Canoo (NASDAQ:GOEV) closed its SPAC (special purpose acquisition company) merger on Dec. 21, 2020, and received $607 million. Since then, however, GOEV stock has dropped precipitously.
In fact, Canoo has not announced the production partners for its Canoo lifestyle electric vehicle (EV). Maybe this has something to do with the fall in GOEV stock from $19.00 on Jan 19 to $7.78 as of the morning of April 20, 2021.
Picking Production Partners
Investors might be wondering what is going on. After all, Canoo had $704 million on its balance sheet by the end of 2020. Moreover, the slide presentation from the company said that it already had a “strategic relationship with a world-class manufacturer.”
Then in the company’s fourth quarter earnings press release and its conference call, Canoo said it would use contract manufacturers. The CEO said that it would pick those partners soon, and then would move into making its “mega micro-factory.” So far, all it has is some “finalists” based on the conference call.
That’s all well and good, but it appears that the company had to make changes that it did not originally expect. Investors just want to see something happen.
But maybe on a more basic level, this highlights the fact that in essence, Canoo is just a designer of EVs. It will have no particular ability to control its EV and battery production processes. By contrast, Tesla (NASDAQ:TSLA) is completely vertically integrated and controls all aspects of its parts manufacturing and production processes.
That could be why GOEV stock is down. For one, the company originally promised on page 51 of its presentation that 10,00 of its EVs will be “sold” by Q4 2022, a little over one year from now. But its sales are also different from anything you might think, as well.
Canoo’s Subscription Model Is Unique – Or is It?
So far, the LA-based company is not moving away from its unique subscription model for consumers to rent its Canoo EVs. Canoo believes this will be more profitable than a traditional sale of its EVs. In fact, it believes renting out its EVs by subscription, even as low as one month, will be 4 times more profitable.
But wait. This is not what Tony Aquila, Canoo’s Executive Chairman, said during the March 30 conference call. In response to a direct question about the subscription model and whether it would stay, he gave a very convoluted answer. It seemed to imply that, no, it will be too expensive for the balance sheet to keep the subscription model. In fact, by the end of the call, he made it clear that only about 20% of sales would be in the subscription model.
But how can that be? Almost a third of the SPAC slide deck was all about the subscription model and how advantageous this was. If, in fact, this was going to change so suddenly, shouldn’t the company have made that point clear?
In fact, because of these changes we now have to throw out most of the company’s revenue forecasts and profit models. In fact, because of the contract manufacturing change and the subscription change, there is almost nothing we can rely on from the original slide deck.
Moreover, the earnings release talked about a new EV that will sell for $33,000. That was not in the original slide deck as well. Now there is also going to be a new Canoo pickup truck, as well. This means that everything seems to have changed within the company.
Where This Leaves GOEV Stock
So, you can see why GOEV stock is down. There is just too much uncertainty. I suppose, from one standpoint, this is a good thing. Now the company believes its revenue and profits will be significantly higher. Otherwise, why would they have changed their business model?
But maybe not. It seems to be a change made to accommodate the stress on the balance sheet that the subscription model would have given Canoo. In the long run, it may be less profitable as a result. That could be why Canoo is still going to have 20% of sales come from the subscription model.
This is a long-winded way of saying that there is now no real way to determine the long-term value of GOEV stock. We have no idea about its sales, its costs, and its profitability model. All we know is that they have enough money, $702 million at the end of last year, to get some things done.
Let’s hope that we find out more soon from the company. A new and updated slide deck would be a good start.
On the date of publication, Mark R. Hake held a long position in Tesla stock.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.