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Cenntro Electric Is a Real Head-Scratcher of a Business Case


Cenntro Electric Group (NASDAQ:CENN) stock represents one of the stranger stories out of the stock market in the last few years. 

Cenntro Electric Group (CENN) Unveils its iChassis Autonomous Driving Vehicle at CES 2022
Source: Cenntro Automotive

It was acquired by Naked Brand Group, who is a swimsuit and intimate apparel retailer. Naked Brand Group had one of the more interesting narratives in 2021. It was a very fortunate company in that it seized Reddit fervor and saved itself. That is where the interesting tale begins. 

Capitalizing on Wild Times

Naked Brand Group is a company that wouldn’t have caught investor attention in any other period. However, early 2021 was tumultuous. Ultimately, this helped the firm immensely. That is because Naked Brand Group announced that it would divest its brick and mortar operations on Jan. 21, 2021. Redditors seized on that news for whatever reason. That sent NAKD stock prices soaring and the firm immediately issued 29.415 million shares of stock netting the firm almost $47 million. 

It went on to raise further capital from accredited investors. And that was the narrative behind Naked Brand Group: It shrewdly utilized retail investors to get out of a delisting and raise a bunch of capital. 

Early indications were that it would use those proceeds to develop its ecommerce channels and turnaround its fortunes. But it didn’t do that.

Electric Vehicle Pivot

Naked Brand Group used those proceeds to completely change the course of its business. And in a very strange way. It acquired the privately held Cenntro Automotive Group Limited and changed its brand name to Cenntro Electric Group Limited on Dec. 31. 

This was completely unexpected and unpredictable. All of Naked Brand Group’s former retail assets were divested and the company was suddenly an electric vehicle (EV) play. The company committed to produce 20,000 vehicles in 2022. That said, the company has only produced 3,600 vehicles since 2013. 

That is proving to be one of several red flags in relation to CENN stock. 

Troubled, but Bold

Remember, Cenntro Electric Group said that it was committed to producing 20,000 vehicles in 2022. If it is successful in doing so, it would be a miracle. The company produced 1,623 vehicles in all of 2021. 

Investors are going to find it difficult to believe that the company will suddenly be able to produce over 10 times more vehicles on the strength of Naked Brand Group acquiring it. Yes, it is a very strange pivot, as everyone who attempts to understand CENN stock has noted. 

In my mind, Cenntro Electric Group is one of many companies that have suddenly found themselves flush with cash over the past year. That sounds appealing, but investors have to ask themselves a question: Will the company be able to turn that into something more valuable?

Niche Electric Vehicles

Cenntro Electric Group produces commercial electric vehicles. In Cenntro’s case, sales are predominantly from its Metro vehicle. The company has produced 3,300 of them so far. 

It is difficult to imagine investors being very interested in Cenntro’s offerings. It serves a fairly small market which has very limited sales to date. 

What to Do with CENN Stock

There is no cohesive strategy behind Naked Brand Group’s foray into EVs. The decision leaves more questions than answers. I have no idea why management chose to make the decision it did. I think most investors instinctively back away when companies pivot in ways that are difficult to understand. 

I would simply suggest that there is little chance that Cenntro takes their money and manages to turn it into a greater sum. That is a very simple way of understanding its task as a business. But it suggests value destruction, something no one should invest in. The Naked Brand Group story was a very interesting one before it became associated with electric vehicles. Now, it is a strange tale that is hard to comprehend. 

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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 InvestorPlace.com 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. 

Article printed from InvestorPlace Media, https://investorplace.com/2022/02/cenntro-electric-is-a-real-head-scratcher-of-a-business-case/.

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