Canoo tested its electric delivery vans for Walmart without airbags, sources say

Walmart had signed a non-binding agreement to buy 4,500 of the sci-fi vans. If Walmart went through with the deal, it would help the fledgling, financially-strapped Canoo become a real competitor in the EV industry.

But Canoo employees and technicians working on the project quickly started raising red flags about the vans to each other and Canoo executives, according to four people with knowledge of the matter, including one person who drove the vans during testing. The vehicles that were used to make deliveries on public roads in the Walmart pilot, they said, lacked a critical, legally-required component: airbags.

“They were really early, hand-built prototypes,” says one Canoo employee who test drove the vehicles. “You got to get airbags…. And that hadn’t been done,” the person said.

Asked for comment about the lack of airbags during the initial testing, a Canoo spokesman said that “it is common practice for test vehicles to have certain services not turned on during the test phase.”

The lack of airbags is just one of many missteps over the years at Canoo, a company that generated initial buzz with its promise to shake up the delivery van market by creating an electric-powered alternative. It had seemingly hoped to take on a similar high-profile push akin to that of Amazon and upstart electric vehicle maker Rivian, which had been working together for years.

But so far, Canoo has failed to deliver vehicles to customers in large numbers. And some employees using corporate credit cards say they have had their purchases denied and received calls from collection agencies over supplies that were allegedly never paid for. At least four suppliers and a communications agency have sued the company for allegedly failing to pay what it owes. Three of those lawsuits have since been settled or withdrawn.

This article is based on interviews with four former Canoo employees. None of them agreed to speak on the record because they feared legal retaliation by Canoo.

Canoo was founded in 2017 by a group of auto industry veterans who wanted to build an affordable electric vehicle for young professionals. The idea was to build a “skateboard” chassis that could be used as the base for everything from a camper van to a delivery vehicle.

In 2020, before shipping any cars, the company went public at a $2.4 billion valuation through a SPAC, an alternative to a more traditional initial public offering that doesn’t require as rigorous financial disclosures as an initial public offering.

But turbulence hit soon after. A contract with Hyundai fell through and Canoo altered its plans to sell vehicles directly to consumers in Los Angeles.

Amid the trouble, Tony Aquila, an investor in Canoo, took control of the company, and nearly all Canoo’s senior management began to leave. By the time Canoo had inked its deal with Walmart in 2022, Canoo still had no revenue. Many investors lost faith, sending Canoo’s stock tumbling to around $50 a share, down from a peak of more than $400 when the company had gone public. At the time, people who spoke on behalf of Canoo dismissed any suggestion of trouble, saying that startups are dynamic, and that it is normal for the culture to evolve, and for employees to leave.

In earnings calls since with analysts, Aquila has touted the Walmart partnership. He cast it as a huge vote of confidence in his vans. Initially, at least, the deal with Walmart helped to lift Canoo’s deflated stock 80% by the end of the week during which it was announced.

So, when it came time to start testing with Walmart, Canoo went out of its way to make sure everything would run smoothly. Canoo employees arrived in advance in Texas and Arkansas, where the testing would take place, to decide where to install the necessary charging stations for drivers to use while making their delivery rounds, according to someone with direct knowledge of the matter.

But employees were alarmed by the lack of airbags. Two former Canoo employees said they personally raised concerns to executives about the danger of driving the vans without them.

“Everybody in the building—everybody in the company—knew that there was a safety issue,” one of the former employees says. A different former employee added that “everyone knew the airbag situation” but that there was a “volunteer process” for who drove the vans, and that no one was forced to drive against their will.

Driving vehicles without working airbags on public roads violates federal safety standards, even if the vehicle is a prototype, unless the owner first obtains an exemption, according to the National Highway Traffic Safety Administration. A NHTSA spokesperson confirmed to Fortune that the agency has never issued Canoo such an exemption and said that “NHTSA will take appropriate action if it determines a company is testing beyond what is authorized by law.”

Canoo’s spokesperson said that Canoo’s internal compliance officer and external counsel “have advised us that our testing was done within the bounds of NHTSA allowed practices.” He added: “We welcome any discussions between our external counsel and NHTSA.”

Three Canoo employees, one of whom had direct knowledge of the matter, said Canoo added airbags to the vehicles sometime after the initial 2022 testing and before Walmart staffers ever drove the vehicles themselves. Canoo confirmed this: “When Walmart operated the vehicles there were active airbags in the vehicles,” the spokesman said.

It’s unclear whether Walmart supervisors, or the Walmart delivery employees who rode along in the van’s passenger seat during the 2022 testing, were aware that those initial vehicles lacked airbags. A Walmart spokeswoman declined to comment on the record for this story, and Canoo declined to comment on the matter.

Fortune was unable to verify why the vehicles initially lacked airbags.

After the initial 2022 tests ended, Walmart asked Canoo to build vans with more cargo space than the original 130-cubic foot prototype, according to former employees and someone with direct knowledge of the matter. Canoo did so, building a 190-cubic foot prototype last year and then, earlier this year, a 300-cubic foot prototype, the people said. Canoo said it’s “working with Walmart to identify a configuration which is best for their business.”

But even after the tweaks, Walmart has yet to buy a single van, according to the three former employees and someone with direct knowledge of the matter. Canoo declined to comment.

Part of the problem may be that, even when a customer has tried to order cars, Canoo has trouble delivering them.

Scott Haslam, CEO of Kingbee Vans, a commercial vehicle provider and one of Canoo’s first customers, told Fortune he was happy with the two initial vehicles Kingbee received earlier this year. He describes them as “very impressive,” with “innovative and intuitive features that are not seen in any other vehicle.” (They also had airbags, he confirmed.) But Kingbee, which in a contract had agreed to purchase up to 9,300 vans, has yet to receive word on getting any more, Haslam says. “We have not received any vehicles beyond the two that were publicly announced,” Haslam says. “Nor have we received any firm production timelines from Canoo.”

