Canoo, the EV startup that scored a deal with the world’s largest retailer, is a mess under the hood

Aug 29th, 2022 6:08 EST

Good morning,

The push for the use of electric vehicles in the U.S. is ramping up. Especially in California as the state just put a ban on gas-burning cars by 2035. Tony Aquila, the CEO of Canoo, a public EV company, is certain he can compete with brands like Tesla. But there’s one hurdle—Canoo hasn't yet generated any revenue.

Walmart signed an agreement with Canoo in July to purchase 4,500 all-electric delivery vehicles, beginning with the Lifestyle Delivery Vehicle, with the option to purchase up to 10,000 units. But the company is “hanging on by a thread,” writes my colleague Jessica Mathews.

Inside the chaos at Canoo, the zero-revenue, cash-burning EV company that just inked a major deal with Walmart,” is Mathews' new report that gives the scoop on the inner workings of the Bentonville, Arkansas-based startup.

Canoo said in its Q2 2022 earnings report the company has “over $1 billion” in its sales pipeline. But it reported a net loss of $164.4 million, up from $112.6 million in Q2 of last year.

On the Aug. 8 earnings call, Ramesh Murthy, interim CFO and chief accounting officer, talked about the “road to profitability.” Murthy said: "It’s becoming more clear to everyone that our philosophy on cash and access to capital is in line with what a technology-driven company would do. We are milestone and event focused on how we access capital on our road to profitability. By focusing on milestones and key events, we can drive sustainable value to the company and all our stakeholders.”

Mathews interviewed Aquila in June and rode in one of Canoo’s futuristic electric campervans.

"Canoo’s vehicles were still going through test programs and not yet on the market,” she writes. “Production wouldn’t begin until at least the end of 2022, and the company hadn’t started construction on its own manufacturing facilities. (The van we were sitting in was a prototype.)"

She continues, “Canoo had just recently signed an agreement with hedge fund Yorkville Advisors to sell up to $250 million worth of its shares at a discount to their already depressed market price. The Securities and Exchange Commission was investigating the company over its 2020 SPAC merger, and the company was tied up in three legal spats, including two class action lawsuits from retail investors in its shares. Indeed, right there in an SEC filing from March 31, Canoo itself had said it might not make it another year.”

“And yet, Aquila—the tattooed, 57-year-old private-equity executive who had begun taking control of the company in 2020—looked me right in the eye when I asked about whether Canoo had the funding it needed for the next year. ‘I am a just-in-time capital guy,’ he assured me.” Mathews also discovered that Walmart’s purchase of yet-to-be-produced EVs is not the first financial boost that Aquila has received from the Walmart family in his career.

Automakers are now required to steadily increase their sales of zero-emission cars in California, the nation’s largest auto market. And because 17 other states typically follow California's auto-emissions standards, last week’s vote by the California Air Resources Board could reach far beyond the state, requiring the auto industry to speed up its switch to electric cars, Fortune reported.

As the electric vehicle market continues to evolve, “Canoo is hardly the only EV startup to take investors and employees on a wild ride over the past couple of years,” Mathews writes. “Concern over climate change has lured an unprecedented amount of investor capital into the space, but the logistical challenges of launching an automaker from scratch haven’t gotten any less daunting.”

But, “Crack open the hood even an inch, however, and it’s clear that, even with the Walmart deal, Canoo is floundering to an extreme degree,” Mathews writes. (You can read the complete article here.)

See you tomorrow.

Sheryl Estrada[email protected]

This story was originally featured on Fortune.com

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