Canoo's Pivoting Go-To-Market Strategy and Mystery Manufacturing Partner
It would seem Canoo has gone full circle, kind of.
In June of 2021, Canoo announced they would be using a contract manufacture(CM) starting Q4 of 2022 as a stop gap until the Pryor facility was up in Q4 of 2023. Half a year later they pivoted to a fully in-house strategy of a utilizing an "Advanced Industrialization Facility for unique use cases" instead of VDL.
If I had to give an opinion on it, I would say that maybe VDL being the initial CM for US production was a back up plan that was put forward first because the main plan wasn't ready to be made public yet or wasn't on sure enough footing to concretely put forward. Either way, once things had sufficiently gotten hot and heavy enough with Walmart and all related parties(such as Panasonic) they announced the pivot to Plan A( A being for America First in this case)
And now 10 months later the share price is in the dumps and every Canoo owned manufacturing plan is stalled. This is where they've come full circle, back to needing a CM for SOP(start of production) as a stop gap to get their own facilities online.
Canoo's story has been pivot after pivot, but it's maybe worth noting An interesting quote from Kevin O'Leary of shark tank fame. "The investor says his money-losing deals typically have a common thread: startup founders who can't "pivot." "They can't get out of their own way," he says. "They won't listen to anybody else." O'Leary calls those entrepreneurs "stupid," because their stubbornness prevents them from changing their bad habits and tactics: "They don't understand [that] the world moves and you have to move with it."
Ok, so what happened this time? Welp, the capital markets went to shit at the worst possible time for Canoo as they were ramping up hiring and expenditures, inflation spiked to historic highs, supply chains everywhere broke down and Putin decided to stoke fears of WW3 by invading Ukraine. It's easy to be an arm-chair CEO and say Canoo should have raised capital EOY at $12 instead of $3 - but we don't know all the facts. My speculation is that something larger behind the scenes slipped or a combination of the events above impacted things known and unknown to us. Originally Panasonic was supposed to announce their OK factory in the beginning of the year only to keep delaying and winding Kansas up for incentives for another plant there. Perhaps the delay in the announcement of a partnership to make Pryor an EV manufacturing hub in combination of the liquidity drying up in capital markets sidelined the OZF(opportunity zone fund) and other non-dilutive means of raising capital, such as asset backed loans. Or maybe they had been given positive signs on pending DOE approval only to have something crop up delaying advancement. The DOE has been chanting their slogan of "deploy deploy deploy" yet have only announced a few loans processed. I don't know what happened, only that something must have to end up filing a going concern and raising so late in the game.
As much as I wish he had raised sooner I am willing to give Tony slack, at least he is putting his own money where this mouth is. My mother would often quote the turn of phrase "What's good for the goose is good for gander" and if Tony is the goose, at least we're all being treated equally when Canoo is forced to dilute to stay afloat.
Lets get back on topic: Canoo has paused their own buildings and announced an unnamed manufacturing partner. I've read rumors concerning every CM out there as the partner, but at the moment, my best guess is that it's UHI.
UHI started out in 1979 as a small niche supplier of hydroformed details and recently really started to expand and become a full-service stamping and assembly supplier for the automotive and aerospace industries. Within the the past 4 years alone they've grown from having 6 facilities to 11 buildings totaling over 500k sq ft. UHI built the Beta vehicles for Canoo, which included full body, chassis & closure builds. But yet for the gamma builds Canoo had to utilize efforts from multiple parties; Roush, Valiant/TMS and UHI. Why? Likely manpower, production space and timing constraints forced that level of cooperation, not a small feat to make it all happen and finish with a successful gamma program. Hats off to the gamma team!
The main reason I suspect UHI to be the best contender for the CM title is they just closed on leasing an additional 182,000 sq ft. in a facility in Hazel Park, MI. UHI has the relationship, the know how and now I believe they have the space large enough to meet the demands of Canoo's start of production for Walmart. In a related note, as I mentioned in an earlier post, I think Canoo will operate their own battery line out of Arkansas and get a nice rebate thanks to the IRA.
Could I be wrong about UHI being the CM of choice? Yes I absolutely could be, and I probably am. The reality is I don't really care who the manufacture is, I just care that it gets done. I want to see the DOE start to "deploy deploy deploy" capital to companies who actually need the bridge to bankability, who won't just announce share buy backs after getting a 2.5B loan from the LPO.
Ok, that's enough negativity, it's probably not so much a case of the DOE prioritizing GM as much as it is GM having all their ducks in a rows getting to advance rounds quickly with it being easier and faster for the LPO to validate GM's plan vs that of a pre-rev start up. My only gripe is that GM and LG seem pretty damn bankable already to be using the program in the first place taking up scarce resources, but ask me again if Panasonic is awarded a loan for their plant in Pryor and I will probably have a softened view of it all. It's going to be interesting if Canoo is awarded a contract from the DoD/US Army because as it stands I don't see anyone other than Walmart taking delivery from Canoo in 2023 and their current production guidance seems already spoken for beyond that with the likes of potential partners such as Fedex and AT&T. Perhaps the fact that Canoo is looking for additional properties in Bentonville & Pryor areas indicates they'll have smaller facilities focused solely on use-cases or customers.
So to recap, I don't think it matters who the manufacture is, what matters more is what event or milestone takes place that gives Canoo the higher valuation it deserves allowing for less dilution. I believe a DOE loan or an order from the US Army ought to do the trick, otherwise it'll continue being a slow grind - I'm holding on either way but I do expect some news on either or both of these milestones soon enough.
Authors disclosures: I am long Canoo - I own common shares, warrants and call options.
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