Arrival’s (NASDAQ: ARVL) share price just spiked by more than 10% after its earnings call today where management released guidance for the year ahead. As such, I will be breaking down the reasons as to why the Arrival share price has gone up, and whether I will be adding more shares to the biggest position in my portfolio!
Letter of intents (LOIs) and non-binding orders DOUBLED
In a pre-revenue company like Arrival, all eyes are on the magic figure that is number of potential orders in order to guarantee future cash flow and revenue. Arrival managed to wow investors with a staggering c.134k in non-binding orders and LOIs in Q4 2021, double of what they had in the quarter before (64k), which is shockingly impressive to me. With share prices of pre-revenue companies subject to future cash flows, this will definitely bring an upside to Arrival’s target price.
Everything is on track
Denis Sverdlov and his team have managed to maintain a strict timeline following the revised outlook given in the last quarter. As expected, trial bus production and proving ground trials in Spain were successful. Bus certification and public road trials with First Group is also expected to go ahead this quarter, with British roads potentially seeing up to 193 of Arrival’s new electric buses following the completion of successful trials. Moreover, UK production of buses will start by mid-year, thus bringing in the first batch of revenue, leaving investors such as myself extremely excited.
In the other lane, public road trials for the van were successful in Sweden with more tests still being conducted. The van is on course to complete its public road trials soon, with full product certification expected in both the EU and UK shortly, along with the start of production in autumn. Arrival expects 400-600 vans to be built this year, with delivery of those vehicles to UPS and select customers, guaranteeing further revenue.
Cash in the bank
The main worry with many pre-revenue companies is whether they can sustain a healthy level of cash before achieving profitability. These worries were quashed as cash and equivalents went up to $905m following the company’s notes offering in November. With cash expected to burn at $655-755m this year, Arrival might just be able to get through the pre-revenue period without having to dilute any further as cash is expected to flood in with their first orders of buses and vans later this year.
Shortages
On the earnings call, there were concerns about material and semiconductor shortages for vehicle production. Although President Avinash Rugoobur mentioned that the electric vehicle manufacturer has stockpiled enough raw materials for production for 2022, it could still potentially face shortages in the future as lead times continue to increase. For that reason, revenue for 2023 and beyond could be at the mercy of raw materials and their prices.
Nevertheless, it was the perfect earnings call to my mind, and management really seem to know what they are doing. The company is in an extremely healthy position, and learning how to walk before running is key at this stage. For those reasons, the share price saw an increase today, and I am happy to increase my stake in Arrival.
