Canoo's Big Drop Is Your Big Opportunity  | | Luke Lango | Hello, readers! As I write this, one of the stocks in our Next-Gen Mobility portfolio – electric vehicle maker Canoo (GOEV) – is getting crushed after the company announced some pretty big and clearly shocking changes on its first-ever conference call last night. This big drop is way overdone. Below $10, Canoo stock presents maybe the best investment opportunity I've seen in a year. Here's why: Wall Street Hates Change Wall Street is like your friend who always a game plan for everything. As soon as the game plan changes, that friend freaks out, right? Well, as soon as business game plans change, Wall Street freaks out, too. Canoo just changed almost everything about its business game plan – and Wall Street is, expectedly, freaking out. Specifically, before yesterday, the story at Canoo was as follows. Canoo has assembled a world-class engineering team to build a breakthrough multi-purpose-platform (MPP) technology that, through some cool tricks, eliminates all wasted space from a vehicle. This platform, therefore, enables the construction of uniquely designed cars, vans, and trucks that maximize interior space – which, as you would expect, is especially important for families with lots of kids, mobility professionals who transport stuff all the time, and delivery companies looking maximize how much each one of its cars can transport at any given time. All that remains true today. Nothing about the core technology, the engineering team, or the big vision changed yesterday. What did change, however, was how Canoo plans to monetize its breakthrough MPP technology. Originally, the company was going to provide engineering services to other auto makers so that they could build cool, new EVs on top of Canoo's MPP technology. Those services would provide enough revenues to subsidize Canoo until the company scaled its own manufacturing capabilities and started selling its own cars via subscription models to consumers. But, on yesterday's conference call, Canoo's Executive Chairman – Tony Aquila – announced that the company would be essentially scrapping its engineering services plans to protect its IP, and that the company would no longer rely heavily on a subscription business model to sell cars since it would put too much pressure on the balance sheet. Naturally, that scared Wall Street. After all, the company's 2021 revenues and most of its 2022 revenues were projected to come from its now-defunct engineering services business. Concurrently, most revenues in the company's original financial model (which went out to 2026) were from the company's subscription-style sales model. That model is now useless – which leaves investors and analysts on their own to figure out just how big the company can get with this new business model over the next few years. To make matters worse, the CFO is now gone, just months after the company went public. This uncertainty is what's causing the enormous sell-off in Canoo stock. Opportunity in the Rubble Oftentimes, I find that uncertainty on Wall Street creates golden-buying opportunities for long-term investors. This is one of those situations. Remember, all of the value at Canoo rests on the company's world-class engineering team and the signature MPP technology they have collectively developed. None of the changes announced on the conference call yesterday impact that value – indeed, they actually augment that value in a multi-year horizon. Switching away from working with other auto makers protects the IP of Canoo's breakthrough MPP technology, since in such engineering service agreements, Canoo provided partners with access to that technology and helped them build zero-wasted-space cars on top of Canoo's MPP. Now, Canoo will be the only company making zero-wasted-space cars with its signature MPP tech. That both widens Canoo's technological moat and should boost the company's sales volumes long-term, since it will reduce the number of technologically similar competitors in the market. When it comes to making zero-wasted-space electric pick-up trucks and vans, Canoo will be in a class of its own. Meanwhile, pivoting away from the subscription business model will reduce balance sheet risks and allow the company to focus more on the commercial market (vans and pick-up trucks) – where demand for subscription models is less appealing and where Canoo's MPP technology shines brightest (zero-wasted-space cars are especially important in commercial operations where cars carry lots of load). Long-term, this pivot should result in materially higher commercial segment sales and only marginally lower consumer segment sales – for an overall boost to long-term revenue potential. In other words, Wall Street is freaking out with Canoo stock right now because investors hate change – but Wall Street doesn't fully acknowledge the scope of these changes and how they actually positively impact Canoo's long-term potential. Wall Street's confusion is our opportunity. What Really Happened In my opinion, here's what really happened at Canoo. You have this world-class engineering team. They developed this breakthrough MPP technology. They then got a bunch of not-world-class finance and strategy folks to put together a game plan to monetize that technology. That game plan was half-baked and risked the company's IP via open-sharing engineering service agreements with competitors. It also put stress on the balance sheet via subscription sales. So, when some more experienced businesspeople came into the business following the SPAC deal – including longtime technology business exec Tony Aquila – they convinced the Board to make some substantial changes to the strategy side of the business. They're making those changes right now, which should transform Canoo into a company with both innovative technology and a thoughtful game plan to monetize its innovations. While Canoo is making tough choices today, I feel it's positioned the company for bigger and more durable long-term growth. Action to Take We are doubling down on our long-term bull thesis on Canoo stock. We continue to see this company as leveraging its signature, zero-wasted-space MPP technology to a create a new class of uniquely designed family cars, pick-up trucks and delivery vans that see extremely healthy adoption in both the consumer and commercial markets over the next several years. By 2030, we maintain that Canoo will nab around 1% of the consumer vehicle market and 5% of the commercial vehicle market. If they can pull this off, it equates to $10-plus billion in revenues, a gross margin profile in the low 20s, Opex in the high single digits, and EBITDA margins above ~15%. On those assumptions, Canoo stock is worth close to $50 today. Under $10? It's an absolutely steal. Sincerely, 
Luke Lango
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