It’s fine to be bullish on clean-energy vehicles in general. However, this doesn’t mean you have to put your faith in Luxembourg-based electric vehicle (EV) manufacturer Arrival (NASDAQ:ARVL). There’s a chance that ARVL stock could get kicked off of the Nasdaq exchange at some point. Plus, Arrival’s debt burden will remain heavy even if the automaker plans to sell a large number of its shares.
Arrival’s loyal shareholders have suffered staggering losses since late 2020. Could this year provide the turnaround they’ve been waiting for? Or, will there only be more disappointment and capital loss?
Chances are, ARVL stock will continue its descent even though Arrival attempted to put a positive spin on a recent press release. So, let’s address this, as well as a couple of other reasons not to invest in Arrival now.
Arrival Will Bear a Hefty Debt Load Even After Capital Raise
So, here’s why some of Arrival’s stakeholders might feel optimistic. A recent press release disclosed that Arrival plans to raise $50 million worth of “new equity capital through the sale of equity to” Antara Capital Master Fund LP.
This isn’t just free money, mind you. For one thing, companies can get into the bad habit of selling massive quantities of shares to cover their debts. It’s not an ideal solution for the long term. Also, Arrival will have to pay interest on $121.9 million worth of 3.5% convertible notes due 2026 held by Antara.
Moreover, Arrival admits, “After the exchange, the face amount of Arrival’s remaining principal of convertible notes outstanding will be $198.1 million … and future annual cash interest expense will be lowered by approximately $4.2 million.” Hence, Arrival will still have a huge debt load for a relatively small automaker.
ARVL Stock Could Get Delisted
As of Feb. 23, ARVL stock traded around 31 cents. As you may be aware, Arrival received a delisting warning from the Nasdaq exchange because the company’s shares traded below $1 for a prolonged period.
Sure, Arrival could implement a reverse share split. However, this would only be a temporary fix. Skeptical traders should consider whether reverse splits, like share sales, can become bad habits if a company uses them to temporarily solve problems.
If ARVL stock gets above $1 and stays there for a long time, this would certainly add to the bullish thesis for Arrival. Unless that happens, however, it’s wise to stay on the sidelines.
It Will Be Difficult for Arrival to Withstand Its Competition
Meanwhile, Arrival still has to deal with fierce competition from famous EV manufacturers like Tesla (NASDAQ:TSLA) and Ford (NYSE:F). These are well-capitalized automotive giants with widespread brand-name recognition.
Arrival, on the other hand, is struggling to get off the ground. Drastically, the company plans to “reduce its global workforce by approximately 50%.” Can you imagine trying to compete with Tesla and Ford with half of your current staff?
Additionally, Arrival seeks to navigate a crowded EV market even though its third-quarter 2022 business update revealed a widening net earnings loss. There are much bigger automakers out there that are already profitable.
Arrival might become profitable someday, but there are no guarantees. Personally, I wouldn’t wait around to see the ending of this story. It’s wise, therefore, not to touch ARVL stock with a 10-foot pole.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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