In mid-December 2021, Canoo Inc. (NASDAQ: GOEV), a start-up electric vehicle manufacturer, reported another change in its strategy. The company now plans to begin building its all-electric Lifestyle Vehicle in a facility in the U.S state of Arkansas. In June 2021, Canoo had announced that it would utilize the Netherlands’ VDL Nedcar as a contract manufacturer to produce the initial quantity of vehicles.
Canoo gave several reasons for changing production plans for its first vehicles. These include reducing supply chain vulnerabilities and increasing speed to market. The company also noted that producing at the Arkansas site would make it easier to keep secret any of its innovations, and that it would save “thousands per unit” by eliminating warranty risks, tariffs and overseas shipping. Of course, all of these considerations and extra costs were known at the time that Canoo announced its contract manufacturing initiative with VDL Nedcar.
In late 2023, Canoo plans to shift manufacturing to a new facility in the U.S. state of Oklahoma.
Canoo made another, more substantial strategy change in March 2021. At that time, the company abandoned a monthly subscription model for its electric vehicles. Under that model, users would not have purchased the vehicle; instead, they would have paid a monthly subscription to drive and use the car with no set end date. The subscription fee would also have covered vehicle services and charging.
The company slightly boosted its Lifestyle Vehicle production guidance for 2022 and 2023: 3,000 to 6,000 units in 2022, up from the previous goal of 500-1,000; and 14,000 to 17,000 units in 2023, up from 15,000. Canoo likewise announced 2024 and 2025 production target ranges — as opposed to official guidance — of 40,000-50,000 and 70,000-80,000 units, respectively. The Lifestyle Vehicle carries a suggested base price of US$34,750.
If Canoo were to reach the midpoint of its production guidance in 2023 (15,500 units), and if its per-unit sales price were to average US$40,000, the company’s 2023 revenue would be about US$620 million. Separately, at its mid-June 2021 Investor Relations Day, Canoo projected that its 2023 EBITDA could be around US$5 million.
Canoo’s enterprise value is just over US$1.6 billion, which implies that the ratios of its enterprise value-to-projected 2023 revenue and enterprise value-to-estimated 2023 EBITDA are 2.6 times and 300+ times, respectively. Canoo’s revenue multiple looks reasonable, particularly for the highly valued electric vehicle segment, but the EBITDA multiple is difficult to justify.
In 3Q 2021, the company’s cash burn (defined as its operating cash flow deficit plus capital expenditures) totaled US$143 million, up from US$71 million in 2Q 2021, and US$66 million in 1Q 2021. Canoo projects cash operating expenses and capital expenditures in 4Q 2021 of US$95-US$115 million and US$60-US$80 million, respectively, so its 4Q 2021 cash burn could total US$155-US$195 million.
By year-end 2021, the company’s cash balance could therefore be down to around US$250 million, versus US$415 million at September 30, 2021 and US$702 million at year-end 2020. Phrased differently, Canoo’s full-year 2021 cash burn could amount to US$450 million. The company seems to need to raise additional equity by the end of the first quarter of 2022.
| (in thousands of U.S. dollars, except for shares outstanding) | 4Q 2021E | 3Q 2021 | 2Q 2021 | 1Q 2021 | Full Year 2020 |
| Operating Income | ($95,000) to ($115,000) | ($107,006) | ($104,346) | ($97,070) | ($199,718) |
| Operating Cash Flow | ($71,803) | ($54,870) | ($53,948) | ($107,054) | |
| Capital Expenditures | ($60,000) to ($80,000) | ($71,457) | ($16,545) | ($12,108) | ($7,558) |
| Cash | $414,904 | $563,565 | $641,925 | $702,422 | |
| Debt | $14,032 | $13,941 | $21,063 | $20,205 | |
| Shares Outstanding (Millions) | 237.6 | 237.6 | 237.5 | 235.8 |
Based solely on a multiple of its potential 2023 revenue, Canoo’s valuation looks reasonable. However, evaluating the company on its cash position raises problematic issues. Canoo trades at a giant multiple of its potential operating cash flow, and the company could be forced to raise cash through a stock sale within the next few months.
Canoo Inc. last traded at US$8.51 on the NASDAQ.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
