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Company: Canoo Inc.
Ticker: GOEV
Market Cap: $800mm
Share Price = $3.55 (5/27/2022 AH)
TL/DR: Canoo/$GOEV is severely undervalued for the following reasons.
1) The market is severely underestimating Canoo’s ability to raise non-dilutive capital
2) Because of #1, The market is severely underestimating Canoo’s future revenue. With only organic marketing, the company has 17,500 preorders equating to 750 Mil in revenue (with a market cap of only $800mm as of 5/27/2022) this does not include fleet orders.
3) Canoo is changing the way vehicles are sold in a way no other manufacturer has grasped. Canoo is evolving what it means to purchase a vehicle
4) Constant Media FUD from misleading(or, at the very least, uneducated) reporters is surely putting pressure on Canoo’s stock
5) Major short interest in Canoo
Hello. Here is my DD on why Canoo ($GOEV) is severely undervalued.
Some background context, a lot of the EV startups have been hammered, some more then others, due to the general downturn in the market. They have also been hammered specifically due to the question of funding.. how are these startups going to get the cash to realize their goals?
Section #1 – Speculating on Funding
If you have been following the Canoo story, listening to the ER’s, reading transcripts of anything and everything their CEO has talked about, their philosophy on funding has been to access low amounts of funding when necessary to bridge gaps between milestones which will set up the company to access more advantageous funding options in the future. Please bare with me on some of the background info, as it’s important to get the full idea if you have not been following Canoo.
Quick stats on Canoo’s Financials As of Q1. March 31 2022
A. Cash on Hand – Approx $100MM
B. Q1 Quarterly Loss – Approx $120MM
C. Q2 2022 Cash Spend Guidance
$100 Million in Operating Expenses
$100 Million in Capex. Total $200 Million
D LT Debt – $0
Current Funding Commitments
$600MM total in accessible capital via stock sales with the following transaction completed.
1) $50MM equity purchase agreement with AFV (A fund ran by CEO Tony Aquila. 13.6 Million Shares @ purchase price of $3.65) This sale has gone through as of May 18th, diluting shareholders approximately 5.75%. Canoo now has $150MM In liquidity. Assuming another $120MM Spend in Q2, like Q1, the company has runway for the Q2 with, presumably, no need to dilute further.
The remaining $550MM in accessible capital will be tapped on a cash need basis..
2) SEPA with Yorkville Capital for $250 Million. Details on the SEPA..
“Pursuant to the SEPA, the Company will have the right, but not the obligation, to sell to Yorkville up to $250,000,000 of its shares of Common Stock, at the Company’s request any time during the 36 months following the execution of the SEPA. An “Advance” may be for a number of shares of Common Stock with an aggregate value of up to $50,000,000” The SEPA Cannot be used to exceed 19.9% of the companies stock.
So we are looking at a worst case scenario of 20% further dilution from the SEPA
3) Shelf Offering of $300 Million.
Essentially, the company could, in a worst case scenario (If the stock is valued poorly), sell shares on the open market up to $300 million in proceeds from time to time for further funding as needed.
Speculative Funding
Now for the fun part…
I believe Canoo will not need to tap their confirmed dilutive funding options to an extent that will be detrimental to current stockholders. And if they do, will be in tranches of 50 million (SEPA), preferably at a higher stock price with improving market conditions. Most growing companies issue shares from time to time for growth.
However, I believe the recent funding commitments were inked to:
A) Give Canoo a life vest / emergency last resort funding to not go bankrupt and more importantly,
B) bridge milestones to get Canoo into a position to access NON dilutive funding.
For example, they already tapped $50 million (5.75% dilution) bringing liquidity to Approx $150 Million. This will buy them another quarter of milestone achievements and progress and time to ink non-dilutive funding. Which leads me to what I believe is truly in the cards for Canoo..potential non dilutive funding. The past few ER’s, CEO Tony Aquila has stated they are focusing a lot on securing non dilutive financing.
