Few companies are truly unique, but Luxembourg-based electric vehicle (EV) manufacturer Arrival (NASDAQ:ARVL) is a one-of-a-kind business. If you can handle a high risk level, it might be worthwhile to hold a few shares of ARVL stock this year. You might get a moonshot, but there are reasons to envision a share-price drawdown due to Arrival’s financial issues.
If you’d rather stick to a market leader, it’s fine to invest in Tesla (NASDAQ:TSLA). CEO Elon Musk is a controversial figure, but the company’s recent earnings results indicate solid financials and operational growth.
There are no such assurances when it comes to Arrival, unfortunately. For the remainder of 2023, Arrival’s investors can hope for the best but ought to be fully prepared for the worst.
What’s Happening With ARVL Stock?
ARVL stock is one of those stocks that had a boom phase during the EV startup hype of 2020 and 2021. Now, Arrival’s long-term investors are deep underwater as the share price hovers near 40 cents.
They can hope for a massive short squeeze, but that’s not a viable investment strategy. Instead, Arrival’s shareholders should focus on what makes the company stand out from its competition in the EV space.
Whereas Tesla has huge giga-factories, Arrival goes in the opposite direction. I invite prospective investors to watch this video of the Arrival Microfactory, which may be able to build electric delivery vans and buses with a smaller capital expenditure than a gigantic Tesla factory.
Or, maybe it can’t. In a business update, Arrival admitted that it “cannot make margin on the current L Van product given the high cost of parts associated with being on low-volume (or ‘soft’) tooling, and lack of funds to finance hard tooling.”
Arrival May Have Trouble Financing Its Plans
Arrival isn’t just giving up, though. In light of Inflation Reduction Act tax credits for EVs and other considerations, Arrival intends to target the U.S. vehicle market.
That’s easier said than done, of course. The American EV market is highly competitive, and Tesla is the 800-pound gorilla that Arrival will have to deal with.
Besides, a successful U.S. venture will be challenging, as Arrival’s financials aren’t ideal. The company’s net earnings loss widened considerably year-over-year in 2022’s third quarter. Furthermore, despite the implementation of the micro-factory concept, Arrival’s capital expenditure increased during that time frame.
Also, as of Sept. 30, 2022, Arrival acknowledged that its balance of cash and cash equivalents “is not sufficient to cover twelve months of operations.” Making matters worse, Arrival received a delisting warning from the Nasdaq exchange as ARVL stock traded below $1 for an extended period of time.
So, Here’s My ARVL Stock Price Prediction for 2023
As we’ve discovered, there are significant risks that Arrival’s investors will have to face this year. Sure, Arrival has an intriguing idea with its small production facilities. Yet, it’s going to be difficult for Arrival to compete in the U.S. with the likes of Tesla.
What will 2023 bring for Arrival’s shareholders, then? It’s hard to know for sure. A short squeeze is always a possibility. However, sensible investors should monitor Arrival’s financial situation carefully.
Unless that situation improves dramatically, it’s hard to envision ARVL stock heading toward $1 this year. Instead, I expect the Arrival share price to decline to 25 cents in 2023. Therefore, prospective investors should think about waiting and watching instead of jumping hastily into the trade.
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.