EV Startup Arrival Is Running Out of Charge


This column is part of the Sixth Annual Heard on the Street stock-picking contest.

Electric-vehicle startup

Arrival


ARVL 0.84%

wants to reinvent not just delivery vans but also the entire business of manufacturing. It might prove too much for its dwindling resources.

Arrival SA (ARVL)

  • Recommendation: Sell
  • Price: $1.20

Arrival


ARVL 0.84%

is one of the many early-stage EV companies that went public in 2021 via a merger with a special-purpose acquisition company. The stock, which like other SPACs debuted at $10, is now worth $1.20, implying a market value of just $766 million.

That might seem cheap for a company that finished June with $513 million of cash and equivalents, but Arrival is about to embark on the notoriously difficult process of ramping up production. All that cash, and more that it hopes to get by selling shares at prevailing prices in a so-called “at the market” offering, will be needed to tide it through the coming year or so. The odds are stacked against it arriving at the point of positive cash flows without a bigger influx of capital that would likely leave minority shareholders in the dust.

Arrival isn’t as well known as other struggling EV startups such as

Lordstown Motors

and

Canoo,

perhaps because of its global back story. Though listed in the U.S., it was founded in 2015 by Russian entrepreneur

Denis Sverdlov,

whose Luxembourg investment fund still owns 69% of the company, according to

FactSet.

Arrival is also headquartered in Luxembourg, but its first factory will be in the U.K., where Mr. Sverdlov is based.

That factory, which is currently getting ready for the start of production, is smaller than a conventional car plant. Mr. Sverdlov’s innovation is capital-light “microfactories,” where a vehicle is built within a box rather than along a production line. Any initiative to reduce capital intensity in the auto industry is welcome, but the idea remains unproven.

Tesla

took the opposite tack with its superscaled “gigafactories.”

Arrival is focused on delivery vans rather than passenger cars. This is a solid bet: Businesses tend to use their fleets intensively, meaning that the low running costs of an EV will more easily justify the higher initial expense. Arrival has an order of 10,000 vehicles from

United Parcel Service.

But the market for EVs isn’t in much doubt these days. The real question for startup manufacturers is whether they can make them at a competitive cost within a time frame that capital markets find acceptable. Arrival’s falling share price reflects growing doubts that it can, as the company has pushed back its delivery timeline and rising interest rates have made investors less tolerant of loss-making businesses.

This month the company said it would only deliver about 20 vans this year, down from forecasts of 400 to 600 in May and more than 10,000 at the time of its SPAC deal. The latest delay is partly due to an effort to conserve cash, including by pushing back plans for a second microfactory in Charlotte, N.C. The company said last month that it could lay off three in 10 employees globally as part of a restructure.

Arrival’s big production ramp is slated to begin next year. The pattern of other EV startups, from Tesla to

Rivian

and Lucid, is that this phase causes unexpected problems and costs. Arrival is running out of charge even before it hits the hills.

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