EV Startups Struggle to Stay Afloat: Canoo Becomes Latest Victim
Rimmi Singhi
5 min read
Another electric vehicle (EV) startup from the pandemic boom has folded. The EV market had been a hotbed of innovation and optimism, particularly for startups eager to replicate the success of industry leader Tesla TSLA. However, most have failed to make the leap from concept to commercial success.
Last April, Canoo GOEV raised concerns about its survival, revealing that it lacked enough cash to last the next 12 months. On Friday, this Texas-based company finally decided to shut down operations and file for Chapter 7 bankruptcy rather than try to restructure. This move signals a loss of confidence from both the board and investors. Canoo’s bankruptcy filing underscores the harsh realities of high costs, operational challenges and fierce competition that have proven too much for EV startups.
Canoo couldn’t secure the funding it needed, not only from the U.S. Department of Energy’s Loan Programs Office but also from potential foreign investors. Unable to turn things around, the board chose bankruptcy as its only option.
Canoo’s Electric Dream Fizzles Out
Canoo was founded in 2017 under the name EVelozcity by two former top BMW executives. In 2020, the company went public by merging with Special Purpose Acquisition Company (SPAC) Hennessy Capital Acquisition Corp. and raising about $600 million.
GOEV initially attracted attention due to its strong leadership and bold promises, including plans to use blockchain technology to manage vehicle subscriptions. Despite its promising start, the company soon faced significant challenges. The two founders ultimately left, and Canoo struggled to turn its early hype into real success.
The company produced a small number of its electric vans and handed them to a few partners for trials, including institutions like NASA, the U.S. Department of Defense and the U.S. Postal Service. The company also signed agreements with high-profile customers like Walmart. However, even that couldn’t save Canoo, and the startup faced greater financial difficulties. By May 2022, it had already issued warnings about its ability to continue as a going concern.
Canoo’s struggles continued into 2023, with significant operational issues and an inability to scale production. The company also became notorious for its high spending, including lavish expenses such as its CEO’s private jet bills, which reportedly exceeded the company’s entire annual revenues for 2023.
By the time the company filed for bankruptcy, it had only delivered about a dozen vehicles and never reached series production. Canoo’s financial situation worsened as it owed more than $164 million to hundreds of creditors while holding just $126 million in assets.
Last month, Canoo’s troubles became clear when it paused operations in Oklahoma and placed employees on mandatory unpaid leave. Throughout 2024, Canoo struggled to deliver its electric vans to customers and faced a series of executive departures, further complicating its already dire situation. All the company’s founding members left the organization. This exodus of crucial figures heightened concerns about the company’s strategic direction and decision-making.
EV Startups’ Survival Crisis: From Buzz to Bust
The rise of EV startups was largely inspired by Tesla’s success, with many hoping to replicate its rapid growth. Between 2020 and 2021, a number of EV startups went public via SPACs, offering ambitious promises of fast production and innovative technology. However, the reality has been much harsher.
Many of these companies have struggled to turn their initial excitement into profitable businesses. Despite a cash influx in 2020 and 2021, the cost of scaling production, dealing with supply chain issues and meeting production targets has proved overwhelming for many startups.
Canoo’s bankruptcy is just one among the many cases. Many EV startups that emerged during the pandemic-era boom have struggled or failed to survive. Companies like Fisker, Lordstown Motors, Arrival, Lion Electric and Proterra have also filed for bankruptcy, underscoring the immense challenges faced by smaller EV manufacturers.
Though Rivian RIVN and Lucid LCID, two of the more well-known EV startups, seem better off than their peers, they are far from profitable despite attracting significant investment and attention.
Trump’s Return Makes the EV Road Even Tougher
The EV market, once viewed as the future of transportation, is now facing a much more challenging environment. The cost of producing electric vehicles has been high, and competition is fierce. For startups, the challenge of securing funding has become even harder as investor confidence wanes.
In addition to these financial hurdles, the political landscape in the United States is shifting. With the return of President Donald Trump, the outlook for EVs has changed significantly. On his first day back in office, Trump reversed Biden’s EV targets and halted funding for charging infrastructure. The rollback of EV tax credits is in the cards and is expected to dampen demand for EVs, further complicating the situation for startups already struggling to stay afloat.
The uncertainty around government support and the reduction in available incentives have placed additional pressure on smaller EV companies. As they battle to secure financing, navigate a competitive market and deal with rising costs, the prospects for many EV startups are looking increasingly bleak.
Conclusion
Canoo's story serves as a cautionary tale for other startups navigating the complex and competitive EV industry. While the electric vehicle revolution is far from over, the path to success is fraught with challenges, particularly for smaller companies that lack the resources and scale of giants like Tesla.
The financial difficulties and operational struggles faced by Canoo and other startups show just how difficult it can be to turn a promising idea into a viable, profitable business. As the EV market continues to evolve, it will be interesting to see which startups can survive and thrive—and which will fall by the wayside, like Canoo.
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