Ranked from the least cost effective to the most cost effective…
1) Conventional unsecured debt & credit lines
Banks might be willing to give Canoo Unsecured loans & credit lines at any moment. These loans would probably be costly for a startup. The loans would probably become less costly overtime as Canoo hits milestones (Production, and actually delivering cars for revenue) IMO Canoo can access other more cost effective non-dilutive funding before this option as speculated below
2) Green Energy Convertible Bonds
See Fisker’s PR on their sale of Green Bonds. $FSR and Arrival’s PR on their sale of Green Bonds. $ARVL
Canoo could tap this option, here are some details on what green bonds are
3) Asset Backed Secured Loans
Loans on the their manufacturing equipment, Gamma vehicles, sourced inventory for vehicle parts, etc.
For example, if Canoo were to use $150 million on manufacturing equipment and parts, (Obviously this number will be higher, just an example) the company could ink a deal with a bank for another $100-150 million, with said assets as the collateral.
4) Opportunity Zones.
Great writeup and interview about what an opportunity zone is. OZ’s are meant to encourage investment in low-income communities, allowing for preferential tax treatment.
How does this tie in with Canoo? Well, their Oklahoma factory is on Cherokee nation land, and this makes it an opportunity zone that Canoo can raise capital with this tax advantaged funding.
Tony has been quoted in ER’s, transcripts, various sources talking about how he is excited to partner with the Cherokee nation and employ natives at Canoo factories. When asked by Reuters, Aquila did not specify exactly how much Canoo would seek to raise from opportunity zones.
This unique way to raise funds is something that has me really excited for Canoo.
5) Department of Energy ATVM Loan
IMO, the best case scenario for Canoo. This federal low interest, long term maturity loan would be the cherry on the top of this story.
Now I don’t have a source on this, as I inferred it from another redditor. See this post But apparently Roth Capital (Analyst Craig Irwin) issued a note at the 34th annual roth conference (march13th 2022) in discussion with a few Canoo Execs, that says Irwin believes the company is in the late stages of securing an ATVM DoE loan.
Historically, these loans have been in the hundreds of millions to billions. For example, Tesla, Ford, and Nissan were granted ATVM loans totaling $8 Billion combined between the 3 OEMs.
Startups like Lordstown Motors and Mullen Automotive have publicly announced that they have applied for the ATVM Loan.
Canoo has a philosophy of “Big news or no news” Tony has been quoted saying this about 5+ times in various ER’s.
Canoo really does give off a vibe of secrecy if you have been following them since their Pre IPO days in late 2020 (Specifically when Aquila became CEO / Chariman shortly after IPO)
As to why Canoo has not announced this ATVM application publicly? Imo it’s just something that isn’t a guarantee and really hits HARD if it actually happens. A PR of an ATVM Loan approval would, in my opinion, could absolutely cause a short closing event. It would be so drastically unexpected.
Aquila recently said in an interview last week about “Big news or no news” is:
“Canoo’s choice not to have any big news announcements this quarter was intentional, a way to distinguish the company from the previous bombast of other EV hopefuls. “I’m pretty proud of the discipline,” he said. “That’s why we put the big-news-no-news concept out there, because [the EV industry] was just so full of shit for so long.”
By the way, in the past 2 weeks we have seen more engagement from Tony from a PR perspective then we have seen since Canoo went public, just an interesting side note. The secrecy has driven a lot of Canoo investors mad, but for me, it’s a nice change of pace to see Tony out and about talking about Canoo.
Anyways, back on topic, here are the requirements to achieve this loan..
1) Manufacture eligible vehicles or components that are used in eligible vehicles. Vehicles that meet or exceed a 25% improvement in fuel efficiency beyond a 2005 model…and/or ultra-efficient vehicles which achieve a fuel efficiency of 75 miles per gallon or equivalent using alternative fuels.
Canoo: Electric vehicles, automatically hits this requirement.
2) Build new facilities; reequip, modernize, or expand existing facilities; and/or for engineering integration performed in the United States related to the manufacturing of eligible vehicles or components.
Canoo: 2 Factories in construction, R&D, Manufacturing of EV’s, Canoo hits this requirement.
3) Be located in the United States. Foreign ownership or sponsorship of the projects is permissible as long as the project is located in one of the fifty states, the District of Columbia, or a U.S. territory.
Canoo: Hits this requirement..
4) Provide a reasonable prospect of repayment.
Canoo: Has 750 Million in future revenue via preorders (It can be argued that a “Reasonable prospect of repayment” would include these preorders. “Reasonable” is the keyword here. I can’t say one way or another that Canoo hits this requirement just quite yet as production has not started.
