There are multiple reasons to be bearish on Canoo (NASDAQ:GOEV) stock. And there are a lot of reasons to believe Canoo will lag behind the broader electric vehicle market for the foreseeable future as well. I’ll get into those too.
But one of the most current and powerful forces that will keep GOEV shares low is short interest. Short interest serves as a strong indicator of market sentiment. The higher it is, the more bearish the market’s opinion of its prospects and therefore the greater the chance that prices will move lower.
As a general rule of thumb, short interest in excess of 20% is extremely high. Short interest in Canoo sits at 29.14% as I write this. That’s among some of the highest negative sentiment that you’ll find for an equity of Canoo’s size and fame.
I don’t like Canoo as a company or as an equity offering, but even I’ll admit that the figure is strikingly high. In any case, that number indicates that investors think that Canoo has problems beyond those which are evident.
Broader Trouble For the EV Sector
Investors who consider Canoo buy worthy would be swimming against strong currents. I’m not referring only to short interest levels here. Rather, I’m referring to broad sentiment about several things that Canoo represents.
First of all, it’s an EV. There’s nothing inherently wrong with electric vehicles. It’s just that the market has cooled this year and investors are only going to pour capital into operators in the sector that make and sell cars.
The point here is that the bubble has popped. And the rebound in EVs will favor productivity over hype. Canoo is currently more of the latter than the former.
Further, Canoo came public via a special purpose acquisition company (SPAC) deal. Without getting into any detail about the mechanics of the financing structure thereof, it should simply be noted that SPACs are facing a lot of blowback.
So Canoo faces an investing environment where its sector is under scrutiny along with the way in which it came public. And if Canoo could somehow manage to overcome those headwinds, it then has to contend with competition.
Canoo Faces Stiff EV Competition
That competition is entrenched, well-heeled and far ahead of Canoo. In the U.S. market it’s fair to say that Tesla (NASDAQ:TSLA) dominates and legacy auto manufacturers are quickly carving out a piece of the market share pie. Tesla accounted for 79% of U.S. EV registrations in 2020 according to Experian. It will take years for challengers to the throne to erode its position. Canoo figures nowhere into that conversation.
More recently the market has seen legacy automakers quickly bring important EV models to the market. Ford’s (NYSE:F) F-150 has been the number one seller in the U.S. for 39 straight years. Its F-150 Lightning EV variant has been extremely well-received, racking up massive reservations.
General Motors (NYSE:GM) electric Hummer is set to debut in the fall as well(1). That means Canoo will have two well-heeled companies with electric vehicles with mass market appeal to contend with. The truth is, Canoo is nowhere near being able to produce a vehicle but in the case that it was capable, it would face seemingly insurmountable competition.
Further, investors aren’t going to pile into GOEV stock on the promise of its future vehicles. They’re much more likely to consider Chinese EV manufacturers like NIO (NYSE:NIO), XPeng (NYSE:XPEV) and BYD (OTCMKTS:BYDDY) that produce vehicles and offer returns.
There’s currently no reason to invest in GOEV stock, and there won’t be until it produces revenues. In fact, once it does begin to produce revenue it simply may be so far behind as to be meaningless. In any case, stay away.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.