Earlier today, beleaguered electric vehicle (EV) manufacturer Canoo (NASDAQ:GOEV) announced that the U.S. Department of Defense’s Defense Innovation Unit (DIU) significantly expanded the scope of its previously announced partnership. On paper, the news should bode well for GOEV stock. However, shares have instead cratered today, likely on concerns about the pre-revenue enterprise being viable ahead of uncertain market conditions.
According to Canoo’s press release, it will leverage its “advanced commercial battery and integration expertise” to deliver to Department of Defense partners a “technologically advanced battery pack that can be scaled for use on operational military platforms and will set the stage for standardization of energy dense lithium batteries for the U.S. Navy.” Since February, the DIU has been testing and analyzing Canoo’s proprietary technology.
In addition, this news helps further the DIU’s Jumpstart for Advanced Battery Standardization (JABS) program. The JABS initiative accelerates “form-fit-function battery standards for defense.”
Canoo Chairman and CEO Tony Aquila stated the following about the expanded partnership news:
“We are honored to deepen our collaboration with the Department of Defense […] We are inspired by their leadership and focus on encouraging American innovation. A core value to our re-founding is to invent and leverage our technology to contribute to our nation’s leadership in defense technology.”
Unfortunately, this announcement isn’t sparking much positive interest in GOEV stock. Indeed, shares have largely struggled since late 2020.
GOEV Stock Likely Plunged on Broader Market Concerns
While an expanded partnership with a deep-pocketed government agency is usually cause for celebration, GOEV stock likely plunged today on brewing credibility concerns — both regarding the company and the broader market. Essentially, a possible pivot in monetary policy may knock the wind out of risk-on assets.
Last Friday, the June jobs report showed that the economy added 209,000 new employment opportunities. Since economists called for 240,000 new jobs, the latest headline print suggested that the Federal Reserve was gradually winning its battle against inflation via cooling the red-hot labor market.
However, two factors are important to consider here. For one, the unemployment rate declined (albeit slightly) to 3.6% from 3.7% in May. Secondly, wage growth remained stable month-to-month. The length of the average work week ticked slightly higher as well, which can impart a significant impact at scale. Taken as a whole, a recent CNBC analysis argues that the Fed may raise the benchmark interest rate.
Fundamentally, this potential framework would be bad news for GOEV stock. According to Gurufocus, Canoo’s free cash flow consistently falls into negative territory. That’s unsurprising because, for all intents and purposes, the EV maker is a pre-revenue enterprise. Therefore, it’s possible that Canoo may need to tack on debt in the future to stay afloat.
What’s more, investors should note that shares outstanding for GOEV stock expanded to 418.1 million in the first quarter of 2023 from 233.7 million in the year-ago quarter. Thus, the potential threat of dilution may be pressuring shares.
Why It Matters
Interestingly, despite severe risks, the three analysts that have covered GOEV stock in the past three months according to TipRanks peg Canoo as a unanimous “strong buy.” Overall, the average price target for shares lands at $4.50, implying around 800% upside potential.
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On the date of publication, Josh Enomoto did not hold (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.
