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Canoo Faces Several Key Risks, Making it Too Risky

This has been a tough year for EV stocks and SPACs. Add to that list the problems facing Canoo (NASDAQ:GOEV) stock.
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This article was originally published by Investor Place

This has been a tough year for EV stocks and SPACs. Add to that list the problems facing Canoo (NASDAQ:GOEV) stock.

Source: shutterstock.com/rafapress

GOEV stock is down 45% so far in 2021, falling to less than $8 per share. The company’s most recent quarterly report showed its losses mounting. And Canoo in May announced it was the subject of a Securities and Exchange Commission fact-finding inquiry.

At least with the latter, Canoo finds itself in good company. Two EV startup competitors, Nikola (NASDAQ:NKLA) and Lordstown Motors (NASDAQ:RIDE) also disclosed SEC investigations.

Canoo went public by merging with a special purpose acquisition capital company, or SPAC, Hennessey Capital Acquisition Corp last year.

The problems facing Canoo are nothing new for electric vehicle companies and SPACs. There are so many similarities that I could use a copy-paste list of main features. The most important of them would be pre-revenue, operating losses, net losses, burning cash and poor fundamentals. And, of course, a stock price that surged based on early enthusiasm and then faltered as investors realized that hopes and dreams is not a solid investment.

Canoo had plenty of negative news, from changes to its management and its business plan to its SEC investigation. The result is that it’s gathering a lot of speculation about whether it is a viable company that can make a difference in the EV market.

Business Plans: A Dramatic Change

An article on Green Car Reports stated that Canoo is changing moving away from subscriptions and automaker partnerships and toward fleet sales. The company is halting its partnership with Hyundai (OTCMKTS:HYMTF) to focus on making and selling its own vehicles to commercial fleets.

Canoo is focusing on the phrase and idea “How we see it” to present its vision and business goals. But the way I see it now is that by ending its partnership with Hyundai, Canoo lost its focus and a great opportunity to develop and gather know-how.

In another article, I read that Canoo wants to deliver its expertise and sell components to other automakers. Is this a bad joke?

Being an EV startup and having plans to reach production in 2022 and 2023 is all about paying attention to every detail, reorganize all strategic activities and allow no mistakes at all.

I consider the decision of ending a partnership with Hyundai a costly mistake that shows arrogance by Canoo. With 9,500 pre-orders but no binding orders, many things can go wrong. And any production delays even due to Covid-19 can be detrimental to GOEV stock. Cash is king and making sales is essential.

I consider it a risky business plan to abandon its subscription model and instead focus on sales. Canoo’s vehicles start at about $33,000 and include a lifestyle vehicle, a pickup and a multi-purpose delivery vehicle. That’s not an exciting lineup for consumers.

Even this starting cost has no competitive advantage at all. There are more established EV makers offering models in that range of $30,000 up to $50,000. With untested official reports yet on the reliability of Canoo’s models and any early-stage manufacturing production problems that may arise, I am too skeptical on the path of future sales.

The SEC Investigation

CEO Tony Aquila disclosed in May that the SEC opened an investigation into Canoo, according to an article posted on The Verge.

The probe is broad, though the startup said in a regulatory filing that the SEC has characterized it as a “fact-finding inquiry,” and that the agency has not yet concluded whether anyone violated the law. It covers Canoo’s SPAC merger plus its “operations, business model, revenues, revenue strategy, customer agreements, earnings and other related topics, along with the recent departures of certain of the Company’s officers.”

Well, how is this a fact-finding inquiry when the SEC is investigating many aspects such as operations, revenue strategy, earnings, and even management changes? To me, it is a much deeper investigation into several crucial business aspects. And until it is finalized it is also a red flag to invest in GOEV stock.

Financials: Where Everything Starts and Ends

The company’s second quarter earnings report showed a deeper loss amid stronger pre-order numbers.

Losses were at 50 cents per share on zero revenue. The company said it had cash and cash equivalents of $563.6 million, which is down from $641.9 million at the end of the first quarter. It said the company’s non-binding orders were more than 9,500, an increase from 9,000 in June.

The loss is not a surprise. I expect capital expenditures to increase in the coming quarters as production comes closer and that should make burning cash even worse until revenue kicks in.

