After falling from a high of $31.54, the Arrival (NASDAQ: ARVL) share price is now trading at $1.70. Since then, however, the company has made plenty of progress and exciting developments. So, here’s how I think Arrival shares could double my money.
A little goes a long way
In the sea of electric vehicle companies, Arrival is still a small fish. But what makes the British unicorn so unique is its microfactory concept. Each factory can produce 10,000 vans. It is also estimated to have a low capital expenditure rate of £50m, while turning over £100m per year. This would cost much less than a traditional factory. Additionally, a microfactory only takes up 20,000 square metres. Pair this with its modular production method, and Arrival can quickly adapt to demand in an area, rent a small warehouse, and start production.
Nonetheless, this is still a concept and is yet to be proven. As such, I remain cautious. However, successful execution could very well alter the traditional assembly line that Henry Ford once pioneered, and change how vehicles are produced.
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Much needed Arrival
Having achieved bus certification last month, the Nasdaq-listed firm could begin trials with one of its biggest customers, FirstGroup. Arrival also recently partnered with Enel X, a market leader in advanced energy solutions. The partnership will test Enel X’s advanced charging services on Arrival’s buses. A successful trial could results in additional orders to Arrival’s 143,000 letters of intent (LOI).
The success of these tests will be a key building block for Enel to include the Arrival Bus within its portfolio of global electrification solutions.
Source: Arrival Investor Relations
More importantly though, was the achievement of van certification this week. The van makes up 96% of the company’s current LOIs, so this was extremely good news. Consequently, Arrival shares exploded 15% on the news. This also puts the firm on track to start its van production in Q3. With 400 to 600 vans expected to be produced by the end of this year, this will bring in the company’s first batch of revenue.
| Arrival Bus Milestones | Expected Timing | Arrival Van Milestones | Expected Timing |
|---|---|---|---|
| 1. Trial Bus Production | Achieved | 1. Final Prototype Van Build | Achieved |
| 2. Proving Ground Trials | Achieved | 2. Van Certification | Achieved |
| 3. Bus Certification | Achieved | 3. Bicester Equipment Installation | Achieved |
| 4. Phased Trials with First Bus | Commenced | 4. Public Road Trials | Commenced |
| 5. UK Production of Saleable Buses | H2 2022 | 5. Bicester/Charlotte Van SOP | Q3/Q4 2022 |
Foggy road ahead
That being said, Arrival has an uncertain path ahead. While the Bicester-based company expects to finish the year with $150m to $250m of cash, it still won’t be sufficient to run its operations for 2023 and onwards. This worries me as an investor.
A stock offering is unlikely given its already low share price. Not to mention, dilution would potentially lead to its share price falling below $1, and getting delisted from the Nasdaq. Therefore, Arrival may have to take on debt, which will be costly in a high interest rate environment. This would also make its road towards profitability a much longer one, as future earnings would go towards repaying its debt.
Nevertheless, the average target price for the stock is currently $5.98, which presents a 350% upside! Although I doubt the share price will climb to such levels, I think there’s a decent chance the stock can grow by 100% if it sticks to its production guidance. This is why I’m currently holding a small position in Arrival shares.
