Canoo (NASDAQ:GOEV) is trading far below the level it reached immediately after its initial public offering. The pop and then drop in the electric-vehicle sector sent GOEV stock down sharply. For now, Canoo’s stock price is highly correlated to the market’s sentiment towards EV stocks.
Canoo will not stand out from the EV crowd until it starts generating revenue. In the fourth quarter, the company posted no revenue.
GOEV Stock Pure Speculation
As a company still in its developmental phase, Canoo is an easy name to call a sell. The company probably wanted to capitalize on the euphoria of EV stocks. And while the proverbial bubble in the sector popped, the space may still bounce back. The U.S. infrastructure spending bill will provide a macro-level catalyst. Furthermore, many countries are pushing to replace their gas-powered vehicles with EVs in the next 10-25 years.
The company posted no revenue in the fourth quarter. Its EBITDA loss, excluding some items, topped $42.5 million. For the current quarter, Canoo forecast more losses. The company’s expenses, excluding some items, will be in the range of $45 million to $50 million, and its capital expenditures will come in between $10 million and $12 million.
Executive Chairman Tony Aquila said, “We are building vehicles that are not burdened by legacy constraints and developing technologies and functional designs to build EVs for everyone.” This statement suggests Canoo will target the mass market and has lower operating costs than a number of other EV makers
Aquila added, “We believe we are the first OEM that is looking at the full lifecycle of the vehicle and building in multiple revenue touchpoints.”
More Losses Ahead
It’s possible to estimate how much Canoo will lose for every EV it sells .Its mandate to bring EVs to everyone may imply that it will have negative operating margins. When Tesla (NASDAQ:TSLA) started selling EVs, it targeted consumers with higher incomes. Only after growing a fan base did Tesla target the mainstream market with the Model 3.
A Risky Proposition
Investors who bet on Nikola (NASDAQ:NKLA) and lost money should not make the same mistake by buying GOEV stock. Nikola’s ex-CEO eventually admitted that its electric truck shown in its promotional video was not being propelled forward under its own power, as the company had claimed.
Workhorse (NASDAQ:WKHS) is another example of a failed EV. For nearly a year, Workhorse hinted that it would win a deal with the U.S. Postal Service. Instead, the USPS rewarded the contract to a bigger firm. The USPS did not order any vehicles from Workhorse.
Nikola, Workhorse, and Canoo have one red flag in common; none of them is generating any revenue. Canoo, however, enjoyed a sharp influx of money from investors. This liquidity justified the stock’s short-lived rally. In the long-term, however, competition in the EV space will grow, and investors will quickly shift their money to the EV plays that proved themselves.
An Excessive Price Target
On Wall Street, three analysts have a price target on GOEV stock. Their average target is $12, according to TipRanks. Merrill Lynch, which has a “sell” rating and a $6 price target on the name, is the only firm with a reasonable view of the shares. Canoo is nowhere near ready to trade as a public company because it will report losses for the foreseeable future.
Vehicle launches and initial sales will be positive catalysts for Canoo and GOEV stock. But it’s very likely to experience delays and its costs will come in higher than many investors realize. Canoo claims it has an edge over others in the space, but it has yet to prove that.
Tesla stock may look expensive today but the company is the leader in the EV space. Investors could also consider buying the shares of utilities that are embracing clean energy on a massive scale. Those types of names have better prospects than GOEV stock.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.