Arrival (NASDAQ:ARVL) just reported earnings for 2022 Q3. But investors have more pressing concerns regarding the electric van startup. The company has spent the year on a downward trajectory, but its recent performance has been worse than many of its peers. ARVL stock has plunged 40% in just the past month as bad news has piled up. This has led the Nasdaq to issue a delisting warning.
Now, Arrival has warned investors that it may not have the necessary cash to keep its business going. Investors are on edge as the possibility of bankruptcy becomes increasingly real. News of this new threat has pushed ARVL stock down 30% for the day with no rebound in sight.
This raises plenty of questions as investors ponder Arrival’s uncertain future. It’s been a difficult quarter for the entire electric vehicle (EV) sector, but ARVL stock has fallen far enough to make anyone nervous. Today’s report has pushed shares down, but investors should be more worried about the company’s longer-term prospects. More specifically, they should be concerned with how it plans to fund its operations — and if it can. Let’s take a closer look at the problems threatening Arrival.
What’s Happening With ARVL Stock
No one had high hopes for Arrival this quarter. The company reported disappointing earnings for Q2 and hasn’t done much of anything since. And while the startup completed its first electric van in September 2022, InvestorPlace contributor Dana Blankenhorn speculated that it likely wouldn’t be enough to save ARVL stock. The news that Arrival has reported since then, particularly the delisting concerns and the new bankruptcy threat, supports this bearish thesis.
Reuters reports that Arrival plans on exploring every option to deal with its funding problems. The company indicated in its recent earnings call that it plans on having enough cash to fund the business into the coming year. But given the onslaught of bad news that has pushed ARVL stock down for months, it’s hard to have much faith in the company. Even if it does have the necessary funding to continue operations into 2023, that’s hardly a long-term profit window. Investors want to see plans for sustainable growth, not a temporary fix to temporarily keep the factory doors open.
Arrival has also noted that it plans on implementing “right sizing” techniques, which means layoffs are imminent. This could ultimately help usher in a positive turnaround for the company but only if it doesn’t stop at the layoffs. As InvestorPlace has reported, layoffs only help a stock price if they are accompanied by actual structural change that addresses the company’s operational problems. Laying off workers by itself does not usually help increase share prices. In fact, it can easily do the opposite.
What Comes Next
As of now, the future is uncertain for Arrival. The company looks like a clear bankruptcy risk. But, as we’ve learned this year, that doesn’t always mean a stock is done. If Arrival does declare bankruptcy, it could catch the eye of the r/WallStreetBets crowd and end up a meme stock.
In July 2022, meme-stock traders rescued bankrupt cosmetics retailer Revlon (NYSE:REV), turning it into one of the season’s top short-squeeze candidates. A company like Arrival could easily see the same fate if it does declare bankruptcy. That doesn’t make it a good investment, but it does make it a stock to watch.
On the date of publication, Samuel O’Brient 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.