Arrival nabs $300M lifeline, but is still seeking more funds
Struggling electric vehicle company Arrival has secured a $300 million lifeline to help it stay in business into late 2023, but no later. The company is seeking additional dedicated funds to develop its XL delivery vans for the U.S. market and start production in Charlotte, North Carolina by 2024.
Arrival announced the $300 million equity financing line from Westwood Capital at its fourth-quarter and full-year 2022 earnings call Monday. The company also scheduled an Extraordinary General Meeting of shareholders for April 6 to vote on a number of resolutions, including a reverse stock split to help it regain compliance with the Nasdaq.
Arrival had initially reported earnings last week, but delayed hosting a call with analysts until today in order to finalize the Westwood transaction. And fair enough, considering just how in-the-red Arrival is.
The pre-revenue company has been burning cash at a startling clip, yet it still has its hand out for more. Arrival likely wants to tap as little of Westwood's fountain as possible, lest it give away too much equity. John Wozniak, Arrival's chief financial officer, said the company hopes to raise an additional $500 million -- $100 to $150 million by the end of this year -- to fund the XL program. Arrival hopes the additional liquidity, the promise of XL vans with potentially high margins and further cost-cutting measures will make it an attractive target for investors this year, despite its many failures to meet production deadlines in the past.
The business update comes less than two months after Igor Torgov, a former Arrival executive, stepped in as CEO of the company. Torgov replaced interim CEO Peter Cuneo, who was appointed in November 2022 when Arrival's founder Denis Sverdlov stepped back. Torgov immediately headed drastic cost-cutting measures, including a 50% reduction of staff that should be competed by the end of March 2023 and will leave Arrival with fewer than 800 employees.
In February, Arrival secured up to $50 million of new equity capital through the sale of common stock to Antara Capital Master Fund, which helped the company reduce its net debt by $121.9 million.
Now, as part of Arrival's new business plan, the company intends to lower its targeted cash spend to no more than $35 million per quarter. Arrival has simplified its global entity and real estate footprint to focus on the U.S. market, and has already exited several leased sites. The company has also implemented a hiring and spending freeze, including restrictions of all new purchase commitments.
Securing funds for XL van production in the U.S.
Arrival has been focusing all of its efforts on its U.S. product strategy since Q3, when the company decided to pull away from production at its Bicester, U.K. microfactory and direct resources instead to the buildout of a microfactory in Charlotte.
"The larger market size for commercial vehicles in the U.S. paired with higher average selling prices and margins and IRA tax credits of up to $40,000 per vehicle create an extremely compelling opportunity for electric commercial vehicles in the U.S.," Wozniak told listeners Monday.
Arrival said the $500 million would help it invest in supplier production tooling and prototyping, complete procurement and installation of equipment, and provide working capital to start production of XL vans -- purpose-built for last-mile deliveries -- in the U.S. in late 2024.
In the meantime, Arrival is still working to build 10 L vans at its facility in Bicester by August -- so far it has built two. The goal is to further develop the very automated factory processes Arrival had promised would set its microfactory model apart from the standard large assembly line model. The vans produced in the U.K. will also be used to accumulate 250,000 kilometers of public road mileage to validate Arrival's engineering designs and components by the end of 2023.
"Because of the high carryover, components and engineering solutions from the Bicester L van to the XL van, we had a sizable head start on XL van engineering in design," said Wozniak. "Although the vehicles are obviously different sizes, almost all of the components for low voltage electrical and control system were carried over. Similarly engineering solutions for body structure, interior closures and some chassis systems were also carried over from the Bicester L van."
Reverse stock split
Last November, Arrival got a delisting warning from the Nasdaq because its stock was trading too low. Arrival shares closed Monday at $0.18, but jumped to $0.20 after the business update. The company will ask shareholders to vote next month on a proposed reverse stock split at a consolidation ratio within a range of 30:1 to 50:1 to help the company regain compliance with the Nasdaq.
At the general meeting, Arrival will also ask shareholders to vote on a proposed capital reduction to $156,532.22 without cancellation of shares or payments to shareholders, which would put the par value of the company's ordinary shares at around $0.0002 per share prior to the implementation of the reverse stock split.