Being productive

Arrival didn’t exactly cover itself in glory when it reported its most recent Q2 results. It disappointed on many fronts with more delays, which led to a huge sell off in its stock. Nonetheless, there were a couple of bright spots that are worth pointing out.

The first would be that the company saw yet another increase to its memorandum of understandings and orders, from 143k in Q1 to 149k in Q2. This now adds up to a total of approximately $6bn in potential revenue. But most importantly, it reaffirmed its commitment to start production this quarter. CEO Denis Sverdlov mentioned on the earnings call that the microfactory concept is coming to fruition, expressing his excitement and entrepreneurial spirit to radically change the traditional assembly line.

Yet another delayed Arrival

I’m afraid that’s about it for good news, unfortunately, as the rest of the report was mostly disappointing. Despite the firm confirming start of production in Q3, this is only for 20 vans, which is down from the initial 400 to 600 vans promised in the Q1 earnings report. This is because of cash preservation reasons, as well as the manufacturer only having enough parts for 200 vans currently. Arrival also doesn’t expect revenue to come in this year either due to the timing of these deliveries, which are expected to happen at the very end of the year.

To make matters worse, the company is having to dilute shareholders like myself once again. Sky-high inflation has forced the unicorn to seek additional capital. This is being done through an at-the-market (ATM) offering, worth $300m. Arrival plans to sell its shares into a secondary trading market, with $90m expected to be raised this year, and another $210m in 2023. The offering should give it enough cash until the end of 2023, with CFO John Wozniak guiding for it to finish 2023 with at least $300m in cash and equivalents.

That being said, it continued to burn through quite a substantial amount of cash in Q2. As such, it’s had to conduct some cost-cutting measures by putting its bus and car projects on pause until additional capital can be raised, while also cutting spending by 30%.

Lagging behind

Admittedly, Arrival has a great vision with wonderful economics, which was why I chose to invest in its stock. However, numerous delays and disappointments have only made me doubt whether this radical innovation can truly be executed.

With the company continuing to burn cash, profitability isn’t expected anytime soon. Although the board expects margins to reach breakeven by 2024, I can only imagine that it’s another empty promise after so many disappointments.

Arrival has had a terrible record of over promising and under delivering. So, I’m taking any future outlook with a big pinch of salt. Therefore, I don’t think the stock will be hitting $2 soon, and I won’t be adding to my position. Instead, I’ll be looking to purchase other stocks with better track records.

The post Will Arrival stock hit $2 anytime soon? appeared first on The Motley Fool UK.

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John Choong has positions in Arrival. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Arrival

Arrival (NASDAQ: ARVL) can be easily dismissed as another electric vehicle company. However, what makes this growth stock unique is its approach to producing vehicles. Arrival aims to utilise its in-house technologies to produce rapidly scalable microfactories around the world.

With an estimated cost of $50m, these factories can be set up in a matter of months. Not to mention, they are also 24 times smaller than most other factories. This model allows each factory to achieve unprecedented growth, with an annual gross margin of $100m, producing 10,000 vans a year.

Nonetheless, Arrival now trades at a mere $1.44 after losing 95% of its value from its all-time high. This was the result of an overpriced valuation, delays, and share dilution. That being said, I think the stock is now fairly priced given that its market cap ($920m) is now lower than its total assets ($1.5bn).

After numerous delays, start of production for its vans is set to begin this quarter. This leaves me excited as a long-term investor. Provided that all goes according to plan, I think this growth stock could be a huge winner for years to come.

Astra Space

Astra Space (NASDAQ: ASTR) is a company targeting a niche portion of the space launch market. The firm offers to deliver payloads that are less than 300 kg to low earth orbit (LEO) while charging the most affordable fees.

The company has experienced unprecedented growth in its route to getting to space, as it’s the fastest space launch company to reach orbit. Its cheap method of producing rockets is what sets it apart from the competition. Even with a base launch cost of $2.5m, the Alameda-based firm is twice as cheap as its nearest competitor, Rocket Lab. This has allowed Astra to secure a backlog of over 50 launches with the likes of NASA, Spaceflight, Planet, and many others.

Having said that, Astra has also suffered a monumental drop in its share price of 80% this year. The current bear market hasn’t done growth stocks any favour either. Fears of a potential recession have soured investor sentiment and kept share prices low. Nevertheless, if Astra can manage to somehow deliver on its promises of daily launches by 2025, its current share price is going to be a steal.

Stunted growth?

Given the tremendous amount of potential from these growth stocks, are they a buy? Well, it’s important to note that while these companies have the potential to deliver a monumental return on investment, they can also fail.

I’m definitely intrigued by Arrival’s growth prospects. Even so, its cash position leaves me worried. With just $500m of cash, the unicorn has proposed restructuring its business. On the other hand, Astra has gone quiet since its most recent failed TROPICS launch. With no word from management as to what lies next for the company, I think there’s too much risk involved to buy more shares. As such, I’m holding onto both my Arrival and Astra positions for the time being.

The post These 2 growth stocks could be huge winners in the next decade and beyond appeared first on The Motley Fool UK.

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John Choong owns shares of Arrival and Astra Space. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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.

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.

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.

