Caution, ARVL Stock Investors! Arrival Is a Risky Bet on an Unproven Business Model.
Can Luxembourg-based electric vehicle (EV) manufacturer Arrival (NASDAQ:ARVL) deliver value to its shareholders in 2023? The company certainly has an intriguing business concept. However, ARVL stock is likely to lose value as Arrival’s workforce shrinks along with the company’s capital position.
Investors already learned in late January that Arrival is slashing its global workforce by around 50%. Hence, Arrival will attempt to fend off competition from well-capitalized EV manufacturers like Tesla (NASDAQ:TSLA) and Ford (NYSE:F) with half the staff.
That’s an uphill battle, for sure. Maybe it would be possible for Arrival to succeed if the company had strong financials. Don’t get your hopes up, though, as Arrival’s path to profitability — or even viability, for that matter — remains unclear.
Arrival’s Business Model Won’t Save ARVL Stock?
For some investors, the most compelling thing about Arrival is its “Microfactory” business concept. It’s the complete opposite of Tesla’s “Gigafactories.” Specifically, it involves “rapidly scalable, low-cost Microfactories that source from and create for local regions.”
You can view a video of Microfactories in action here. It’s fun to fantasize about a David-versus-Goliath story, in which Arrival defeats the EV giant Tesla with its small-scale production facilities.
This doesn’t mean you should risk your money on ARVL stock, though. The shares have already lost a significant amount of value, having fallen from $31 to 20 cents. Plus, since the share price stayed below $1 for a prolonged period, Arrival has already received a delisting warning from the Nasdaq exchange.
Arrival Is a Money-Losing Operation
Clearly, taking the company’s business model from concept to execution has been financially challenging for Arrival. Previously, Arrival acknowledged that, as of Sept. 30, 2022, the company “had existing cash and cash equivalents of approximately $330 million.” This, unfortunately, was “not sufficient to cover twelve months of operations.”
Fast forward to Dec. 31, 2022, and Arrival’s balance of cash and cash equivalents had dwindled to around $205 million. That’s a 38% decline from $330 million just three months earlier. Clearly, Arrival is hemorrhaging cash.
Furthermore, the terms “sales” and “revenue” aren’t mentioned anywhere in Arrival’s preliminary fourth-quarter and full-year 2022 results. This helps to explain why Arrival posted another year of staggering expected losses.
In 2021, Arrival recorded a net earnings loss of $1.304 billion. Then, in 2022, Arrival expects to have lost $998 million to $1.008 billion. Again, this is a company with approximately $205 million worth of cash and cash equivalents. It doesn’t require a bookkeeper to see how unsustainable this situation is for Arrival.
ARVL Stock Is a No-Go Right Now
Until Arrival’s Microfactory concept yields acceptable financial results, investors should consider this business model to be unproven. It’s going to be awfully difficult for Arrival to challenge Tesla, Ford and other automotive giants if it’s rapidly bleeding capital.
All in all, the risk-to-reward balance simply doesn’t favor Arrival. Therefore, it makes sense to consider other publicly listed EV manufacturers (there are plenty to choose from), and just skip ARVL stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.