Key points
- Canoo issued a going concern warning and its share price fell more than 25%.
- The company needs liquidity quickly and may not be able to access capital markets due to existing agreements.
- Mullen Automotive isn’t out of the woods yet, but it’s firing on all cylinders and gaining momentum.
Canoo, Inc. NASDAQ: GOEV Analysts were bullish on the stock ahead of its fourth-quarter earnings report, but that will likely change. The company has issued a going concern notice that raises serious doubts about the company’s ability to continue, and the danger is real. The company expects losses to continue and needs more liquidity, something it will have trouble finding, so there is a real possibility the company could file for bankruptcy soon.
And it’s not as if short sellers weren’t already interested. Short interest in the relationship was close to 20% and will likely rise now. With the company in crisis and in danger of falling apart, the likely outcome is that short sellers will pile into this loser and push its share prices lower. In any case, the company’s shares are falling into the dollar range and could quickly move below a cent.
Canoo, Inc. accelerates production, but it’s not enough
Canoo, Inc. has had tough times in the fourth quarter and in 2023. The company has significantly reduced losses, but losses persist and are expected to increase in the coming quarters. Costs are associated with R&D, third-party suppliers, scaling of production, scaling of inventory to support production, scaling of SG&A to support it all, and the infrastructure to support sales. Regular sales will begin in 2024; forecasts for the year are positive, but net revenues of $500 million to $100 million are well below expectations and insufficient to change the company’s capital needs.
Cash burn in the fourth quarter exceeded $54 million, with net losses for the year exceeding $300 million. With only $6.4 million in cash, the company needs to do something fast to survive. As it stands, it has leaned on debt and dilutive measures to support operations and is planning the same this year. The stock count is up more than 110% year over year and is trending higher, reverse split or not.
Reverse stock split is one of the risks faced by investors. The company issued the reverse split in early March to prop up its stock price, but the effort is failing. Based on similar efforts by competitors Mullen Automotive NASDAQ: MULN, the split will likely result in stock prices returning to pre-split levels or a downturn and potentially another reverse split later this year due to compliance issues. Stocks listed on the NASDAQ must trade above $1.00 or risk delisting. Delisting will hurt already shaky investor confidence and will be 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 ramped up the production of its vehicles and is already in revenue producing mode. Its first year of production brought in more than $365,000, putting it on track to sustain the business with little to no additional financing.
Mullen’s results in the first quarter of 2024 are promising. Deliveries increased 660% compared to the previous year and sequential growth is expected through the end of the year. Billings at 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 rapidly lower
Price action in GOEV fell more than 25% following the delisting notice and could fall further. The move confirms an existing downtrend and there is no reason to buy, so lower prices are the most likely outcome. Critical support is near $2.75 and represents the upper side of a downtrend line that was recently broken. If the market fails to sustain support at this level, a move to recent lows near $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 manages to rebound from this level, critical resistance is near the 30 day EMA and if touched would likely trigger short selling.
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