Canoo stock forms rare pattern: could GOEV surge 670%?

Canoo stock price has collapsed this year, raising concerns that the electric vehicle company may be about to collapse. GOEV shares have crashed by over 53% in the last 30 days and 92% this year, bringing its market cap to about $43 million. This is a major downfall for a company that was valued at over $4 billion a few years ago.

GOEV stock has collapsed despite progress

The GOEV share price continued its strong downtrend even after the company published fairly encouraging financial results. 

These numbers showed that its revenue for the quarter stood at $0.9 million, bringing the year-to-date figure to $1.5 million. These are small numbers because the company has just started shipping its vehicles recently.

Most importantly, Canoo’s cost cuts have helped improve its bottom line as the adjusted EBITDA loss was $37.7 million, a 2% improvement from what it made last year. The loss per share was 54 cents, a big improvement from $1.71 last year.

The results also showed that Canoo improved its cash burn during the quarter. It incinerated $31.3 million after burning $39.4 million in the same period last year. 

These numbers mean that the company is making progress in managing its costs. This trend has been helped by its ongoing consolidation of operations from California to Texas and Oklahoma, where it has received a Free Trade Zone (FTZ) authorisation. 

Canoo expects that its business will continue making progress in the fourth quarter of 2024. It sees its cash outflow moving to between $30 million and $40 million. Its adjusted EBITDA is expected to be between minus $30 million and $35 million.

To a large extent, Canoo is a good company that is building vehicles with a large market potential, among fleets. Indeed, it has already received large orders from popular organizations like the USPS, Walmart, Okla, and Jazeera Paints.

These firms own thousands of internal combustion engine vehicles that they will want to replace with EVs over time. Most importantly, the industry, especially in the United States, is not all that competitive for now. Some of the biggest competitors are firms like Workhorse Group and Rivian.

Balance sheet issues

Canoo’s biggest challenge is that its balance sheet cannot support its operations for now. The company will need to continually raise cash from investors since it has a long path towards profitability.

Companies like Rivian and Lucid Group provide more signs on how electric vehicle companies take long before turning a profit. Rivian, which started delivering its vehicles a few months ago, has continued to report large losses over time. Similarly, Lucid Group has lost money, leading to a bailout from Saudi Arabia.

Canoo’s balance sheet woes saw it raise $27 million in the third quarter and another $12 million credit facility recently. These funds are not enough for a company that expects to burn over $30 million in the fourth quarter. 

This means that Canoo, which has issued a going concern warning before, will struggle in the coming months.

What next for Canoo stock?

GOEV chart by TradingView

From a macro perspective, we believe that the post-Trump election slump of EV companies was an exaggerated move. We don’t think that he will end the tax credits of electric vehicles because of their popularity among consumers and manufacturers. Also, Trump is close to Elon Musk who runs the biggest EV company in the world.

On the positive side, there are signs that the GOEV stock price could stage a strong comeback now that it has formed a falling wedge pattern on the daily chart. This pattern is characterized by two falling and converging trendlines. 

In most periods, a strong comeback happens when the two lines are about to converge, which is happening now. This, coupled with the fact that Canoo has a high short interest of 11%, means that it could have a short squeeze soon. 

If this happens, the Canoo stock could jump to $3.30, which is about 670% above the current level. In the long term, however, the company will likely remain under pressure as challenges remain. 

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