EV company Canoo agrees to $1.5 million settlement with SEC

by Ana Lopez

Electric vehicle startup Canoo has agreed to a $1.5 million settlement with the U.S. Securities and Exchange Commission, according to a regulatory submission.

The SEC began investigating Canoo in May 2021, just a few months after the company merged with special-purpose acquisition firm Hennessy Capital Acquisition Corp. The research covered Hennessy’s IPO and merger with Canoo, Canoo’s operations, business model, agreements, revenues and more. It also dug into the departure of certain company officials, including co-founder and CEO Ulrich Kranz.

Canoo shared the news Thursday as part of its fourth-quarter and full-year 2022 earnings report. The company’s stock price, which closed at $0.62 on Thursday, plunged nearly 10% after hours on the news.

Canoo was one of several EV SPACs to have been scrutinized by the SEC, including Lordstown Motors, Arrival, Nikola and Faraday Future.

Canoo didn’t share many details about the SEC investigation, but the $1.5 million did appear on the company’s fourth-quarter balance sheet.

The EV SPAC is a pre-revenue company that has repeatedly warned it was low on cash and needed to raise more capital to stay in the game. Canoo delivered its first light tactical vehicle to the U.S. military for a demonstration in the fourth quarter, but that contract is worth only $67,600 — not exactly a significant amount given the company’s losses. In February, Canoo agreed to sell 50 million shares at a discount of 16%, or $1.05 per share. Gross proceeds from the offering were approximately $52.5 million.

That cash inflow doesn’t seem to be enough to earn Canoo status as a revenue-generating company. The company closed 2022 with just $36.6 million in cash and cash equivalents. With a fourth-quarter net loss of $80.2 million ($487.7 million for the full year), the company will likely need to raise more cash to cover expenses incurred in the first quarter alone. By the way, on a quarterly basis, that loss is down from $138 million in Q4 2021. However, Canoo ended 2021 with a net loss of $346.8 million, so that’s a year-over-year increase of more than 40%.

Canoo said on Thursday’s earnings call that it was exploring diversified funding sources it will announce in the coming quarters. Canoo’s CEO Tony Aquila noted that “legacy issues,” such as messy executive shakeups and the now-closed SEC investigation, made it difficult to apply for funding from the Department of Energy loan program, for example.

“Now our opportunities are exponential to access capital as we begin to build the track record of this management team,” said Aquila.

Aquila is clearly trying to send a message to investors that Canoo’s problems are due to problems of previous management teams. Aquila took over as CEO in 2021 and says Canoo has since moved from a company that offered a single product to one with a “new business strategy,” including onshore manufacturing. Canoo also recently recruited Ken Magnet as its new chief financial officer and Tony Elias as its new EVP of operations.

Hopefully it’s enough to keep this electric ship running. Canoo reported negative $60 million in adjusted EBITDA for the fourth quarter of 2022 and negative $408.6 million for the full year. Last year, those numbers were $120 million negative and $332.6 million negative for Q4 and full year 2021, respectively.

Canoo’s outlook for the first quarter of 2023

Canoo said it expects operating expenses in the first quarter (excluding share-based compensation and amortization) to be somewhere between $55 million and $70 million, with capital expenditures between $30 million and $45 million.

“As we move through 2023, we are focused on bringing our facilities online, scaling production and aligning with our strategic distribution partners for our global expansion,” Aquila said in a statement.

Canoo said it’s about to begin production in Pryor and Oklahoma City, where Canoo is building one Facility EV battery module and a car factory to launch its Lifestyle Delivery Vehicle and Lifestyle Vehicle SUV in 2023. Oklahoma gave Canoo $400 million in incentives to build there and in March agreed to buy 1,000 Canoo EVsbut the state can always withdraw from that agreement.

Canoo also signed an exclusive distribution agreement with GCC Olayan for vehicles in Saudi Arabia in January, the first phase of the company’s international expansion.

Aquila said on Thursday’s earnings call that Canoo believes it can achieve a 20,000 run exit this year. The company claims it has had a 300% growth in orders this year with a total order value of approximately $2.8 billion.

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