ARVL - Arrival stock price analysis: plot thickens as Kensington deal ends
2023-07-04 00:55:00 ET
Electric vehicle (EV) stocks had a great day on Monday after Tesla announced robust quarterly deliveries. Companies like Tesla, Rivian, and Lucid Motors saw their shares jump sharply on Monday. Not all EV companies have joined this rally. Arrival ( NASDAQ: ARVL ) stock price has plunged by more than 70% in the past 12 months and is still hovering near its record low.
Tesla vs Arrival stock
Bankruptcy risks remain
Arrival is a small manufacturing company that hopes to become a leading player in the delivery space. The British company is still in its early stage of building the vehicles, meaning that it is yet to start generating revenue. Instead, the company has announced huge purchasing orders from well-known companies.
The biggest challenge for Arrival stock is that its cash burn remains high despite the company’s measures to slash costs. For shareholders, there are significant dilution and even bankruptcy risks in the company.
Arrival has made several actions to boost its cash position. In March, the company announced a $300 million equity financing line from Westwood Capital. It ended the first quarter with $130 million in cash on hand, with some coming from Antara.
Still, the company is now in a difficult place. On Monday, Arrival announced that it was terminating its combination deal with Kensington Acquisition Corp. In its last earnings call, the company said that the acquisition would provide up to $283 million. It has now hired Teneo and TD Securities to find alternatives.
Is it safe to buy Arrival stock?
Therefore, there is a likelihood that the company’s financial and manufacturing process will be under pressure. Consider the CEOs statement in the last earnings call (emphasis mine):
“The combination validates Arrival’s strategy to bring a purpose-built Class 4 last mile delivery vehicle to the U.S. market and should provide a meaningful amount of capital for the XL program. We are looking forward to partnering with Kensington to meet our production goals .”
I believe that the Arrival stock price has more downside going forward. It has ended an important partnership deal, is burning a lot of money, and is facing significant competition,
The company needs more money to build its business. In its most recent going concern statement, the company said that it would start making the XL delivery van next year when it raises its dedicated capital. This means that it will still need to raise additional capital.
I believe that the prospects of Arrivals’ bankruptcy are real, making the stock highly speculative. As such, I recommend that investors should avoid the company since the stock could retreat to the year-to-date low of $1.69.
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