Canoo stock price analysis: GOEV bankruptcy risks are elevated

Canoo (GOEV) stock price has collapsed, making it one of the worst-performing electric vehicle companies in the EV industry. It has dropped by over 83% this year, bringing its valuation to about $85 million. This is a significant haircut for a company that was once valued at over $4 billion.

Canoo makes great products

Canoo is a niche electric vehicle company that builds some of the best niche products in the industry.

Unlike Tesla and Lucid, Canoo focuses on manufacturing vehicles for use by companies like retailers and parcel deliverers like USPS, UPS, and FedEx. 

This niche market is a big one considering that many companies are working on how to reduce their carbon emissions.

As a result, Canoo has received substantial orders in the past few years. Some of these orders have come from Walmart, which ordered 4,500 vehicles. It also received an order from NASA and  Zeeba, a leading fleet management and leasing company, which ordered 3,000 vehicles. 

Its vehicles are known for their large cargo space and longer range. For example, the LDV 130 vehicle has a range of 217 miles and can carry a payload of 1,432 pounds. This means that it can be used for routine daily delivery without the need for recharge. This range is longer than Rivian’s Delivery 500 and Delivery 700, which go for 161 miles and 153 miles, respectively.

Canoo has also made a lot of progress over the years. It has done research and development (R&D), received the Free-Trade Zone (FTA) approval in Oklahoma, opened its vehicle showrooms, and started selling its vehicles in the UK and Saudi Arabia.

Analysts believe that Canoo has room for growth if it can prove that its vehicles are reliable. In this, it can receive more orders from companies like FedEx and UPS that deliver millions of parcels a year.

Its benefit is that it faces little competition, at least in the US. The primary competitor would be a company like Rivian and Workhorse.

Read more: Mullen, Canoo, and Faraday Future: Next Fisker and Lordstown?

Cash incinerator

The main challenge for Canoo, however, is that the company has been burning cash since it was established in 2017. In this period, the company has spent millions of dollars researching and building its vehicles. 

Canoo also recently acquired manufacturing assets from Arrival, a UK EV manufacturer that went bankrupt earlier this year. It has now had to ship this equipment from the UK to its manufacturing plants in the US. 

The most recent results showed that the company’s revenue for the second quarter stood at just $605,000. This revenue came from its delivery to USPS, which is using the vehicles to deliver mail.

If USPS loves Canoo’s vehicles, it could become one of its anchor clients since the company has a plan to acquire 66,000 EVs by 2028. It is devoting over $3 billion of funds from the government through the Inflation Reduction Act. Other companies that operate large fleets are also likely to become Canoo’s customers. 

Canoo does not have the funds it needs to achieve its goal, raising the possibility that it could file for bankruptcy protection.

The company ended the last quarter with just $19.1 million in cash and short-term investments. Its real cash on hand was about $33.2 million in cash after giving effect to its july fundraising.

Canoo, like other EV companies, will need to continue raising cash for a long time if it needs to continue operating as a going concern.

While $33.2 million is a lot of money, it is not enough for a company that expects to have an EBITDA loss of between $120 million and $140 million in the second half of the year. 

The other issue is that its stock has continued to lose value, meaning that it has a limited chance of raising cash by selling shares. Canoo has a market cap of $82 million. Even if it converted all this equity into shares, it cannot finance its operations for a year. 

The $82 million market cap also means that Canoo’s $142 million ATM program will not be adequate.

Most notably, there are signs that Canoo has a weaker balance sheet than other EV companies that have filed for bankruptcy like Fisker, Proterra, and Lordstown. Proterra had over $139 million in cash when it filed for bankruptcy. 

Read more: Faraday and Canoo stocks: Do these Tesla wannabes have a future?

Canoo stock price analysis

GOEV chart by TradingView

The daily chart shows that the GOEV share price has been in a steep downward trend in the past few months. It has remained below all moving averages, while its short interest has moved to 13%.

The Average True Range (ATR) and historical volatility have dropped. Therefore, fundamentally, the stock will likely continue falling in the near term as bankruptcy risks rise. 

The only hope for the firm is that it goes through a short squeeze now that the Fed has started to cut interest rates.

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