Should you buy Canoo stock after its big strategic pivot?

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EV’s rising Canoo stock has corrected nearly 40% from its March highs. While the broader EV sector has seen some weakness in recent weeks, in part due to rising interest rates, which have hurt growth stocks, and a global shortage of automotive semiconductors , Canoo has been hit by some major strategic pivot points that he highlighted in his recent earnings call. First, the company has indicated that it will “tone down” its contract engineering services business that plans to provide electric vehicle know-how and technology to other OEMs wishing to enter the electric vehicle market. Second, the company’s deal to have Korean auto giants Hyundai and Kia build electric vehicles using its platform appears to be failing. The deal was seen as a major victory for Canoo when it was announced last year. The company also appears to be focusing more on utility vehicles, apparently moving away from plans to sell an electric van to consumers through a subscription model. Finally, Canoo intends to eventually build its own factories, which departs from its previous plan of using an asset-lean model that relied on third-party manufacturers.

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Canoo’s shares are now trading at around $ 9 a share – below the $ 10 the company closed its SPAC merger at last December – and the company is valued at around $ 2.2 billion, well below the $ 4 billion. billions of dollars and more than she experienced just a few months ago. Is this a good entry point? We do not think so. Scaling up a potentially high-margin technology licensing company, providing subscriptions, and working with an asset-based model was key to our Canoo investment thesis (see below) and it seems that the company will not go in that direction. While Canoo apparently has a flexible EV platform, it’s unclear whether the company can differentiate itself in the increasingly crowded commercial EV market.

[2/24/2021] Canoo versus. Workhouse: which stock should you choose?

Following Tesla’s big rally last year, investors are warming to smaller shares of electric vehicles that recently went public via the SPAC channel. Workhorse Group (NASDAQ: WKHS) – which focuses on delivery vehicles, and Canoo, which seeks to meet the needs of the commercial and consumer market, have received a lot of attention, with their inventories rising nearly 45 % and 20%, respectively, year to date. While the two companies trade at market caps of around $ 3.5 to $ 4 billion and have yet to launch commercial deliveries, making them potentially risky bets, we believe Canoo is likely to provide better long-term benefit for investors. Here is a little more on the two companies.

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Canoo is looking to develop several consumer and commercial vehicles, based on its modular “skateboard” platform that integrates batteries into the EV chassis. This allows the company to build highly customized vehicles that can serve multiple applications. The company plans to launch its first lifestyle vehicle at the end of 2022, followed by a delivery vehicle in 2023 and a sports vehicle in 2025. Canoo is looking to make its first vehicle available through an all-inclusive subscription. The company may also consider licensing its platform to other OEMs. In fact, there have been reports that Apple
AAPL
and Canoo were in discussions regarding the rumored Apple car late last year. Canoo forecasts revenue of nearly $ 330 million in 2022 and targets a CAGR of 88% through 2026.

Workaholic
WKHS
builds electric delivery and utility vehicles, targeted at last mile delivery – a segment that should be an ideal application for electric vehicles, given low maintenance costs and range issues. Workhorse’s business appears to be more focused although its product does not appear to be as innovative as Canoo. However, the company has highlighted orders for its electric vehicles with several customers, the largest of which is an order for more than 6,000 vehicles from Pride Group, a company specializing in the rental and leasing of commercial vehicles. Workhorse is one of three finalists for a more than $ 6 billion fleet upgrade contract to replace the aging US Postal Service delivery truck fleet and anticipation of a deal has been a factor important to feed the stock this year.

Overall, we think the choice between the two stocks is choosing between Workhorse’s potential backlog and Canoo’s interesting technology. Workhorse has yet to manufacture or deliver trucks on a large scale and it is not clear whether all of their orders will translate into real revenue. The deal with Pride Group, for example, is apparently tied to the demand for delivery vehicles from Pride Group’s end customers and the final number of vehicles delivered could be smaller. It’s also probably overkill to expect a multi-billion dollar USPS contract to be awarded to a company without much track record. On the other hand, while Canoo also has a lot to prove, the company’s flexible technology platform, plans to offer subscription services and license its platform to other manufacturers. VE could give it a huge advantage in the long run, if it performs well.

While Canoo may seem like a better long-term bet than Workhorse, 2020 has also created a lot of price discontinuities that can provide some interesting trading opportunities. For example, you will be surprised at how the valuation of stocks for Apple vs. Logitech shows a disconnect with their relative operational growth. You can find a lot of them discontinuous pairs here.

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