Canoo and MULN stocks have diverged: Are these EV stocks safe?
Canoo (NASDAQ: GOEV) and Mullen Automotive (NASDAQ: MULN) stock prices have diverged in the past few days. MULN stock was trading at $0.09 on Monday, a few points above the all-time low of $0.090. On the other hand, Canoo stock price was trading at $0.6721, about 32% above the year-to-date low. The similarity is that the two EV stocks have plunged by over 90% from their all-time highs.
Canoo and Mullen Automotive strong order booksCopy link to section
Canoo and Mullen Automotive are companies that are seeking to become large players in the EV industry. The two companies have announced thousands of orders as they seek to disrupt the delivery and logistics segments of the industry.
For example, Walmart has made an order to purchase 4,500 cars from Canoo. Zeeba and Kingbee have also announced orders to purchase 3,000 and 9,300 cars from Canoo, respectively. In all, Canoo has an order book worth over $2.8 billion. Canoo expects to start delivering vehicles later this year after it secured a lease in Oklahoma. It hopes to end the year with a run rate of 20,000 cars.
Mullen Automotive has also received thousands of orders. In 2022, it received an order of 6,000 cars from Randy Automotive. As I wrote in this article, Mullen has started delivering these orders.
Broadly, these companies are benefiting from the ongoing transition from internal combustion engines (ICE) and the massive giveaways from the American government.
Therefore, on paper, Canoo and Mullen Automotive seem like they are in a good place, with an elevated order book and strong government incentives. In a statement last week, Joe Biden committed that the US will transition to full EVs in the next few years.
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Meanwhile, with these firms starting to deliver vehicles, the thinking is that their cash flow metrics will improve in the near term.
Is it safe to buy Canoo and MULN stocks?Copy link to section
Canooo and Mullen Automotive are facing numerous headwinds that make them difficult investments. First, as I wrote in my report on Faraday Futures, vehicle deliveries do not mean that the financial woes are behind it. In many cases, it means that these firms will need to invest more money to ramp production.
We have seen this with other EV companies like Lucid and Rivian. Rivian lost over $6 billion while Lucid lost more than $3 billion in 2022. Therefore, we can assume that Canoo and Mullen will face these challenges as well.
Sadly, the two companies don’t have strong balance sheets. Canoo ended 2022 with $40.3 million in cash compared to $702 million in December 2020. It had $231 million in 2021, meaning that it is a cash incinerator that needs to raise capital this year. Notably, it also has $36 million in short-term borrowings, meaning that it could have a liquidity crisis soon.
Mullen Automotive is not doing well either. It had $68.1 million in cash in the last report and it is facing maturities worth over $60 million.
Therefore, it is highly possible that Canoo and Mullen Automotive stocks will find it difficult to climb in 2023. The only hope is when the Fed turns dovish, pushing investors to move to risky assets.