Amid a soft day for the market, the electric vehicle (EV) segment is feeling the pressure, particularly startup firm Arrival (NASDAQ:ARVL). The U.K.-based mobility specialist – which arguably garnered the most attention for its electric-powered vans and buses – announced job cuts impacting 50% of its workforce. Undergirding the Arrival layoffs were macroeconomic headwinds and aggressively rising competition. Still, short-squeeze speculation may keep ARVL stock temporarily in the running.
According to a Reuters report, the Arrival layoffs “will help halve its cash operating expenses, as the electric-vehicle startup tries to ride out a cash crunch threatening its survival in the competitive market.” As well, the decision “underscores the pressure on EV startups that had promised to disrupt the automotive industry but are now scrambling to slash costs in the face of supply chain issues and steep raw material prices.”
Adding greater concerns amid the Arrival layoffs, the underlying company also mentioned in November it might not have enough cash to keep its business moving forward toward the end of this year. “We’re actively engaged in capital raising … we’ve had some preliminary discussions with a handful of parties,” CFO John Wozniak said in a post-earnings call at the time.
To be sure, the Arrival layoffs do not represent an exclusive phenomenon. Last year in June, EV sector king Tesla (NASDAQ:TSLA) announced a first round of job cuts. Late last year, TechCrunch reported Tesla will conduct a new round of layoffs in the first quarter of this year. Notably, the EV maker’s CEO Elon Musk frequently warned about an incoming recession.
Arrival Layoffs Occur as Competition Erupts
Still, that other EV firms engage in headcount slashes won’t much soften the blow regarding the Arrival layoffs. In particular, with a slew of competition from both established automotive giants like General Motors (NYSE:GM) to sector peers like Mullen Automotive (NASDAQ:MULN), Arrival faces intense heat. Even more worryingly, most EV players have chosen to compete on price, exacerbating Arrival’s cash problems.
If that wasn’t troubling enough, earlier this month, Tesla announced that it would slash prices globally on its EVs by as much as 20%. In part, the move targets unfavorable macroeconomic conditions as well as supply chain disruptions. These and other factors impacted all EV players, but more so for lesser-capitalized plays like ARVL stock.
However, analysts also viewed Tesla’s price cuts as a clear shot against competition — first against smaller rivals to bleed out their already-dim cash flow, and second against larger rivals like the aforementioned GM.
Unfortunately, then, the Arrival layoffs may represent a matter of forced necessity rather than a strategic “right sizing,” to borrow the tech industry’s preferred lexicon for downsizing. Eventually, the poor prospects could weigh down ARVL stock in the long run.
Why It Matters
Nevertheless, the Arrival layoffs and the associated stormy clouds don’t represent the full story of ARVL stock. After all, shares gained 117% on a year-to-date basis as of this writing.
Notably, it appears short-squeeze speculation fueled ARVL stock. According to Benzinga’s most shorted stocks list, Arrival features a current short interest of 30.23% of float. Previously, this metric pinged at 28.44%. As well, its short interest ratio stands at 3.7 days to cover. Therefore, bearish traders should not necessarily view the Arrival layoffs as a slam-dunk “negative” opportunity.
On the date of publication, Josh Enomoto 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.
