Is Canoo (GOEV) about to go bankrupt as the stock sinks?

Canoo (NASDAQ: GOEV) stock price has been punched in the face this year as concerns about the company have remained. It is already down by more than 52% this year alone. It has also erased most of the gains it made two weeks ago as it went through a remarkable short squeeze.

GOEV stock chart by TradingView

The main reason why the GOEV share price has collapsed this week is that the company published weak financial results and guidance.

In the accompanying filing, the company warned that it may not continue as a going concern as its cash balances wane.

There are reasons to worry about this. For one, Canoo ended the quarter with about $6.4 million in cash, which is hardly enough to fund its operations. For one, Canoo is still burning substantial sums of money even after it made substantial cost cuts.

Canoo had a net loss of over $29 million in the quarter, an improvement from the $80 million it lost in the same quarter a year earlier. 

This cash burn will continue in 2024. Canoo expects that its total cash outflow for the year will be between $45 million and $75 million. As such, the company needs access to cash soon before the current amount runs out.

Canoo has several options. The most obvious one is where it raises cash in the equity market. That will be a tough approach since the company’s equity is valued at over $180 million and it needs more money than that. 

The other option is where it raises cash from the federal and state governments. Oklahoma has already provided it with cash before and the Biden administration is dishing out funds to firms in the electrification industry.

The Department of Energy has already given funds to a company like Plug Power. Canoo could receive funds because of its deal to supply electric vehicles to the USPS. Still, it is unclear whether this financing will materialise.

The other option is where it receives investments from private investors. Of the $285 million that Canoo raised in 2023, $45 million came from a strategic investor. Perhaps, the same investor can do the same.

Investors are right to be concerned about Canoo. For one, the company’s revenue guidance for the year is between $50 million and $100 million, lower than what analysts were expecting.

Also, its financial woes are happening at a time when there are elevated risks that Fisker will go bankrupt. The NYSE has already started to delist the company.

Canoo issued a going concern warning this week, raising concerns that it could go bankrupt. However, it is not mandatory that the firm will go out of business. 

On the positive side, Canoo has already done much of its groundwork in terms of research and development (R&D) and plant assembly. 

Also, it already has solid orders from well-capitalised organisations like Walmart, NASA, and USPS. Its total order book stands at over $3 billion. This means that the company could access debt. In the earnings call, Greg Ethridge, the CFO said:

“All of this capital was very well put to use and we will continue to make progress towards accessing additional forms of debt and other non-dilutive forms of capital as we move into 2024.”

The other approach is where the company is acquired. Unlike companies like Rivian and Lucid, Canoo is targeting the utility side of transportation such as deliveries. This industry will likely see more demand as companies and public organisations decarbonise.

Therefore, while there is risk that Canoo will ultimately go bankrupt, it is not a must since the company has some options available.

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