A pre-revenue company with only pre-orders with an SEC investigation and a vague business plan strategy is a big “no” for me now. GOEV stock is too pricey, too risky and too uncertain.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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Resources Top 5: Battery recyclers, porphyry hunters, and an ‘extraordinary’ uranium discovery

Hannans has enjoyed sizable rerate after moving into battery recycling earlier this month 92E just chose the perfect time to … Read More
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  • Hannans has enjoyed sizable rerate after moving into battery recycling earlier this month
  • 92E just chose the perfect time to make a uranium discovery in Canada
  • 3200m of drilling has now kicked off at Culpeo’s flagship ‘Las Petacas’ copper project

Here are the biggest small cap resources winners in early trade, Monday September 20.

 

HANNANS (ASX:HNR)

(Up on no news)

This humble nickel explorer has enjoyed a sizable rerate after moving into the lithium-ion battery recycling game earlier this month.

Hannans wants to recover high purity metals from scrap and spent batteries in Norway, Sweden, Denmark and Finland – the region with the highest electric vehicle (EV) penetration rates in the world.

Subject to securing a feedstock source, Hannans decision on Stage 1 plant locations are expected 1st Quarter next year.

A decision on a Stage 2 plant – which would refine mineral rich ‘black mass’ into high purity nickel, cobalt, lithium and manganese chemicals – is expected in the 2nd half of 2022.

The $83m market cap stock is up 220% over the past month.

 

92 ENERGY (ASX:92E)

92E just chose the perfect time to make a uranium discovery.

A drill hole hit an “extraordinary” 5.5m of 0.12% U3O8 at the ‘Gemini Mineralised Zone’ (GMZ), part of the Gemini project in the Athabasca Basin, Saskatchewan.

Gemini is 27km away from McArthur River, one of the largest and highest-grade uranium deposits in the world.

The GMZ discovery is wide open, 92E says.

“To identify 5.5m of 0.12% U3O8 on the fourth drill hole of our inaugural drilling program is an extraordinary result for 92 Energy,” 92E managing director Siobhan Lancaster says.

“Importantly, the assays from this drill hole display similarities to other early holes at major Athabasca Basin uranium discoveries, in terms of grade, width, alteration types and intensity, and we look forward to the follow up drilling to determine the extent of the mineralisation.”

The $40m market cap stock is up 364% over the past month, and 410% on its April IPO price of 20c per share.

 

CULPEO MINERALS (ASX:CPO)

This newly listed explorer raised $6 million in its IPO to look for monster porphyries in the world’s richest copper jurisdiction, Chile.

Porphyries are responsible for ~60 per cent of the world’s copper, most of its molybdenum, and significant amounts of gold and silver.

3200m of drilling has now kicked off at its flagship ‘Las Petacas’ project, where copper has been defined over a ~6km stretch.

“With the ASX listing now complete, we have mobilised our highly experienced exploration team to site and look forward to reporting the results of this drill program which will test several targets over the 6km-long mineralised trend at our Las Petacas project,” Culpeo managing director Max Tuesley says.

“Our team on site is already finding new zones of visible surface copper mineralisation during drill pad construction which is really exciting.”

Outcropping visible copper mineralisation (green stuff) exposed in drill pad construction.

The $14.5m market cap stock was up 80% on its IPO price of 20c per share in early trade.

 

INFINITY LITHIUM (ASX:INF)

The Spain-based lithium play hasn’t allowed the potentially catastrophic cancellation of its project permit by local government prevent it from moving toward a production decision.

‘Bench scale’ (very small scale) met test work has now produced battery grade lithium chemicals – both carbonate and hydroxide — from the ‘San José’ project, INF said today.

A pilot-scale program, designed to confirm the scalability of the process emerging from bench scale test work, is being conducted in parallel.

The pilot scale test work is an integral part in the Feasibility Study for San José, INF says.

The $48m market cap stock is down 26% year-to-date.

 

RESOURCE DEVELOPMENT GROUP (ASX:RDG)

Former mining contractor RDG acquired the ‘Lucky Bay’ garnet project in WA earlier this year.

High-quality alluvial garnet products are used in the abrasive blasting and waterjet cutting markets.

Today the stock announced an initial 29-year mine life for Lucky Bay, based on a high confidence ore reserve of 202 million tonnes at 5.4% heavy mineral (HM) with an average garnet grade of 86% in HM.

The project has a net present value (NPV) of $483 million and internal rate of return of 48%.

Both NPV and IRR are a measure of projects’ potential profitability – the higher above zero, the better.

“This is a significant milestone for the project and confirms the value that this project creates for RDG,” managing director Andrew Ellison says.



The post Resources Top 5: Battery recyclers, porphyry hunters, and an ‘extraordinary’ uranium discovery appeared first on Stockhead.

