arrival

Arrival (NYSE: ARVL), the UK-based EV (electric vehicle) company that went public in 2021 through a SPAC reverse merger, is trading sharply lower in early US price action today after it reported its earnings for the second quarter of 2022.

Arrival posted a net loss of $89.6 million in the quarter as compared to a loss of $56.2 million in the corresponding quarter last year. Its adjusted EBITDA loss also swelled to $76.2 million, up from $41.2 million in the second quarter of 2022. Arrival is still in the pre-revenue stage and is not posting revenues.

Investors have been wary of loss-making pre-revenue companies and have sent their shares south. Arrival for instance trades at a fraction of its SPAC IPO price of $10. The same story is unfolding in most other de-SPACs. In the EV space, Lordstown Motors, Canoo, and Nikola trade well below the SPAC IPO price. Fisker has held off relatively well and is trading near the IPO price, which is no mean achievement considering the carnage in other de-SPACs.

Coming back to Arrival’s earnings, more than the losses, markets were spooked by its guidance. The company now expects to deliver only about 20 vehicles in 2022, which is way below the previous guidance of delivering between 400-600 vehicles. As a result, it does not expect to post meaningful revenues in the year.

The company forecast an adjusted EBITDA loss between $175-195 million in the second half of the year. Arrival also announced an ATM (at-the-market) stock offering and intends to raise $90 million in 2022 and another $210 million in 2023.

In an ATM offering, the company sells shares at the prevailing market price. In Arrival’s case, it would mean a massive dilution considering its depressed stock price.

Arrival to Issue New Shares as Cash Flows Dwindle

At the current stock price, a $90 million stock issuance would mean over 10% dilution for Arrival. It ended the second quarter with cash and cash equivalents of $513 million. While it raised a lot of cash in the SPAC merger, its operations have been burning cash, like other startup EV companies.

In the EV space, only Tesla has turned sustainably profitable. All other startup EV companies are burning cash and posting losses. Commenting on the lower production guidance, Arrival said, “These changes allow the Company to operate the business through at least 2023 without needing to raise additional capital, other than through the ATM, and prepare the Company for growth. The Company will continue to opportunistically consider additional sources of capital.”

Arrival Has a Weak Balance Sheet

Notably, Arrival’s cash position is much lower compared to companies like Lucid Motors and Rivian, both of which went public last year. The cash balance provides these companies with a lot of cushion, and as a result, they don’t need to raise cash by selling shares are depressed valuations.

That said, Rivian and Lucid Motors are also facing production issues. Rivian expects to produce only about 25,000 cars in 2022 which is half of its production capacity. Lucid Motors has also slashed its production guidance to 6,000-7,000 units for 2022, which is a third of its original guidance of 20,000 cars.

This is where Tesla stands out. The company almost met its production guidance in 2020 despite COVID-19 lockdowns. It also maintained its guidance of 50% delivery growth CAGR despite production loss in China. Arrival joins the long list of startup EV companies that have lowered their guidance amid the global supply chain issues.

Tesla’s Performance Stands Out, Bullish Analysts Advise Buying the Stock

While Wall Street analysts are mixed on Tesla, earlier this week, Canaccord reiterated Tesla stock as a buy expressing optimism over its competitive lead in the EV market, and additional offerings in the energy and solar space. The company’s CEO Elon Musk said that Tesla Semi deliveries would start in 2022 while Cybertruck deliveries would begin next year.

Coming back to Arrival, the company’s troubles are no different from other newly listed EV stocks. From production issues, cash burn, waning investor interest, and increasing competition from legacy automakers, there are problems aplenty for startup EV companies.

The competition might also increase in the coming years as Apple is also said to be contemplating entering the market. Apple is the best-performing FAANG stock this year and has defied all the slowdown blues.

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