Market cap at time of publication: $287 MUSD
Stock price at time of publication: $ 0,415
Business: Electric vans,buses and cars
Following a reader request we have conducted a short analysis on the electric vehicles producer Arrival listed on NASDAQ which you will find below.
- Arrival is an electric vehicle producer (EV) which focuses on commercial EV vans, buses and cars.
- The companys share price has soared close to 300 % so far in 2023 however it is still down 90 % from where it was one year ago.
- Despite losing 90 % of it’s value in the last 12 month the company is far from cheap since they expect no revenues before 2024.
There has not been any major events which justifies the recent hugeupward movement of the stock so far this year. We deem it wise to take profits.
Arrival a short recap
Arrival had its first trading day at March 25th 2021 following a SPAC merger with CIIG Merger Corp. Arrival received $660 million in gross proceeds thanks to this SPAC merger.
Arrival has since 2019 reported losses of 1,3 billion USD. Although the company has a different business plan approach than most other EV producers we see a clear risk that the company will struggle to execute and turn a profit anytime soon.
Recent surge in stock price
The recent surge in Arrivals stock price is most likely what is known as a short squeeze. The company’s stock has been heavilty shorted, by good reasons if you ask us, for a long period of time.
No major news has been released by the company since the Q3 report to warrant the latest surge in stock price. The latest numbers showed that the company had 23 % of its shares shorted.
Arrivals management was clear in their latest Q3 report that they did not expect to be able to make a margin on their current L van due to high cost of parts related to low volume tooling and lack of funds to finance hard tooling. Therefore Arrival has stated that the company plans to focus on its “unique” technologies on a series of products for the US market with their current cash at hand due the US inflation reduction act tax which gives credits offering up to $40,000 for commercial electric vehicles. Furthermore the company seeks additional funding “to complete development of US products and enter production”. The company is investing money on microfactories that cost about $50 million to set up and can produce about 10,000 vehicles a year. By the looks of it Arrival is also planning on reducing head count (q3 report as source) to cut costs however we think this move is not going to be at all close to what is needed to turn a profit anytime soon. The company does at a glance not appear to even have a product which is ready for a sales launch .
As previously stated the company has reported huge losses dating back from 2019 and until the present day. The latest position of the company’s cash and cash equivalents was approximately $330 million as of September 30, 2022. Considering the company has a current market cap of $405 million this might at first glance seem like an attractive valuation. However if you look at the actual numbers this is far from reality.
The company’s own outlook is that they would end the year 2022 with between $160M and $200M of cash. This would mean that for the fourth quarter of 2022 the cash burn for Arrival would be somewhere between $170-$130 million dollars. This fast burn rate would leave the company with cash for a maximum of two quarters in 2023 before running out of money unless the company is successful in either massively ramping up sales or acquiring extra equity / loan financing.
Arrival have themselves stated in their Q3 report that they think cash at hand will fund the company into Q3 of 2023. However we think that this claim is utterly and completely unthinkable considering the company’s history of presenting annual losses in the several hundred million dollar range. And in fact Arrival themselves state clearly in the same Q3 report that money will only last until Q3 of 2023 . Here is a statement from the actual report “As of September 30, 2022, the Company had existing cash and cash equivalents of approximately $330 million. This balance is not sufficient to cover twelve months of operations.” We find it quite amusing that management are actually contradict themselves in their own quarterly report.
Although Arrival has stated they expected to have two micro factories operational by end of 2022 no news updates has been released of this so far. The only last news regarding their production at least from their own website is dated September 30th of 2022 where they state that “ it has produced the first production verification vehicle from its Bicester Microfactory.” In fact the company themselves stated they did not expect any revenues even in 2023.
Arrival has no ready product to sell, no clear path on how to reach profitability and the company does not have a plan on how to finance themselves for the next 12 months. Furthermore the company does not even expect to show any major revenues throughout 2023. The business has reported annual losses of in the hundreds of millions of dollar range for years and will most likely continue to incur large losses even if they are somehow successful in financing their operations on a short term basis. The recent surge in share price offers a decent way out for investors . However we should also be clear about the fact that the stock is still highly shorted and reportedly has 23 % of its shares held by short sellers and therefore we cannot rule out that the stock might have a strong short term momentum if the current short squeeze continues. In the end M.R Market is never wrong and by the time we arrive at the end of 2023 we see that there is a clear risk that Arrival will be out of business unless they are able to quickly turn around their dire financial situation.
We DOT NOT own shares of this company personally nor do we intend to engage any type of position within the nexty 72 hours. Furthermore we do not intend to activate any type of short position within the next 72 hours.
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