At the end of 2022, shares in Arrival (NASDAQ:ARVL) were down more than 99% from their debut price. So far in 2023, however, a growing number of investors have jumped back into ARVL stock. As a result, shares in this U.K.-based electric vehicle manufacturer have moved substantially higher.
Although it has pulled back in the past few weeks, the stock remains up nearly three-fold from its all-time low. If you’ve bought Arrival recently, I can understand why you’ve hopped onto this speculative bandwagon.
Even if the main factor driving its recent rally has dissipated, in theory, just a slight improvement to the company’s fundamentals could drive yet another significant move higher.
Having said that, I wouldn’t expect a move into “recovery mode” for this struggling EV startup. All things considered, a total wipeout remains a much more likely outcome.
ARVL Stock and the Recent Spike
Given that stocks, especially EV stocks, have rallied significantly year-to-date, it makes sense that Arrival shares have experienced a jump of their own. Yet besides this, another factor, one that is likely temporary in nature, has played a big role in this as well.
As InvestorPlace’s Chris MacDonald discussed on Jan. 12, a key reason why investors leaped back into ARVL stock had to do with buzz surrounding a potential short-squeeze.
With nearly 23% of ARVL’s outstanding float sold short, retail traders bid up the stock, in the hopes that en-masse buying would leave the short-side scrambling, pushing the stock higher as the shorts closed out positions.
But much like other recent attempts to “put the squeeze” on short-sellers, this rally did not last long. Arrival shares lost momentum in mid-January and have since dipped slightly lower, to around 40 cents per share. Again though, while it may no longer be a squeeze play, those who bought the stock last month may be still holding on.
Why? Mostly, on the view that, after numerous hiccups, setbacks, and challenges, it’s all uphill from here for the company. Unfortunately, there’s not much evidence backing up that view.
Cost-Saving Plans Do Not Change the Story
Sure, if you’re currently bullish on ARVL stock, you may be pointing to a recent development as a counter to my more skeptical view. I’m talking about the company’s recent announcement that it plans to lay off 50% of its workforce. Arrival expects this reduction in headcount to produce a corresponding 50% decrease in its cash operating expenses.
Yet while these layoffs may extend the company’s cash runway, this could also be merely a case of delaying the inevitable. Thus far, Arrival has made little progress with its plans to become a leading producer of electric buses and vans in both its home market, as well as the U.S.
As I discussed back in November, this EV startup, which has yet to move out of the pre-revenue stage, has pulled out of Britain entirely. While this means Arrival’s management team has maximum bandwidth to focus on getting its U.S. factory online, the company likely requires substantially more capital than it currently has on hand ($205 million).
It’s questionable whether the company can raise this level of cash, as institutional and strategic investors scale back their bets on less promising EV contenders.
Even if Arrival manages to raise additional cash, don’t assume that means higher prices ahead for the stock. The resultant dilution from the sale of additional shares will limit the upside.
If the company still fails to make progress toward reaching mass production/profitability, ARVL would undoubtedly slide substantially below current price levels.
Worst of all, assuming it doesn’t even get the opportunity to dilute existing shareholders, Arrival could finally hit the end of the road. Chances are, this would result in a total loss, even for investors getting into the stock at today’s sub-$1 per share price.
That said, if you currently own ARVL stock, it’s not too late. Shares have yet to give back all of their recent squeeze gains. With this, consider now the perfect time to make your exit.
ARVL stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.