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Resist the Temptation to Buy the Dip in Canoo (GOEV)
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The electric vehicle (EV) space is overcrowded and competition is only going to heat up further. While many startups are vying to gain a toehold in this red-hot industry, not everyone is going to bring home the bacon. In this write-up, we shall assess Canoo’s (GOEV - Free Report) journey since its IPO and see how things are shaping up for this EV startup.
Canoo — which shares space with Workhorse Group (WKHS - Free Report) , ElectraMeccanica Vehicles Corp. and Nikola (NKLA - Free Report) — made its Nasdaq debut on Dec 22, 2020 by merging with a special purpose acquisition company, Hennessy Capital Acquisition. For the first couple of months, the stock performed reasonably well as investors were betting high on the e-mobility hype with little regard to fundamentals and valuations. However, the stock has been losing momentum since it reported its first financial quarterly report as a public company on Mar 29. In fact, the company’s shares have plummeted around 50% from March highs. Tempted to buy the dip in the stock? Well, here are some things you should note before taking the plunge.
First things first. Canoo is yet to commence production and sale of products. It is still in the nascent stages of development, without any single vehicle officially launched yet. The company plans to launch its first lifestyle vehicle in late 2022, following it up with a delivery vehicle in 2023 and a sports vehicle in 2025. Canoo is currently not generating any revenues. For fourth-quarter 2020 and first-quarter 2021, the firm incurred loss per share of 8 cents and 7 cents, respectively.
Investors seem particularly miffed by certain key strategic pivots in its business model announced by the company during fourth-quarter 2020 earnings call. For instance, Canoo indicated that it would be de-emphasizing contract engineering services as it wants to protect its intellectual property, which would otherwise become tough if it licenses its technologies to third parties. Further, the firm stated that offering its vehicles via a subscription model will now be optional and account for just a small portion of revenues (less than 20% of the revenue mix).
It should be noted here that Canoo’s initial plans of offering vehicles via subscription services and licensing its platform to other EV makers were considered to be major revenue drivers for the firm. Those were the key factors that had drawn investors’ attention to the stock and provided it with an edge over competitors. With a major shift in the go-to-market model, Canoo’s business model is no more differentiated.
Also, modifications in contract engineering services have cast a doubt over its potential partnerships with Hyundai and Apple, which had earlier created a lot of buzz and were considered to provide a major boost to the EV startup. Uncertainty over potential revenue generating partnerships, especially since Canoo is a just a small and new player in the increasingly competitive EV industry, is a spoiler.
The firm’s decision to transition from an asset-light manufacturing strategy (relying on third-party manufacturers) to eventually building its own factory and focusing more on commercial vehicles is also likely to come with its fair share of problems. Rising operating expenses and high capital investment along with an absence of a proven track record makes us skeptic if the firm would be able to hit its production goals. In April, Bank of America initiated coverage on Canoo with an “Underperform” rating, doubting the firm’s “ability to execute in a timely fashion”, given "several significant pivots/changes" in its business model.
The firm’s announcement regarding changes in its leadership position have also raised concerns. In April, the company’s CEO, CFO and Head of Corporate Strategy stepped down from their roles. Tony Aquila replaced the former CEO Ulrich Kranz, but it’s still unclear why the latter had resigned. Major shuffle in the top management level has not been very encouraging and seemingly put pressure on the stock. Moreover, the company is currently being investigated by the U.S. Securities and Exchange Commission, although Canoo does not expect it to have any negative impact on the business and commits toproviding timely updates.
Well, Canoo still has the proprietary skateboard technology platform in place that functionally integrates all the critical components of an electric powertrain to be as efficient as possible, thereby enabling the company to develop highly customized vehicles that can serve multiple purposes. However, it remains to be seen how the company will be able to make the most out it, given the fiercely competitive EV landscape and fundamental changes in the business model.
Basically, the high-margin technology licensing business model, subscription-based EV plans and asset-light production strategy were key areas of investors’ interest in the stock. With management pivoting away from its differentiated model, short-sellers are increasing their bet against this EV startup. Amid fundamental changes to its business model, unclear revenue generation path, mounting expenses and high competition, Canoo has a lot to prove. Considering the headwinds and pessimism surrounding the firm, we advise you to stay away from this stock at the moment. Canoo currently carries a Zacks Rank #4 (Sell).
