Canoo Under SEC Investigation

Canoo, the electric vehicle startup based in Los Angeles, which began trading on the Nasdaq earlier this year, is currently the subject of an investigation by the U.S. Securities and Exchange Commission.

This investigation commenced shortly after the company’s merger with Hennessy Capital Acquisition Corp. and is quite extensive in scope.

Investigation Details

The SEC’s inquiry encompasses Hennessy’s initial public offering and subsequent merger with Canoo. It also includes a review of the company’s operational activities, its overall business model, revenue generation, revenue strategies, existing customer agreements, and reported earnings.

Furthermore, the recent resignations of several key company officers are also being examined, as detailed in a quarterly earnings report released on Monday. Canoo was formally notified of the investigation on April 29th.

Following the release of its first-quarter earnings, Canoo’s stock price experienced a decline of over 3% during after-hours trading.

Canoo’s Response

According to a regulatory filing, the SEC has clarified that the investigation’s initiation does not imply any wrongdoing or a negative assessment of any individual, entity, or security.

Canoo stated its intention to fully cooperate with the SEC and provide all requested information. The company also indicated that it does not believe the investigation, or other ongoing lawsuits, will significantly impact its business operations.

Recent Challenges for Canoo

The SEC investigation arrives after a period of considerable change for Canoo. This includes multiple executive departures, adjustments to its core business strategy, the termination of a crucial automotive partnership, and at least one lawsuit filed by shareholders.

These developments have all occurred since the beginning of the current year.

Company History and Pivots

Originally founded as Evelozcity in 2017 by former Faraday Future executives Stefan Krause and Ulrich Kranz, the company rebranded as Canoo in the spring of 2019.

Shortly after, Canoo unveiled its first vehicle, which garnered attention for its unique subscription-based sales model.

In the previous year, Hyundai entered into a partnership with Canoo to jointly develop electric vehicles. However, this collaboration dissolved in early 2021 after Canoo shifted its business focus and decided to discontinue offering engineering services to other automakers, as stated by Chairman and CEO Tony Aquila during a March investor call.

Executive Departures and Legal Issues

Canoo has experienced a significant turnover in leadership, including the departures of co-founder and CEO Kranz, general counsel Andrew Wolstan, CFO Paul Balciunas, and the head of powertrain development.

Krause, the company’s initial CEO, resigned in August 2019. Furthermore, Canoo was recently named as a defendant in two class-action lawsuits brought forth by shareholders last month.

Financial Performance

Despite these challenges, Canoo has managed to reduce its quarterly losses, even with increased spending on research and development and no current revenue stream.

The company reported a net loss of $15.2 million, or 7 cents per share, for the first quarter, an improvement compared to the $30.9 million loss, or 37 cents per share, recorded during the same period last year.

Canoo concluded the quarter with $641.9 million in cash and cash equivalents.