5) loan recipients must be “financially viable without the receipt of additional Federal funding associated with the proposed project
Canoo: I believe Canoo hits this requirement with their current announced dilutive funding, or, possibly with another round of non-dilutive funding, as speculated above.
To conclude, Canoo might tap 1, or even all of these non dilutive funding options in certain ways. This will allow the company to not have to raise capital via stock sales (to the point that it would be detrimental to the company’s current shareholders) (ALL IMO)
Section 2 – Future Revenue
On the last ER Call, Tony stated that the Company is looking to produce 3 to 6k Vehicles this year, and 20k ish next year. While also projecting all of these would be sold out once produced.
The company has announced 17,500 preorders (not including fleet orders) from organic marketing, with potential revenues of 750 Mil from preorders alone.
Interestingly enough, Tony has said on ER calls that they want the first batch of Canoo’s produced in 2022/2023 to go to fleet orders.
I believe the market is heavily discounting the reality of Canoo producing their target of 23-26k by the end of 2024 due to funding uncertainty. Of course, the market could add in a discount because building a car in mass quantity is no easy task, but with over 800+ employees with extensive knowledge in the automotive industry and Executives/workforce with former employment with all of the major OEMs, I believe they’ll hit their targets with the only barrier to delivery of vehicles being cash. (In the absence of black swan events such as worsening supply chain issues)
Canoo has such an experienced and solid group of employees, that outlets such as Bloomberg speculate that Apple could acquire Canoo specifically for their workforce…Article this month.
Currently, the company is producing up to 12 Gamma vehicles (Source is their Q1 Call Transcript, can’t like a SA Article here) a week without their first factory fully functional factory. (This first factory is expected to produce 3-6k Units by the end of the year)
Section 3 – How Canoo is going to revolutionize the Auto industry
Well, I have my own thoughts on this. So much thinking in the past year and half. And in fact, I was inspired to write this post because of this tweet thread by John Kluge (@klugesan) who had a phone call with Tony Aquila this past week and shared some insights with us. Please read this thread, summarizes my thoughts almost exactly. Summarizes Canoo’s Vision quite well .
John Kluge is the founder of Refugee Investments. They describe themselves on the home page as “CONNECTING INVESTORS AND REFUGEE VENTURES FOR AN INCLUSIVE FUTURE” and also tweeted that he is excited for potential future collaboration with Canoo.
I’m not really sure what exactly that would entail in terms of monetary value, but it seems from an ESG standpoint, John Kluge believes canoo will “Attract significant impact investing capital (something I can say with confidence given my work).”
Should read the whole thread for all the context.
Like I mentioned in the above, CEO Tony has been on an absolute rampage of interviews and phone calls that I guess happened to become public.
I jokingly told my brother that John Kluge (with the phone call summary) gave us more insight about Canoo then Tony has in the past 2 years heh.
Truly has potential to be an amazing story and no one is really paying attention!
Section 4 – Media FUD
Along with the announcement that Canoo has access to 600 Million in Funding, Canoo also issued a “Going concern” warning in their last ER due to cash burn and not having enough runway for the next year on the balance sheet. Essentially they are required to issue this warning by law due to their cash burn. And this leads me to presenting, MEDIA FUD.
The main FUD for Canoo right now is the fact that Canoo issued the “Going Concern” warning and that Canoo has a high chance of being out of business in the next year.
Bloomberg FUD Article #1
Reuters FUD Article #2
BI FUD Article #3
Notice how all of these articles only mention that Canoo is a going concern case, and not a single mention of the non-dilutive funding that Canoo is quite obviously looking at.
Like, can you imagine one of these outlets talking about how Canoo is partnering with the Cherokee Nation and how that represents opportunities to raise cash via Opportunity zones? Or that Craig Irwin (Roth Capital Analyst) believes Canoo has applied for a ATVM loan?
CEO Tony himself has said they are looking at opportunity zones in the past and recent past. But I guess that’s too complex of a concepts for Bloomberg and Business Insider.
