Key Points
- Canoo issued a going concern notice, and its share price fell more than 25%.
- The company needs cash quickly and may be unable to access capital markets because of existing agreements.
- Mullen Automotive isn't out of the woods yet but is firing on all cylinders and gaining momentum.
Canoo, Inc. NASDAQ: GOEV analysts were bullish on the stock ahead of the Q4 earnings report, but that situation will likely change. The company issued a going concern notice that raises serious doubt about the company’s ability to continue, and the danger is real. The company forecasts losses will continue, and it needs more cash, something it will have a hard time finding, so there is a real possibility the company could file for bankruptcy soon.
And it’s not like the short-sellers weren’t already interested. Short interest going into the report was near 20% and will likely rise now. With the company on the rocks and in danger of falling apart, the likely outcome is that short-sellers will pile into this loser and push its share prices lower. Either way, the company stock is heading down into the dollar range and could quickly move below a dime.
Canoo, Inc. Ramps Production, But It’s Not Enough
Canoo, Inc. had a tough time in Q4 and 2023. The company narrowed its losses considerably, but losses persist and are expected to ramp up over the next few quarters. Costs are associated with R&D, 3rd party suppliers, scaling production, scaling inventory to support production, scaling SG&A to support it all, and infrastructure intended to support sales. Regular sales will commence in 2024; guidance for the year is positive, but the $500 to $100 million in net revenue is well below expectations and insufficient to alter the company’s capital needs.
Cash burn in Q4 topped $54 million, with net losses for the year above $300 million. With only $6.4 million in cash, the company must do something quickly to survive. As it is, it has been leaning into debt and dilutive measures to sustain operations and is planning on the same this year. The share count is up more than 110% YOY and heading higher, reverse-split or not.
The reverse stock split is among the risks faced by investors. The company issued the reverse split early in March to prop up the share price, but the effort is failing. Based on similar efforts by competitor Mullen Automotive NASDAQ: MULN, the split will likely result in share prices returning to the pre-split price levels or lower and potentially another reverse split later this year because of compliance issues. NASDAQ-listed stocks must trade above $1.00 or face delisting. Delisting will hurt already shaky investor confidence and is bearish for price action.
Mullen Automotive Regains Compliance
Meanwhile, competitor Mullen Automotive has regained compliance with NASDAQ listing requirements and is now fully compliant. This company has been ramping up the production of its vehicles and is already in revenue-producing mode. Its first year of production brought in over $365,000, putting it on track to sustain business with little to no additional funding.
Mullen’s results in Q1 2024 are promising. Deliveries were up 660% compared to the prior year, and growth is expected sequentially through year-end. Invoicing to Randy Mario Automotive at the end of the quarter topped $17 million, suggesting 2024 will be a solid year for the company’s commercial automotive operations.
Canoo Stock Is Heading Downstream Fast
The price action in GOEV fell more than 25% on the delisting notice and may fall further. The move confirms an existing downtrend, and there is no reason to buy, so lower prices are the most likely result. Critical support is near $2.75, and the upper side of a downtrend line that was recently broken. If the market can not sustain support at this level, a move to the recent lows of nearly $1.40 is likely. A move below $1.40 opens the door to $1.00 and lower prices. In the unlikely event that the market can rebound from this level, critical resistance is near the 30-day EMA and will likely trigger short-selling if touched.
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