Cash-burning Canoo Can’t Seem To Join Peers on EV Production Bandwagon

Shares of Canoo (NASDAQ:GOEV) stock have arguably always been weak. Prices skyrocketed for the last two weeks of November 2020. And then that was it. Thereafter they dropped in stepwise fashion for the following five months. GOEV stock only touched $10 once since, and that was very brief. Many other EV stocks have performed better.

Canoo (GOEV) logo displayed on smartphone screen as well as in background on yellow wall

That’s because they’ve given the market good news while Canoo has mostly disappointed. Rivals like Lucid Motors (NASDAQ:LCID) are beginning to produce vehicles which will soon be delivered.

Canoo meanwhile simply continues to lose money, recording a $112.6 million net loss in the second quarter.

The company has had minor tailwinds of late but it doesn’t look like those matter enough. So let’s look at why you should probably stay away from Canoo.

Positive Point Pushing GOEV Stock

Since Oct. 8, Canoo shares have shown consistent upward momentum. Chris MacDonald, my InvestorPlace colleague, recently posited several ideas about what forced that reversal.

He points to three primary catalysts that have propelled GOEV stock higher over the last week. The resolution of the debt ceiling, a disappointing jobs report and higher bond yields are responsible for Canoo’s move upward.

And while the positive news is good for investors in Canoo and growth stocks at large, I wouldn’t count on it keeping GOEV stock moving higher.

The reason is fairly straightforward — markets are fickle now and show lots of volatility. That means they could punish it as quickly as they’ve rewarded it over the past week.

On top of that, Canoo’s financial results are worrisome and obviate some serious future issues.

Cash-Burning Production Laggard

Canoo announced production news earlier this summer regarding its lifestyle vehicles. The company signed a deal with Dutch company VDL Nedcar for contract manufacturing of its vehicles. And it also announced plans to build its own U.S. manufacturing plant in Oklahoma back in June.

The most recent news regarding production numbers suggests that investors should expect 1,000 vehicles produced in 2022 by Canoo, and as many as 25,000 in 2023.

Meanwhile, Fisker (NYSE:FSR) anticipates selling approximately 50,000 vehicles in 2023. And Lucid is expected to produce 20,000 vehicles in 2022.

It is difficult to know exactly what that will result in from a financial results perspective. But one thing is clear: The company is a laggard production wise, and is burning through cash very quickly currently. Both of which should concern investors.

Cutting It Close

One of the easiest ways to understand Canoo’s position is to say that the company will be cutting it close. Balancing production and capital is going to be a major concern at the company.

If the company continues to post results like those in Q2, it is going to run out of money without another round of capital injection.

The company maintained cash and equivalents of $536.6 million at the end of Q2, according to its earnings release. It also recorded a GAAP net loss of $112.6 million in Q2. The third-quarter report is expected around Nov. 15.

Hypothetically speaking, let’s imagine what happens as the company approaches production assuming those losses hold steady. Production is slated for the end of 2022. That means the company has five coming quarters without any production — Q3 2021 through Q3 2022.

That would mean that the company would record comprehensive net losses of $563 million (5 quarters x $112.6 million/quarter) if all holds steady. Therefore, Canoo would burn through that $536.6 million in cash it had at Q2 end and then some, if my projections hold true.

And then the company will produce 1,000 vehicles. That probably won’t do much for the bottom line. And the company’s competitors will be further ahead of it by that time.

I don’t see any reason to invest in GOEV because it has to show that it can speed up everything soon. If it doesn’t it could face real capital issues. No one wants it to raise more capital via share issuances, that’d be dilutive.

And no one wants it to run out of money and face production troubles. That’d drop prices. But right now either case looks possible, meaning you should stay away until something positive indicates otherwise.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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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