 2022 and beyond.

Put another way, if Canoo can’t electrify (pardon the pun) investors, will it do the same for consumers?

Other EV Stocks Soar

The second, related, issue is that investors have had no problem getting excited — or even going crazy — for other EV manufacturers.

Churchill Capital IV (NYSE:CCIV) stock has posted an epic rally simply on rumors that it will merge with Lucid Motors. Fisker (NYSE:FSR) popped 22% on Feb. 12 after an upgrade from Morgan Stanley. Tesla (NASDAQ:TSLA) admittedly has been quiet of late, but still has a market capitalization well past $700 billion.

Even legacy ICE (internal combustion engine) manufacturer General Motors (NYSE:GM) has seen its stock rally about 50% since late October, largely due to its EV plans.

Yet GOEV stock lags. Whatever investors are seeing in these other EV names, they’re not seeing in Canoo.

It’s Early, But…

Let’s be clear: it’s early. In fact, it’s ridiculously early. Investors shouldn’t be drawing too many conclusions, let alone writing off Canoo entirely.

And it’s not as if GOEV stock has plunged. At $15, it still trades at a healthy premium to the $10 merger price. There have been some buyers along the way, clearly.

That said, this early trading can’t simply be ignored. Again, this is a company whose strategy is based on revolutionizing almost every aspect of the automotive industry.

It’s a strategy that actually isn’t likely to work. Very few companies have that kind of impact.

That’s OK. The case for GOEV stock isn’t necessarily that it will work. It’s that the rewards are huge enough (and they are huge) and the odds are good enough to take a flyer. To pull round numbers out of the air, if Canoo has even a 20% chance of becoming a $100 billion company, GOEV stock is a buy.

That case certainly isn’t dead. But what we can say, at least at the moment, is an awful lot of investors seem to believe that the odds aren’t that good, and the rewards aren’t that great. That’s worth considering.

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


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