Stock Analysis & Ideas

Can Cyngn’s New AV Technology Pull In More Investors?

Amid all the noise about autonomous vehicles from Tesla (TSLA), General Motors (GM), Waymo, Volkswagen, Ford (F), and other bellwethers, one underdog is slowly gathering momentum in this space. Cyngn (NASDAQ: CYN), a former operating system developer that changed its course to autonomous vehicle development a few years ago, is letting its work do the talking.

The Potential Breakthrough Product

On April 21, Cyngn introduced its autonomous vehicle (AV) solution — the DriveMod Kit — following which the CYN share prices jumped 91% by the end of the day. Management believes that the kit can reduce the costs involved in acquiring an AV and accelerate AV adoption across several industrial and commercial domains.

The DriveMod kit was originally a product developed in partnership with carmaker Columbia Vehicle for the latter’s Stockchaser range of vehicles. Nonetheless, the technology has been designed to be compatible with other industrial AVs as well.

“With 883,000 new material-handling vehicles sold each year in the U.S., DriveMod Kit creates a sizable opportunity for Cyngn to lead the rapid adoption of turnkey AV solutions for both retrofit and new vehicles,” said Cyngn CEO Lior Tal, highlighting the vast opportunity that lies ahead for the “complete AV integration solution.”

Notably, the company had filed a patent for the DriveMod kit solution in February this year, on the back of the uniqueness of the technology and the amount of value it can potentially bring to the table.

A few Points to Ponder about CYN

However, as promising as it sounds, one resounding question remains —is the launch of the kit enough to make the company’s stock attractive? Let us dive in deeper and see if we can answer this, because Wall Street is not yet publicly sure enough to make a recommendation.

Going back, Cyngn was called Cyanogen, whose operating system was developed to compete with Alphabet’s Google (GOOGL) and Apple (AAPL) in the smartphone OS space. Its OS was gaining traction, running on 50 million phones. The company had a strong outlook for increasing its OS reach by 2020. However, a string of bad deals, losses, and disagreements among management executives on the future of its technology, led the company to lay off most of its staff. In fact, it was 2017 when the company decided to rise from the ashes with a new name and new vision, rebranding itself as Cyngn and aiming to make a mark in the growing market for AVs.

The company then went public with this vision in October last year. The shares of the company have been on a downhill journey since November 2021, losing more than 60% of value from its IPO to date.

The company already has a past history of a failed OS platform, which keeps investors cautious. Plus, the inflation and fears of recession are already expected to keep traders at a distance from investing in technology stocks. Even if they do, they are expected to go for safer bets, going by Cyngn’s face value and competition from AV technology innovators.

However, after looking at the financials, we are not too discouraged. As of December 2021, the company had cash and cash equivalents of $21.9 million and zero debt, which is impressive. The firm used $8.7 million from its cash inflows in the past year (also known as cash burn). This means that if the company maintains this rate of cash burn every year, then it has a runway of around 2.5 years from December 2021 before all the cash burns out, which is not bad.

Also, no insider selling activity has been reported since its IPO in October last year. There were five Buy transactions by five unique insiders in October, and then there was one Buy transaction in February around the time the company had applied for a patent for the DriveMod kit. This gives us some hope that the company is poised for decent growth in the near term, based on this technology. This is because insiders know better about what goes on under the hood in a company than retail investors.

Interestingly, the insider who bought $123,993 worth of shares in February was the CEO, giving us all the more reason to trust the insider activity trend.

Moreover, Cyngn’s IPO was released right before some tumultuous times for the tech sector. Component shortages, inflation, interest rate hikes, and economic uncertainty have led to large losses for the technology industry. However, despite these setbacks, the company has managed to keep going, bringing a potentially game-changing solution to the market.

It remains to be seen though, whether the new launch can sustain the momentum of share price. Cyngn still requires a lot more cash in the future to invest in more innovations and keep up with the high demand. The interest rate hikes may come in the way, making it unclear whether the shares can gain a significant upside from current price levels.

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