To The Moon

Canoo's (NASDAQ:GOEV) death seemed inevitable a few months ago, with the company's liquidity position fast running out and there seemingly being little operational traction on plans to get its vehicles to market. But the Justin, Texas-based company has moved quicklyover the last few months as management, backed up against their impending irrelevancy, has engineered a great comeback for the firm as several new partnerships have been announced.

The company's fiscal 2022 third quarter results, whilst still pre-revenue, provided operational updates that fundamentally continue to support the long-term bull case. One that sees EVs increasingly play a larger part in the fast-expanding climate economy. The potential for runaway growth for the industry was always questioned by bearish sentiment, which stated EVs would always fail to compete on price and that range anxiety would discombobulate their rollout versus gas and diesel-powered vehicles. So recent news that Canoo had signed anagreement with Zeeba, a fleet Management company, for the delivery of 5,450 Lifestyle Vehicles has energized the company's value proposition against the backdrop of a collapsed stock price.

This has been aggregated with a second agreement with van rental firm Kingbee for 9,300 vehicles. This binding order comes with an option for the total to be increased to 18,600 and will see Canoo's vehicles delivered as a fleet solution to a diverse range of businesses across the US.

Canoo Moves To Occupy Its Time In The Sun

It seems somewhat impossible to think of now, but there was once a period when EV uptake was anemic. The vehicles were broadly associated with a certain subset of the population and certainly remained out of reach for most people based on cost. This kept EVs as a fringe part of global automotive sales, but we are all now living through the most significant generational shift in transportation as EV adoption experiences its time in the sun. Canoo was always operating in a crowded space, but the company has been able to differentiate itself from the crowd and make headway into the market for commercial EV sales whilst stacking up orders from households.

When Canoo reported earnings for its fiscal 2022 third quarter, it announced that it had locked in over $2 billion in orders, a 100% sequential increase from the second quarter. $750 million of this was binding orders, more than 2x the value of its current market cap. The company expects its US-based Start of Production to commence from November 17th with a limited number of vehicles but shared ambitious plans to eventually move production to a newly acquired manufacturing facility in Oklahoma City. Canoo entered into an agreement for the purchase of a 120-acre facility with existing production-ready infrastructure. The company will shift its manufacturing effort to the new facility by the summer of 2023 with plans to ramp production to 20,000 units by the end of the same year.

GAAP net loss stood at$117.7 millionfor the quarter, with an adjusted EBITDA loss of $80.8 million. This drove the year-to-date cash burn from operations to $329.9 million, up from $180.6 million in the year-ago period. Hence, with cash equivalents of $6.8 million at the end of the quarter, Canoo would have to secure financing from other sources. The company has access to $200 million through its at-the-market share offering program and is looking to finance the Oklahoma facility through a debt-based option. Critically, its binding orders will provide clarity to lenders as well as what looks set to be a material level of incentives from Oklahoma and other local partners.

Opening A Clearer Path To Success

The shift to EVs is now entrenched in the post-pandemic economic zeitgeist of the US, and the race to combat anthropogenic climate change picks up pace. Whilst this is still in a very early stage, growth ahead is set to be material and dramatic. In 2012 just 120,000 EVs were sold globally. Last year saw this figure being sold on a weekly basis with 10% of cars sold in 2021 being electric, 4x the market share in 2019. EVs are forecasted to grow to at least 26.8 million by 2030, up from 6.6 million in 2021.

What does this mean for Canoo? That its total addressable market is fast expanding, which places its factory buyout and order book in context. The company is about to realize a strong upward adoption ramp as the future of motor vehicles changes.

Fundamentally, the company's cash position remains extremely precarious against cash burn running as high as it is. But Canoo looks likely to be able to secure enough funding to get it across to next year, when it expects to start bringing in more revenue. Hence, bankruptcy fears seem misplaced. For now, an electric future under the sun looks more likely than it did a few months ago. This is one to watch.