Oh and, hilariously, the headlines don’t mention even the dilutive funding Canoo has access to. It just has to lead with the doom and gloom, that retail sucks it up. Another reason why I believe Canoo is heavily underlooked at. We all know the retail little guy isn’t actually reading articles. Especially on Twitter and Reddit, these platforms are so headline sensitive. No one’s actually clicking the article or doing their own research!
What headline stirs up more emotion, “(EV Company) has substantial doubt going forward” or “(EV Company) secures $600 Mil and looks at Opportunity Zones” I mean, no one really knows what an opportunity zone, it’s relatively new. The Tax Cuts and Jobs Act (Late 2017) created the Opportunity Zones program to spur investment in economically distressed census tracts.
The amount of “RIP Canoo” and “Another one bites the dust” comments I read post ER made me want to pull my hair out. Retail truly isn’t getting the full picture and reporters are almost fully to blame.
In fact, this has been so blatantly misleading that Canoo themselves (Via Twitter) had to tweet out to 8 news outlets that they are not actually going out of business because they have access to funding (Albeit dilutive) at the very least.
My personal favorite ^ Bloomberg. Just read these headlines…
I just imagine Tony went up to the social media intern and was like, “ok so today you’re going to find every news outlet that is spreading FUD and reply with the rest of the story..”
But the Media FUD didn’t just begin this last ER, if you’ve been following Canoo since early 2021, you would remember that the main FUD talking points in 2021 were:
A) “Canoo Employee departures” (Employee turnover is quite common for startups)
and
B) “SEC is investigating Canoo”
Which, by the way, nothing ever came of the “SEC Investigation” (Or at least, has not concluded. It’s been more then a year now with not a peep from the SEC or Canoo about it since)
“The SEC has also informed the Company that the investigation does not mean that it has concluded that anyone has violated the law, and does not mean that it has a negative opinion of any person, entity or security. We intend to provide the requested information and cooperate fully with the SEC investigation,” Canoo noted in the regulatory filing – Source
In my opinion, and this article talks briefly about this, when tony came on board with Canoo as CEO and Chairman, there was a major business plan change that brings us to the Canoo we know today. This might have piqued the SEC’s interest in fact finding.
I believe nothing will come of the “Investigation” and is completely different to other EV startup SEC investigations. For example, SEC Came out and blatantly accused Lordstown of misleading investors and looked into short seller report claims of Nikola
Remember Trevor Milton? Rolling Nikola trucks down a hill?
Lordstown and Nikola were both targets of a short seller report by Hindenburg.
Workhorse also was the target of a short seller report accusing them of fraud. Workhorse is also in the middle of an SEC investigation
Mullen Automotive also was the victim of a Hindenburg short seller report..
“Yet Another Fast Talking EV Hustle” – Hindenburg
Lucid is also the target of an SEC investigation. Which seems to be regarding it’s business combination with Churchill.
Canoo never received a short report, and the SEC/Canoo never told the public what it was looking to find/(Or have found) with Canoo. A year has passed and we have not heard a single update on the “investigation”.
I believe it was a nothing burger and Canoo has demonstrably shown its difference from a hype and wild claims standpoint compared to the other EV startups since completing it’s business combination in late 2020.
My point is, since day 1, media coverage on Canoo has been spotty at best, intentionally misleading at worst, and has ignored major elements of the overall story and progress.
Section #5 – Various Announced Partnerships
1) State Partnerships
State Partner: Oklahoma
Purpose: Factory #2 – Pryor OK
2,000 Employees to be hired
Native Americans & Local Oklahomans
State Incentives and Fleet orders: $300 million in incentives paid to Canoo upon reaching certain milestones with the advancement and construction of the Pryor Factory.
These incentives are valued at almost half of the market cap of Canoo. These incentives won’t pay out until milestones such as hiring, construction (paid out of Canoo’s pocket) etc are completed. So if Pryor factory never pans out, Canoo won’t see the $300 million.
1,000 Vehicle order by the State of Oklahoma
State Partner: Arkansas
Purpose: Factory #1 – Bentonville Arkansas
Low Scale production to test and validate manufacturing equipment and scaling processes before beginning production at their “Mega Microfactory” in Oklahoma (The Pryor Factory)
Slated to build 3,000 to 6,000 vehicles by the end of this year.
