Canoo Has Great Potential, But It Could Face Tough Threats

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Canoo Holdings (NASDAQ:GOEV) stock has a very promising idea, and the fact that it has a partnership with a leading automaker is also very positive.

an electric vehicle charging. image represents electric vehicle stocks
Source: nrqemi / Shutterstock.com

Still, given the very high, $3.35 billion market capitalization of GOEV stock and the fact that Canoo’s flagship vehicle isn’t due out until next year, I think investors should wait for a sizable pullback in the name before taking a position in it.

Without a doubt, there’s a great deal to like about Canoo. However, the shares’ high valuation and the highly competitive risk that the company is facing make me wary of recommending the stock for long-term investors.

A High-Potential Idea and a Validating Partnership

Although I’m not nearly as bullish as another InvestorPlace columnist, Luke Lango, on GOEV stock, I agree with his take that the “loft on wheels” concept embodied in Canoo’s upcoming electric vehicle is unique and very appealing. As Lango puts it, the vehicle (which is called the Canoo), “looks more like a small room than the interior of a legacy car.”

Not only, as Lango says, is the Canoo’s spacious interior very well-suited for self-driving cars, but I think that it could appeal to many people who would like more room to relax and/or work in vehicles when they are passengers.

Further, Canoo partnered with Hyundai, one of the world’s largest automakers, on the development of Canoo’s “skateboard design” for EVs. That makes me much more confident in Canoo in general and the skateboard architecture in particular. If Canoo and the architecture were not viable and very promising, I don’t think that Hyundai would spend its time and money on such an alliance.

Canoo Is Facing Multiple Risks

Canoo describes its skateboard chassis as proprietary. But the fact is that Tesla (NASDAQ:TSLA) utilized a skateboard chassis in the past, while Tesla’s Model S, one of its first vehicles, “employed a ‘skateboard’ design concept.

Moreover, I was not able to find any evidence that Canoo has a patent on a skateboard design. Given Tesla’s use of the skateboard concept, perhaps that’s not surprising.

I’m not anything close to an auto-design expert, so I won’t try to analyze how close the Model S’s design is to that of the Canoo. But I do, however, feel safe in saying that, if Canoo can use a similar architecture to that of Tesla, then other automakers will be able to do so as well. Or, alternatively, if Tesla tries to enforce any patents it holds on skateboard architecture, Canoo will have a different set of problems.

Although I’m also far from an expert on patent law, I doubt whether Canoo could obtain a patent by simply taking Tesla’s architecture and enlarging it for use in a bigger vehicle. And, at any rate, it turns out that electric-truck maker Rivian already has done something like that, and Ford (NYSE:F), which invested a large amount of money in Rivian, appears to have adopted Rivian’s concept.

In all likelihood, I don’t think Tesla will look to enforce any patents it has on the architecture. That’s because its CEO, Elon Musk, has stated that “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

But other auto companies, including Tesla, might use the skateboard concept to create a vehicle that’s very similar to the Canoo. Further, such a vehicle could theoretically launch around the same time as the Canoo.

Direct competition from much larger, much better-funded, much better-known automakers could prevent Canoo’s revenue from justifying the current valuation of GOEV stock.

The Bottom Line on GOEV Stock

I believe that Canoo has come up with a very good idea. But the high valuation of its stock and my belief that it could face tough competition make me hesitant to recommend the shares at these levels.

GOEV stock is currently trading around $15. I recommend that investors wait for the shares to drop below $11 before taking a bullish position on them.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


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