Canoo says it’s “very supportive of Kingbee” and is “in the process of finalizing an allocation for them.”

‘Severely past due’

It’s been nearly two years since Canoo said it was finally starting production of its vans in a Michigan factory. Since then, the company appears to have delivered only 19 vehicles to customers, according to the company’s own public reports. Only 43 vehicles have been registered with NHTSA, according to regulatory filings reviewed by Fortune, which includes the vehicles Canoo shows off at events and conferences and lets potential partners drive.

On paper, Canoo’s financial position has become dire—with the company racking up net losses of $302 million last year, and $488 million the year before. At the end of June, it reported having $19.1 million in cash or cash equivalents on its balance sheet.

Each quarter since 2022, Canoo has acknowledged in its earnings report that there is “substantial doubt about our ability to continue.”

Meanwhile, Canoo’s stock has plummeted more than 99% to 69 cents, as of market close on Monday, down from $434 the day it went public. The company currently has a market value of around $58.9 million.

Behind the scenes, employees say they have had difficulty ordering the parts they need to build vehicles because suppliers haven’t been paid. Some say they had received calls from collection agencies and that their corporate credit cards had been declined.

“We just could hardly order anything,” says a former Canoo staffer. “We were pretty much operating off of credit card debt for a while.”

Fortune reviewed seven emails sent this year about “severely past due” payments for parts or services to suppliers and collection agencies, including nearly $12,000 due to Armin Lenk EMCtools, a German tooling company, according to an email. Canoo owed another $32,800 to the industrial supplies distributor Fastenal Company. Fortune also reviewed a spreadsheet that listed more than 50 parts that suppliers would not send the company due to late payments.

In July, R&E Automated Systems sued Canoo over late bills. In federal court filings in Michigan, R&E alleges that Canoo failed to pay more than $108,000 for inspection services it provided to the company earlier this year. R&E withdrew the case in mid-October, and Canoo says the issue “has been resolved to both parties’ satisfaction.” Two other suppliers sued Canoo in recent weeks while PR and marketing firm Saxum Strategic Communications filed suit in August over Canoo allegedly failing to pay for its services. Court records show that Saxum ultimately withdrew its suit after mediation.

Canoo says its corporate cards were declined “because of unauthorized payments, or the holder has exceeded his or her limit. Issues if any were quickly resolved.” A spokesman also said the company is “currently in discussions” with Fastenal, and that “Armin is not an approved vendor in [the] system.”

Meanwhile, Canoo’s executive ranks have been in upheaval. Many of its design, engineering, sales, and automotive leaders have left the company over the past 18 months, according to LinkedIn updates and former employees. Departures include Canoo’s lead product designer earlier this year along with cofounder and chief design officer Richard Kim, who designed Canoo’s van and left in 2023. Canoo’s last remaining cofounder and chief engineer, Christoph Kuttner, left in October, according to someone with knowledge of the matter and based on an update to his LinkedIn profile. On Oct. 31, Canoo disclosed in a filing that its CFO and general counsel had both resigned. TechCrunch first reported Kuttner had left the company.

Canoo has continued to debut new prototypes and issue press releases about new contracts, such as a small order for five vans from logistics company Go2 Delivery. But former employees are skeptical about whether Canoo will ever finish a new manufacturing facility it’s building in Oklahoma City, where it would produce vehicles to fulfill those agreements.

Aquila’s private equity firm purchased the 630,000-square-foot building at the end of 2022 and has been leasing it to Canoo for an assembly line. The state of Oklahoma, the Cherokee Nation, and Oklahoma City agreed to award Canoo up to $113 million in incentives to hire employees and manufacture vehicles in the state. But there has been limited progress on the facility and former employees question whether manufacturing is a priority for the company.

“They don’t have any parts. They don’t have any bodies. They don’t have a paint line. They don’t have an e–coat line. They have no parts to build a car,” says someone who earlier this year worked from the Oklahoma City facility.

Canoo told Fortune that there is some manufacturing underway at the Oklahoma plant and that additional work is being done off site.

“Even when fully online in our manufacturing facilities, some work may be done in other locations,” a spokesman said, adding that there are skeptical employees at any innovative company and that “employees with this kind of skepticism should leave the company.”

Of the relatively few vans it has shipped, Canoo is losing money. They’ve generally sold to customers for around $39,950, according to an announcement from the state of Oklahoma and independently verified by Fortune. But former employees say they cost multiples more to produce. Part of the reason is that they’ve largely been hand built, according to three former employees, and are therefore far more expensive to produce than on an assembly line.

Canoo is cutting costs in many areas. Recently, it said it was shutting down its Torrance, Calif. headquarters and moving employees there to Oklahoma or Justin, Tex., where it also has office space it rents from Aquila’s private equity firm. Last week, the company furloughed 30 employees in Oklahoma City, the company said in a statement. Furloughs technically refer to a temporary mandatory leave of absence, though the four former Canoo employees say they’re unaware of the company ever calling any staffers it has furloughed in the last year back to work.

In response to a request for comment on the furloughing, the Canoo spokesman said Canoo is “constantly reviewing our workforce to ensure our headcount, geography of workforce, in-office vs. remote work are best suited to meet our milestones.” He also pointed to required paperwork the company filed in August to lay off 54 employees in Torrance, giving those impacted a two-month notice, according to state records.

As Canoo’s losses mount, Aquila continues to paint an optimistic picture during quarterly  earnings calls. In the latest call with analysts, Canoo’s senior vice president of finance boasted about “record” revenue. It was modest, but it was also the most quarterly revenue Canoo has reported since going public in 2020: A grand total of $605,000.

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