What happened
Electric vehicle (EV) stock Arrival (ARVL +0.00%) plunged on Wednesday, losing 17.4% in value as of 11:20 a.m. EST. Barely a week after announcing an expectedly weak outlook for 2022, the company dropped another bomb today that has made investors really nervous.
So what
This morning, Arrival announced the commencement of sale of 25 million shares in a secondary offering with an option for underwriters to buy another 3.75 million shares. Arrival is also issuing $200 million worth of green convertible senior notes due 2026.
At Arrival stock's closing price on Nov. 15, the share sale amounted to roughly $331 million.
Investors are unhappy for two reasons: The dilutive nature of a secondary stock offering and the timing. Arrival shares had already plummeted 25% this month as of Tuesday's close, so a stock offering at this level was bound to put further pressure on the stock.
Yet, if you'd followed Arrival closely so far, today's announcement shouldn't have come as a surprise.
Image source: Getty Images.
The thing is, just last week Arrival said it was revising its microfactory rollout and now foresees "significantly lower volumes and revenue" for 2022. The reason behind this move says it all: shortage of capital.
And, Arrival even went on to say its "previous long-term forecasts from the merger should no longer be relied upon."
In short, none of the tall claims Arrival made when it debuted on the stock exchanges in March hold up. In its last annual filing in April, Arrival said it expected to start three microfactories by the end of 2021, fourth by end of 2022, 11 by the end of 2023, and 31 by the end of 2024.
Now, Arrival doesn't expect any microfactory to reach full capacity before 2023, and it expects to start building a fourth factory only in 2023.
Given the dire state of affairs at Arrival, it's not surprising to see the company sell equity and debt to raise funds.
Now what
While a secondary stock offering dilutes the wealth of existing shareholders, it isn't necessarily bad if the company intends to use the proceeds for growth. Arrival didn't say why it's selling shares. As for the senior notes, it said it'll use the proceeds to finance or refinance "eligible green projects," including projects related to EV infrastructure, renewable energy, and the design and manufacturing of "eco-efficient products and technologies."
I'm unsure what to make of it, but it seems Arrival simply needs money right now to start commercial production of buses and vans by 2022. The company still insists it's just months away from delivering vehicles to customers. And although Arrival has an impressive lineup of partners and customers and is on track with its vehicle trials this year, production delays are the last thing you'd want to see in a company trying to make a mark in a hotly competitive market like EVs where some players are already racing ahead.