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Having fallen over 20% yesterday, the Arrival (NASDAQ: ARVL) share price is staging a recovery today. The stock has soared 10% at the time of writing. The firm just announced its Q1 financial results and they have resonated well with investors. Although the EBITDA loss increased on an annual basis to $67m, the company is starting to ramp up its start of production (SOP). The progress made thus far was also in line with guidance.

Arrival of bus certification

When Arrival last reported results, management mentioned the priority was to complete its biggest obstacle, vehicle certification. Therefore, the recent EU bus certification is a confidence booster, as the Nasdaq-listed company can now begin public road trials in the UK and Europe. These are expected to start in the next quarter. Private road trials with First Bus drivers are already in progress.

Good intentions

One of the most important metrics to pay attention to is letters of intent (LOIs). This determines the number of potential orders Arrival has in its books, indicating future revenue. LOIs saw yet another increase to approximately 143k. Despite the growth rate decreasing to 7%, I’m just glad to see that demand continues to be strong. When questioned about this on the earnings call, President Avinash Rugoobur attributed the slowdown to a shift in focus. He stated that the sales team is now in the process of converting these LOIs into binding orders.

Additionally, the milestones set out by Arrival in the previous quarter were also met. Aside from the all important bus certification, the startup completed its final prototype for its van.

We have already passed over 70% of our Van certification tests and made strong progress on our Microfactories with our cabin, hoop and skateboard all assembled using our advanced robotics platform.

Source: Arrival Q1 2022 Financial Results

Arrival has also been proactive in its equipment installation at Bicester. It has assembled and installed all robotic technology required for vehicle assembly. As such, I’m confident in Arrival’s ability to produce its target of 400-600 vans this year.

Micro factors

With all that being said, Arrival still sparks some pessimism in me. While its cash position is strong enough to last the financial year, what lies ahead is unknown. The EV firm still expects to finish the year with a cash balance of $150m-$250m. CFO John Wozniak has made no secret of Arrival’s need to raise capital in the near future. Capex continued to hover around high levels of $99m, although this is expected to taper off from Q3 onwards, as mentioned on the earnings call. CEO Denis Sverdlov mentioned that the business may face issues sourcing materials in the medium term as well. This could hamper its optimum production rate of 20,000 vehicles a year, per factory.

The bright side, however, is that Arrival continues to prove its doubters wrong. Its microfactory production concept is starting to show promise. With a positive set of results and promising guidance for the future, I’ll definitely be looking to add to my position in Arrival. This is especially so when the Arrival share price is trading at 95% off its all-time high.

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John Choong owns shares of Arrival at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Arrival (NASDAQ: ARVL) is an electric vehicle manufacturer that primarily produces lightweight commercial vehicles such as buses and vans. It plans to price its EVs the same as its petrol and diesel equivalents. With van production coming soon, I will be assessing whether to buy more shares in this EV growth stock for my portfolio.

Electrifying prospects

Arrival has created a standard electric vehicle platform that allows it to save costs. This is because the platform serves as the foundation for multiple vehicle categories such as buses, vans, and cars. This, paired with the EV manufacturer’s groundbreaking microfactory concept, makes its manufacturing process extremely efficient. Its microfactories have interchangeable cells, allowing for production of different vehicles, and up to 10,000 vans a year. Therefore, production can be executed on scale without the need for building massive factories.

Arrival has already secured orders from several companies such as UPS, LeasePlan, and FirstGroup. Its number of letter of intents (LOI) also saw a monumental increase to approximately 134k vehicles in its latest earnings report. This goes to show that the firm is gaining traction from renowned companies globally with plenty of tailwinds.

UPS and downs

Arrival’s biggest customer by far is UPS, which is also an investor in the business itself. The courier giant placed an order for 10,000 vehicles last year, with an option for a further 10,000. Management disclosed that it expects the start of production on its Arrival vans in Q3 this year. UPS also announced on its earnings call that it’s expecting 400 to 600 vans to be delivered by the end of the year. Nonetheless, the next hurdle the EV firm faces is getting its van certified. It expects this to be completed by Q2.

As a shareholder, I will admit that I am slightly worried. The expected production numbers this year are lacklustre to say the least. With the company continuing to burn cash without any revenue, 400 to 600 vans isn’t going to cut it. Although CFO John Wozniak mentioned that Arrival expects to end the year with $150m in cash, he also reiterated the firm’s intention to raise capital in the near future. This is to allow Arrival to scale production to meet its ever-increasing LOI numbers.

The Arrival share price is already sitting at penny stock levels, so any equity funding would be a waste at this price. As such, the company will most likely have to take on debt, which isn’t ideal in a high interest environment.

Delayed arrival

To add to my worries, Arrival is yet to announce the confirmation of its bus certification. This was expected to be completed by Q1. Additionally, the company has also postponed the release of its full financial results twice. These factors don’t bode well for its reputation. As a result, I am worried that Arrival may not even be able to hit its van production targets. Consequently, due to Arrival’s complacency, I will not be looking to buy more shares in this EV growth stock for my portfolio.

The post Could this EV growth stock be about to explode? appeared first on The Motley Fool UK.

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John Choong owns shares of Arrival at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.