EV Maker's Stock Tanks Amid 'Going Concern' Warning, Lawsuit Against China-Linked Shareholder

Zinger Key Points
  • Canoo shocked its investors by disclosing that it is facing a cash crunch even as it plans to start EV production in 2022
  • The company is also locked in a legal tussle with its second-largest shareholder having strong political connections in China

Canoo, Inc. GOEV shares tumbled in Tuesday's after-hours session after the electric vehicle manufacturer sounded out a going concern warning. Separately, the company has reportedly filed a lawsuit against its major shareholder for impropriety in stake offloading.

What Happened: Justin, Texas-based Canoo said there is "substantial doubt" about its ability as a going concern, the company said in its first-quarter earnings release.

The company noted that it has more than $600 million in accessible capital, including a PIPE financing deal and a shelf offering filed with the SEC, to support the start of production. The start-of-production timeline was confirmed for 2022.

The cash position is precarious, the company implied.

Cash and cash equivalents at the end of the first quarter stood at $104.9 million. For the second quarter, the company projects operating expenses and capex of about $200 million, taking into account the midpoint of the guidance range.

Canoo, founded in 2017 by former BMW AG BMWYY executive Stefan Krause, has among its product pipeline a lifestyle EV, multi-purpose delivery vehicle and pickup truck.

Related Link: Tesla Vs. Rivian Vs. Lucid Vs. Fisker Vs. Lordstown Vs. Canoo: How BofA Says The EV Makers Stack Up

Canoo Sues Shareholder: A court filing showed that Canoo has initiated legal proceedings against its second-largest shareholder, for wrongfully profiting out of stock sales, Bloomberg reported.

Chinese investment firm DD Global, led by Pak Tam Li, was among the earliest investors in Canoo ahead of the company going public through a SPAC deal. Li has strong political connections in China, according to the report.

Post the SPAC deal, the Chinese investment company and its affiliates held about 26% shares of Canoo. DD Global agreed to gradually offload its Canoo stake and the first tranche was sold to an LLC managed by Canoo's CEO Anthony Aquila in October 2021.

The firm allegedly bought back the second tranche of shares it sold in March 2022 through an equity swap transaction and therefore holds more than 10% stake in Canoo. This, according to Canoo, violated a national security agreement the two companies had with the U.S. Committee on Foreign Investment that required DD Global to reduce its stake to 10% or less by Feb. 28.

Canoo, through the compliant, is seeking to recover more than $61 million in "short-swing profits," DD Global made from the transaction.

Canoo shares plunged 11.36% to $3.20 in Tuesday's after-hours trading, according to Benzinga Pro data.

Related Link: A Christmas Wish List For EV Makers

Photo: Courtesy of Canoo

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