Could this EV growth stock be about to explode?
Arrival (NASDAQ: ARVL) is an electric vehicle manufacturer that primarily produces lightweight commercial vehicles such as buses and vans. It plans to price its EVs the same as its petrol and diesel equivalents. With van production coming soon, I will be assessing whether to buy more shares in this EV growth stock for my portfolio.
Arrival has created a standard electric vehicle platform that allows it to save costs. This is because the platform serves as the foundation for multiple vehicle categories such as buses, vans, and cars. This, paired with the EV manufacturer’s groundbreaking microfactory concept, makes its manufacturing process extremely efficient. Its microfactories have interchangeable cells, allowing for production of different vehicles, and up to 10,000 vans a year. Therefore, production can be executed on scale without the need for building massive factories.
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Arrival has already secured orders from several companies such as UPS, LeasePlan, and FirstGroup. Its number of letter of intents (LOI) also saw a monumental increase to approximately 134k vehicles in its latest earnings report. This goes to show that the firm is gaining traction from renowned companies globally with plenty of tailwinds.
UPS and downs
Arrival’s biggest customer by far is UPS, which is also an investor in the business itself. The courier giant placed an order for 10,000 vehicles last year, with an option for a further 10,000. Management disclosed that it expects the start of production on its Arrival vans in Q3 this year. UPS also announced on its earnings call that it’s expecting 400 to 600 vans to be delivered by the end of the year. Nonetheless, the next hurdle the EV firm faces is getting its van certified. It expects this to be completed by Q2.
As a shareholder, I will admit that I am slightly worried. The expected production numbers this year are lacklustre to say the least. With the company continuing to burn cash without any revenue, 400 to 600 vans isn’t going to cut it. Although CFO John Wozniak mentioned that Arrival expects to end the year with $150m in cash, he also reiterated the firm’s intention to raise capital in the near future. This is to allow Arrival to scale production to meet its ever-increasing LOI numbers.
The Arrival share price is already sitting at penny stock levels, so any equity funding would be a waste at this price. As such, the company will most likely have to take on debt, which isn’t ideal in a high interest environment.
To add to my worries, Arrival is yet to announce the confirmation of its bus certification. This was expected to be completed by Q1. Additionally, the company has also postponed the release of its full financial results twice. These factors don’t bode well for its reputation. As a result, I am worried that Arrival may not even be able to hit its van production targets. Consequently, due to Arrival’s complacency, I will not be looking to buy more shares in this EV growth stock for my portfolio.