R&D Facility – Fayetteville Arkansas
Both the Bentonville Factory and the Fayetteville Facility will employ approximately 545 Employees Combined.
State Incentives and Fleet orders:
No signed incentives package as of yet, presumably still in negotiations. No fleet orders yet as well, still in negotiations but the number being thrown around is 1000 vehicles like Oklahoma.
2) Inked Fleet Orders:
Frontdoor Collective – 10,000 Vehicles
3) Various Partnerships:
NASA – Canoo Partners with NASA For the Artemis Moon Mission
This partnership will be incredible PR for Canoo. The Artemis Moon landing will be major hype as it’s NASA’s first mission back to the moon since the OG moon landing, and in mid 2023 Canoo’s will be blared on national TV all summer long transporting NASA Astronauts to the launch pad for training exercises..I mean, come on, this is a startups wet dream in terms of marketing.
Contract value in the $100k’s but any reasonable investor should look at this as a loss leader. Even if Canoo LOSES on this deal, it will purely pan out as a marketing cost. I believe this will be an incredible marketing opportunity.
Also, according to Fox23, this will open up Canoo for other federal contracts (my speculation, DoD contracts)
Read about what exactly Canoo will be doing for NASA Here
Panasonic – Panasonic will supply Canoo Batteries, like it does for Tesla.
Panasonic is currently in the center of a battle between Oklahoma (remember, Canoo has a major incentive package in OK) and Kansas to secure billions in state incentives for Panasonics new USA Factory. These two states are rushing legislation to lure a “Mystery company” (Pana) to their state.
Although they have not directly said Panasonic, it’s easily the worst kept secret in the room and without a doubt, it is Panasonic. A decision as to which state Panasonic will finally pick is expected at any moment.
“During a 1 p.m. press conference today, Stitt(OK Governor) said a non-disclosure agreement prevented him from saying the word “Panasonic” or revealing exact job estimates and financial figures related to the project. But numerous people with knowledge of the situation have confirmed Panasonic is the company in question.”
In Fact, the legislators in OK have dubbed their efforts on attracting Panasonic as Project Ocean and have passed Oklahoma Housebill 4455 which is the $700M for “project ocean” split up between Panasonic and Canoo.
“It pays $613 million to a “mega project” and allocates $85 million to another project related to the same industry.” (Panasonic and Canoo, respectively. $85 Mil allocatted to Canoo is part of the overall incentives package that I spoke about above)
“Citing nondisclosure agreements, top lawmakers continue to refuse to name the company targeted by the legislation. However, other lawmakers confirmed to CNHI Oklahoma that the two companies are Panasonic and Canoo.“
I find it very curious that Pana and Canoo are bundled into legislation..
Panasonic in OK will be bullish for Canoo due to shipping costs at the very least, but I also believe the two companies could form a JV given the context, just like Panasonic has done with Tesla for that battery supplying relationship
Section 6 – Speculation on potential deals, partnerships, and acquisition of Canoo.
With nothing but conjecture, I believe Canoo will continue to land major fleet orders. CEO Tony Aquila talked in the last call about potential fleet order customers testing out Canoo Gamma vehicles.
Regardless, here are some speculative articles. It’s fun to see the rumor mill churn, adds a bit of a flare to any company..
walmart DD and Speculation Reddit post – Thank you r/OE4000
Apple and Canoo 2021 theverge rumor
Apple and Canoo 2022 Bloomberg rumor
Section 7 – Short Interest Data
For me, Canoo is a long term investment, However, I believe there is a major short term catalyst and that is the short interest..
Short Interest of Float: 31% Si of float
Utilization: 100% for the past several months now
CTB: 45%
As of 5/27/2022 – 6 Month CTB Chart + 6 Month GOEV Price Chart
I like how CTB is on a general uptrend. I mean, I don’t know if that’s good or bad. I’m not a short data connoisseur. But the CTB uptrend looks provocative. Can’t be bad if shorts have to pay more to short Canoo..right..? right…?
DTC (Days To Cover Ratio): 14
An overlooked ratio for short data imo, Days to Cover. Personally my favorite exacerbated short related number. DTC is essentially how many days it would take shorts to cover at the current average volume traded on a stock. Canoo has a 14 DTC, ridiculously high.
Anyways, hope this was informative. Thanks for reading!
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