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Canoo Stock: EV Growth With Short Squeeze Potential

Electric truck manufacturer Canoo is the EV stock of the moment and a potential meme target. Wall Street Memes discusses if there is more to GOEV than buzz and a short squeeze opportunity.

Torrance, California-based electric car company Canoo  (GOEV) - Get Canoo Holdings Report is currently one of the most popular EV stocks discussed on Reddit. The company, which went public via a special purpose acquisition company (SPAC) merger, produces fully electric trucks and its stock draws attention due to its high short interest alongside decent business prospects.

Figure 1: Canoo electric pickup.

Figure 1: Canoo electric pickup.

Today, Wall Street Memes looks at whether GOEV could be a promising EV stock pick.

EV market opportunity

The electric vehicle market is expected to be valued at $725 billion by 2026. Currently, the industry is worth $171 billion, which indicates a compelling CAGR of around 30%. In sales, EVs are projected to grow from around 2.5 million units in 2020 to some 11 million in 2025. Electric vehicles would be approximately 32% of the total market share for new car sales.

Regulation and policy are considered important catalysts for the EV market. Asia is currently the fastest growing market, while sizable EV incentives exist today in the Unites States. Illinois’ 'clean energy law, for instance, allows for a $4,000 rebate to residents that buy an electric car.

Figure 2: EV market data.

Figure 2: EV market data.

Company fundamentals and valuation

Canoo has over 650 employees. The EV manufacturer currently produces lifestyle and multi-propose delivery vehicles that are fully electric. The company boasts the large interior space of its cars that is possible due to the world’s flattest skateboard platform, which allows for large passenger and cargo volume on a small vehicle footprint.

In the most recent quarter, the company hired seasoned professionals for management roles from firms that are well-known in the EV sector: Tesla, Nio, Mercedes Benz, General Motors, among other big companies.

Regarding financials and valuations, Canoo has $1.6 billion market cap and a proportionally large $563 million in cash. In the second quarter, the company reported adjusted EBITDA of negative $76 million that was worse than $18 million for the comparable period in 2020.

For the third quarter and beyond, Canoo seems optimistic about its prospects – although much of what lies ahead in the near term, as described below, suggests that the company’s growth story is only getting started:

"At Canoo we are focused on bringing sustainable and affordable mobility to the working people of America and beyond. We awarded two significant contracts - phase 1, contract manufacturing with VDL Nedcar and phase 2, selecting Oklahoma as our partner for our owned manufacturing plant," said Tony Aquila, Investor, Chairman & CEO of Canoo

Lastly, looking briefly at valuations, Canoo's $1.6 billion market cap is just above one-third of one of its key peers Fisker Inc’s (FSR) $3.9 billion. Canoo has 9,500 pre-orders for 2022 and 2023 valued at $313 million, assuming the cheapest model price. Fisker, on the other hand, has 17,000 pre-orders valued at $637 million, also assuming the cheapest model price.

At first glance, and understanding that a more comprehensive valuation analysis would be needed here, these numbers help to support the thesis that Canoo may be cheaper compared to some of the other high-growth players in the EV space.

Short interest and meme status

Canoo achieved its “meme” status as short interest reached 31% of the float. Since the company went public through a SPAC, skepticism has mounted on whether the investment opportunity has been overhyped. The downfall of SPACs at large, in 2021, has not helped either.

Another possible reason for high short interest is volatility and uncertainty in the electric vehicle space. This is especially true due to the importance of regulatory and policy matters, compared to how these same factors impact traditional vehicle manufacturers.

Other electric vehicles manufacturers, including Workhorse, Arcimoto and Nikola, also suffer from elevated short interest above 30%. This could either mean that EV stocks are in for a rough ride ahead, or that EV companies and their shares are great targets for short squeezes.

Twitter speaks

If you are interested in investing in the electric vehicle space, which of the following stocks do you believe has the most upside potential in the next 12 months?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)