Electric vehicle company Canoo’s second-quarter results, like its first-quarter results, show a pre-revenue company that’s burning through cash. However, last quarter, Canoo was warning it might not have enough cash to stay in business. Three months later, the EV startup-gone-SPAC is touting access to enough capital to see it through the rest of 2022.
“We are preparing for [start of production] readiness,” said Ramesh Murthy, chief accounting officer at Canoo, during Monday’s earnings call. “We have customers. We have access to capital. We have a strategy that benefits our company and shareholders against the backdrop of this global economic condition. We are making it happen.”
Canoo says it has closed out the quarter with more than $1 billion in its sales pipeline. This is largely attributable to a recent deal with Walmart to purchase 4,500 units, with an option to buy up to 10,000 units. Canoo also scored a deal to supply its multi-purpose platform to the U.S. Army for analysis and demonstration, which could lead to sales in the future. The company also recently unveiled the EVs it’s making for NASA.
Like many EV SPACs, Canoo has had a tough time, and is likely still reeling from its past controversies, which include internal drama, legal issues, production delays and an SEC investigation. That said, there appears to be light at the end of this tunnel.
Canoo’s shares hiked almost 7% after the company released its Q2 results. Let’s dig in.
Canoo’s financial results
While Canoo does have quite a lot of potential money in the pipeline, the company has still not brought in any revenue since making its public debut in December 2020. Canoo saw a net loss of $164.4 million in the second quarter and $289.8 million in the first half of the year, compared to a loss of $112.6 million and $127.8 million in the same periods last year, respectively.
In Q1, Canoo was struggling to get the cash it needed. When the company announced its results in May, it still hadn’t realized the gains of the $300 million private investment in public equity (PIPE) investment from its SPAC. Canoo had also filed a $300 million universal shelf, all of which would be necessary to make it to the start of production. As a result of the delayed funds, Canoo issued a growing concern warning.
Today, Canoo is singing a different tune. The company closed out the quarter with access to $250 million, which includes about $220 million of unused capacity on its SEPA facility, and cash and cash equivalents of $33.8 million. Notably, while there’s certainly access to capital here, it’s not actually cash on hand, which in reality is close to pennies for an EV company.
Tony Aquila, CEO of Canoo, has said he’s committed to raising money without diluting shareholders. The company said it has entered into an agreement with Evercore Group and H.C. Wainwright & Co. for an up-to $200 million at-the-market offering. In addition to this ATM offering, Canoo has announced a $300 million mixed shelf offering and a $250 million “standby equity purchase agreement” with Yorkville Advisors.
Additionally, as Canoo has previously mentioned, the company has secured more than $400 million in non-dilutive incentives from the states of Oklahoma — where Canoo is expanding operations at its first U.S. factory and establishing a technology hub and customer support and finance center — and Arkansas, where Canoo is setting up headquarters and another technology hub. Oklahoma agreed in March to buy 1,000 Canoo EVs, but the state can always pull out of that agreement.
Walmart to the rescue?
When Walmart agreed to buy 4,500 electric delivery vehicles from Canoo in July, no doubt the company and its investors all breathed a collective sigh of relief. Not only did that assure future revenue for Canoo, but it also gives the company another opportunity to go after additional non-dilutive and lower cost capital financing opportunities, said Murthy.
“The first agreement represents $300 million of potential revenue for us with an additional path of deeper partnership opportunities to generate revenue for us with our new partner,” said Aquila.
Presumably, having clout with Walmart will also lead to additional partnerships with other partners in the future, but per Walmart’s agreement with Canoo, rival Amazon will not be one of them.
That said, Canoo added a new risk factor to its regulatory following following the Walmart deal, saying that the company expects “a substantial portion of [its] initial revenue will be from one customer.” If Canoo is unable to hold up its end of the bargain, or Walmart decides to purchase fewer vehicles, or none at all, Canoo’s business will be adversely affected. And it’s important to note that Walmart does in fact have the option of pulling out of the deal, as long as it provides 30 days notice.
Keeping lean and quick
Canoo spent $115.5 million on R&D in the second quarter, which probably helped the company figure out how to get its total parts used on its EV platform down to 1,600, as compared to 1,800 last quarter. This is also partly due to Canoo’s decision to prioritize domestic manufacturing, which the company says will lead to higher margin business wins with commercial fleet operators, as well as have a meaningful long-term impact on total cost of ownership.
“This approach has aided us in dealing with the inflationary and supply chain environments, which not only affect the first owner but every owner thereafter, allowing us to demonstrate that the future is about becoming a TEM not just an OEM,” said Aquila, nodding to Canoo’s tech-first approach.
Aquila also noted that it would outsource initial production to a third party, but didn’t go into details.
Canoo said it was able to double the total number of Gamma properties it manufactured in the second quarter, bringing the total number up to 89 and more than doubling the number of vehicles since Canoo last reported. In fact, during the second quarter, Canoo was able to hand off its Gamma build for certification to meet Federal Motor Vehicle Safety Standards requirements.
The result of having more vehicles at the ready is that Canoo now has $275 million in fixed assets as of June 30, which the company says can also be leveraged for additional non-dilutive financing.
With a focus on SOP in Q4 2022, Canoo expects its operating expenses for the remainder of the year to be between $200 million and $245 million, excluding stock-based compensation and depreciation. That’s a 20% decrease in spending in the second half than the first because the company is completing its Gamma phase investments and moving closer to commercial production, according to Murthy.
Canoo expects capital expenditures of $100 million to $125 million, and Murthy said this is primarily related to facility readiness, machinery and equipment and production tooling.
“These investments will get our [Lifestyle Delivery Vehicle] in the hands of paying customers and support another milestone of 20,000 run rate in 2023,” said Murthy.
Spending in 2023 will continue on Canoo’s current pace in order to achieve 2023 production guidance, continued Murthy, noting that in order to achieve other long-term business aspirations, the company will need to tap additional capital.
Aquila mentioned a potential for an additional $85 million in the future, but didn’t go into details. He did seem optimistic that Canoo would have further access to capital since pulling forward some of its build-out programs.
This article has been updated to include mention of an equity deal and Canoo’s plans to outsource initial manufacturing to a third party.