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Energy & Critical Metals

Ford Doubles Production Capacity For Its F-150 Lightning As Reservations Blow Past 150,000

Ford Doubles Production Capacity For Its F-150 Lightning As Reservations Blow Past 150,000

While General Motors is in the midst of EV hell,…

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Ford Doubles Production Capacity For Its F-150 Lightning As Reservations Blow Past 150,000

While General Motors is in the midst of EV hell, dealing with a massive recall for its Chevy Bolt and shuttering production as a result of the ongoing semi shortage, Ford looks to be "full speed ahead" with plans for its electric F-150 Lightning.

The company's CEO, Jim Farley, said on Thursday that it had reached 150,000 reservations for the forthcoming electric pickup. As a result, the company has ramped up hiring and increasing capacity as it starts building prototypes.

Joe White, global automotive industry editor for ThomsonReuters in Detroit, confirmed on Thursday that Ford would be expanding its F-150 Lightning capacity to 80,000 vehicles.

Ford plans on adding 450 jobs across 3 factories and also announced it would invest $250 million to bump up its production capacity, which was formerly 40,000 vehicles. 

Ford Chair Bill Ford said on Thursday: “We knew the F-150 Lightning was special, but the interest from the public has surpassed our highest expectations and changed the conversation around electric vehicles. So we are doubling down, adding jobs and investment to increase production."

“The reservation number has been growing quite rapidly since we launched it. That’s why we’re increasing capacity and building them as fast as we can,” Farley added.

And make no doubt about it, while other manufacturers falter, Ford's factory appears to be up and humming.

Ford is planning on building about 15,000 of the model next year after its launch, and about 55,000 of the model in 2023, in a ramp up to its 2024 target. 

Ford had already upped its production targets by 50% last November. This increase comes on top of that one.

Tyler Durden Sun, 09/19/2021 - 22:30
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How Evergrande the parent hurt Evergrande New Energy

One thing that has recently caught my eye has been the unravelling of China Evergrande Group – a conglomerate with over 100,000 employees spanning primarily…

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One thing that has recently caught my eye has been the unravelling of China Evergrande Group – a conglomerate with over 100,000 employees spanning primarily real estate development but also new energy, property services and health amongst other industries.

Keen market observers would be aware of the Chinese government’s recent crackdown on various industries. Most headlines have been focused around the tech giants and the for-profit education sector, but has also involved online gaming companies (gaming restrictions), the steel industry (push for decarbonisation) and most recently Macau casinos. It has also maintained its tightening bias toward the property sector, which has further dampened the prospects for rebar steel, and by extension iron ore.

Property cycles are nothing new in China, with development and prices waxing and waning based on policy and availability of credit and partially responsible for cyclical price movements in iron ore. The most recent slowdown however seems to have hit the highly indebted Evergrande extremely hard, as unravelling confidence in its ability to repay its lenders (split between onshore and offshore) has sparked a sell-off in both its bonds (now trading at 30 cents on the dollar) while the company’s equity value, which peaked at a market capitalisation of over US$50 billionn and was as high as US$47 billion in June last year is now just US$4.4 billion.

One of the more interesting subplots has been the fate of its New Energy Vehicle group, a listed subsidiary in which the China Evergrande parent owns 65 per cent. Early in the Evergrande Saga, the Group proposed selling a stake in its new energy vehicles (NEV) subsidiary as one way to reduce its debt load. In January 2021, the group sold a ~11 per cent stake in the subsidiary to six investors, valuing the business at ~US$34 billion. Amazingly, this transaction – along with the hype surrounding the potential EV market in China and the company showcasing 6 new cars – triggered a furious rally which saw the share price rise 140 per cent in under 3 weeks, while its market cap peaked at US$85 billion despite not selling a single car (shades of Nikola in the US, albeit the NEV subsidiary also holds Evergrande’s legacy assets in the healthcare space and was formerly known as Evergrande Health Industry Group).

China Evergrande New Energy Market capitalisation

Screen Shot 2021-09-17 at 2.48.49 pm

Source: Bloomberg

As concerns around its parent deepened, “investors” became concerned around the potential fate of its subsidiary with the Parent’s 6.35 billion NEV shares seen as a potential source of liquidity. This has seen a stunning collapse in Evergrande NEV’s market cap by ~US$80 billion since mid-April and has also caused liquidity issues in the NEV arm which just reported losses of more than US$742 million.

A good reminder to pay heed of any potential contagion and ripple effects, albeit most are hidden and only discovered after the fact (as well as the obvious lessons on the highs and lows of “investing” in pockets of extreme exuberance).

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