Another EV Start-Up Raises Doubt Whether It Can Remain a ‘Going Concern’

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Most of Canoo’s 2022 sales are expected in the fourth quarter.

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Courtesy Canoo

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Stock in Canoo is falling early Wednesday after the electric- vehicle start-up reported first-quarter earnings and, more important, signaled that it may not be able to keep operating unless it can raise more cash.

“Our management has performed an analysis of our ability to continue as a going concern and has identified substantial doubt about our ability to continue as a going concern,” reads the company’s first-quarter filing with the Securities and Exchange Commission. “Our business plans require a significant amount of capital. If we are unable to obtain sufficient funding or do not have access to capital, we will be unable to execute our business plans and could be required to terminate or significantly curtail our operations.”

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Going-concern language “is warranted when there is substantial doubt the company can continue to conduct its normal business operations in the foreseeable future without having to liquidate a portion of its assets and/or restructure its obligations,” accounting expert Robert Willens told Barron’s,

Practically speaking, for investors, it means the stock could go down significantly. Without an infusion of cash, existing stockholders could be wiped out. Lordstown Motors (ticker: RIDE) is another EV start-up that added that language to its filings in recent quarters.

Canoo stock (GOEV) was down 6% in premarket trading Wednesday. Futures on the S&P 500 and Dow Jones Industrial Average futures were up 1.1% and 0.8%, respectively. Coming into Wednesday trading, Canoo shares were down more than 50% year to date.

For the quarter, the company reported a loss of 54 cents a share, with no sales.

Canoo ended the quarter with about $105 million in unrestricted cash on its books. The company’s guidance calls for spending about $200 million in the second quarter, while management has lined up roughly $600 million in financing to help fund operations. That funding, including roughly $300 million in equity and up to $300 million in debt, isnt completed yet.

“As operators and investors, we have significant experience raising capital in challenging markets ,” said CEO Tony Aquila in the company’s news release. “We will continue to raise when needed, bridge to milestones and be in a position to take advantage of improving market conditions. We are focused on long term value creation for our customers and shareholders.”

Canoo didn’t immediately respond to a request for comment about what management would do if they can’t bring in the necessary funding.

Since raising capital via a merger with a special-purpose acquisition company, Canoo has spent roughly $720 million developing its EVs. In the summer of 2020, when the SPAC merger was proposed, Canoo projected about $329 million in 2022 sales. Current analyst estimates call for about $154 million, with most of that coming in the fourth quarter.

It looks as if the company will need to get more cash fast to meet those estimates.

Write to Al Root at [email protected]


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