Shares of Canoo Inc (NASDAQ: GOEV) have leapt by more than 90% on Tuesday after the company scored a major deal with Walmart. The retail giant has signed a deal to purchase 4,500 all-electric delivery vehicles, beginning with the Lifestyle Delivery Vehicle (LDV), with the option to purchase up to 10,000 units.
The LDV is an American-made commercial electric vehicle (EV) optimized for sustainable last mile delivery use cases. Production of these LDVs is expected to commence in the fourth quarter of 2022.
What is Canoo Inc?
Canoo is a mobility technology company, designs, engineers, develops and manufactures electric vehicles for commercial and consumer markets in the US.
The company offers lifestyle delivery vehicles, lifestyle vehicles, multi-purpose delivery vehicles and pickups. It also provides multi-purpose platform architecture is a self-contained, fully functional rolling chassis design to support various range of vehicle weight and ride profiles.
The company serves to small businesses, independent contractors, tradespeople, utilities and service technicians. Canoo was founded in 2017 and is headquartered in Torrance, California.
How Does Canoo Inc Make Money?
In its most recent earnings update, which predates the Walmart announcement, Canoo said it had more than 17,500 preorders with a projected value of $750m, as well as a growing pipeline.
The company has not yet scored any revenue, instead signing agreements to provide EVs which will be produced at a later date. These agreements include one with NASA for Artemis ground crew transportation vehicles, which is expected to be the longest lasting space exploration program in history.
GOEV Stock Risks
Of course, a company that has not yet brought its products to market carries a slew of risks, such as these products (Canoo’s EVs) failing to meet expectations and damaging the business’ reputation.
Additionally, Canoo doesn’t seem to be the stablest business in the world. Its share price has fallen significantly across the year to date, diving by almost 50% even with the major boost seen on the back of the Walmart deal. Indeed, the company’s current share price of around $4.20 pales in comparison to the $20.28 price seen back in 2020.
The company has also met funding issues, with its recent earnings expressing doubts that it could continue as a going concern.
GOEV Growth Potential
Oil prices have hit record highs in recent months, with sky-high inflation sending fuel costs upwards. This has hit consumers hard but it has also impacted businesses.
What’s more, Autumn 2021’s COP26 summit inspired nations and companies to pledge to significant reductions in carbon emissions. These two factors indicate that there is a major opportunity for an EV company to supply greener and more efficient vehicles to businesses.
The company also wants to change the car market by benefitting from resale, upgrading and car data sales, eking revenue out of new areas that haven’t been targeted by many major manufacturers.
Is GOEV a Good Investment?
A deal with a huge company like Walmart is a significant vote of confidence for a business like Canoo, which has yet to push on and make serious revenues of its own.
The business does have funding concerns, with the most recent earnings update indicating that the business had access to $600m but there remained substantial doubt that it could continue across the long term.
It’s also worth noting that fleet electrification seems like an exciting business right now. Major delivery companies like Amazon, UPS and FedEx have all pledged to shift their focus to EVs.
With many major corporations around the world having pledged to reduce CO2 emissions following COP26 in autumn 2021, it seems likely that there will be a lot more moves to electrify in the next few years.
However, Canoo is still a bit untested and seems to carry a lot of risky baggage. It certainly wouldn't be the first company of its type to fall into severe difficulties, with ELMS having filed for bankruptcy back in June.
Investing in the business could allow you to benefit from the swing of business’ to electrification, but there is always increased risk in a business that has yet to bring its products to market.
As such, the decision on whether to invest in Canoo or not depends on your own risk appetite.