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Resist the Temptation to Buy the Dip in Canoo (GOEV)
The electric vehicle (EV) space is overcrowded and competition is only going to heat up further. While many startups are vying to gain a toehold in this red-hot industry, not everyone is going to bring home the bacon. In this write-up, we shall assess Canoo’s (GOEV - Free Report) journey since its IPO and see how things are shaping up for this EV startup.
Canoo — which shares space with Workhorse Group (WKHS - Free Report) , ElectraMeccanica Vehicles Corp. and Nikola (NKLA - Free Report) — made its Nasdaq debut on Dec 22, 2020 by merging with a special purpose acquisition company, Hennessy Capital Acquisition. For the first couple of months, the stock performed reasonably well as investors were betting high on the e-mobility hype with little regard to fundamentals and valuations. However, the stock has been losing momentum since it reported its first financial quarterly report as a public company on Mar 29. In fact, the company’s shares have plummeted around 50% from March highs. Tempted to buy the dip in the stock? Well, here are some things you should note before taking the plunge.
First things first. Canoo is yet to commence production and sale of products. It is still in the nascent stages of development, without any single vehicle officially launched yet. The company plans to launch its first lifestyle vehicle in late 2022, following it up with a delivery vehicle in 2023 and a sports vehicle in 2025. Canoo is currently not generating any revenues. For fourth-quarter 2020 and first-quarter 2021, the firm incurred loss per share of 8 cents and 7 cents, respectively.
Investors seem particularly miffed by certain key strategic pivots in its business model announced by the company during fourth-quarter 2020 earnings call. For instance, Canoo indicated that it would be de-emphasizing contract engineering services as it wants to protect its intellectual property, which would otherwise become tough if it licenses its technologies to third parties. Further, the firm stated that offering its vehicles via a subscription model will now be optional and account for just a small portion of revenues (less than 20% of the revenue mix).
It should be noted here that Canoo’s initial plans of offering vehicles via subscription services and licensing its platform to other EV makers were considered to be major revenue drivers for the firm. Those were the key factors that had drawn investors’ attention to the stock and provided it with an edge over competitors. With a major shift in the go-to-market model, Canoo’s business model is no more differentiated.
Also, modifications in contract engineering services have cast a doubt over its potential partnerships with Hyundai and Apple, which had earlier created a lot of buzz and were considered to provide a major boost to the EV startup. Uncertainty over potential revenue generating partnerships, especially since Canoo is a just a small and new player in the increasingly competitive EV industry, is a spoiler.
The firm’s decision to transition from an asset-light manufacturing strategy (relying on third-party manufacturers) to eventually building its own factory and focusing more on commercial vehicles is also likely to come with its fair share of problems. Rising operating expenses and high capital investment along with an absence of a proven track record makes us skeptic if the firm would be able to hit its production goals. In April, Bank of America initiated coverage on Canoo with an “Underperform” rating, doubting the firm’s “ability to execute in a timely fashion”, given "several significant pivots/changes" in its business model.
The firm’s announcement regarding changes in its leadership position have also raised concerns. In April, the company’s CEO, CFO and Head of Corporate Strategy stepped down from their roles. Tony Aquila replaced the former CEO Ulrich Kranz, but it’s still unclear why the latter had resigned. Major shuffle in the top management level has not been very encouraging and seemingly put pressure on the stock. Moreover, the company is currently being investigated by the U.S. Securities and Exchange Commission, although Canoo does not expect it to have any negative impact on the business and commits toproviding timely updates.
Well, Canoo still has the proprietary skateboard technology platform in place that functionally integrates all the critical components of an electric powertrain to be as efficient as possible, thereby enabling the company to develop highly customized vehicles that can serve multiple purposes. However, it remains to be seen how the company will be able to make the most out it, given the fiercely competitive EV landscape and fundamental changes in the business model.
Basically, the high-margin technology licensing business model, subscription-based EV plans and asset-light production strategy were key areas of investors’ interest in the stock. With management pivoting away from its differentiated model, short-sellers are increasing their bet against this EV startup. Amid fundamental changes to its business model, unclear revenue generation path, mounting expenses and high competition, Canoo has a lot to prove. Considering the headwinds and pessimism surrounding the firm, we advise you to stay away from this stock at the moment. Canoo currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
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