The electric vehicle (EV) industry is expected to grow at an impressive 21.1% CAGR rate over the next ten years. This enormous growth will be driven by favorable government policies and support in terms of grants and subsidies, further development of charging infrastructure, and huge investments by institutional investors.
These catalysts have attracted investors’ attention to the EV industry, as evidenced by the Global X Autonomous & Electric Vehicles ETF (DRIV) 26.39% returns over the past six months, compared to SPDR S&P 500 Trust ETF (SPY) 15.22% gains over the same period.
Today we’re going to analyze and compare two EV stocks: Workhorse Group Inc. (WKHS) and Arrival (ARVL). WKHS is headquartered in Loveland, Ohio, and designs, produces, and sells commercial EVs in the U.S. ARVL is based in London and just recently went public in March 2021.
Workhorse Group Inc.
In Q1, Workhorse’s revenue was up around 518% on a year-over-year basis to $518K. However, the company failed to beat Wall Street consensus estimates of $2.3M (missed by $1.81M). Also, the company reported GAAP loss per share of $0.98, missing Wall Street expectations by $0.81 (476.47%). The company’s gross loss rose 356% from its year-ago value to $5.7M.
Also, management decreased its 2021 production guidance to 1000 trucks, which is well below the previous quarter forecast of 1800 trucks. However, even this conservative forecast depends on the supply shortages that are currently obstructing the whole EV industry. That’s why we will not be surprised if the company will fail to achieve even this lowered guidance.
As of March 31, 2021, the company had total cash of $205M and total debt of $182M, bringing its total net cash to $23M. In the first quarter of 2021, the company also increased its cash burn rate from $7.8M to $34.9M. Additionally, cash burn will likely increase due to high operating costs and negative gross margin. Management expects to achieve a positive gross-margin figure by the end of 2022. With that being said, a possible dilution of shareholders' equity could negatively impact the WKHS stock.
Currently, Wall Street expects WKHS’s earnings to grow 31.95% in fiscal 2021 to (1.64) per share. Following this trend, analysts forecast that its F2021 revenue could increase to $74.1M. However, this estimate implies a P/S ratio of around 13.64x which is significantly higher than the sector median of 1.42x. Therefore, upside potential in the stock could be limited due to high valuations.
Bearish Options Bets
The open interest levels for the June 18 $6.00 puts increased on Thursday. According to barchart.com, the open contracts rose by 10,686 contracts to about 10,914. It’s a large, bearish bet as the open interest represents a total dollar value of about $459,498. For the buyer of the $6 puts to earn a profit, the stock would need to plunge to around $5.6.
Considering these options transactions together, we can see that the options market sentiment for Workhorse stock is currently bearish. Moreover, options market trades imply approximately a 30% downside from Workhorse’s Friday closing price.
Arrival
Arrival (ARVL) was listed on the Nasdaq stock exchange in March 2021, raising gross proceeds of ~$660 million (€560 million) at $22.80 per share. Previously, the company had raised capital from BlackRock, Hyundai and Kia Motors, and UPS. Moreover, UPS (UPS) ordered 10000 units with an option for an additional 10000. According to the company’s presentation, these orders are worth around $1.2 billion.
Arrival reported its Q1 results on May 13, ARVL’s cash and cash equivalents for the first quarter, ended March 31, stood at €516 million. The company will use raised funds to produce its EV lineup using its proprietary state-of-the-art technologies. Management expects to have four vehicles (“the Bus, Van, Large Van, and small vehicle platform”) on the market by the end of 2023.
On May 4, the company announced its collaboration with Uber (UBER) to create “an affordable, purpose-built EV for ride-hailing”. The production of the Arrival car is expected to begin in Q3 2023. Following this release, shares gained around 7% during a pre-market session on May 4. We believe that this collaboration could bring a lot of benefits to ARVL shareholders on the long-term horizon.
The company expects to generate revenues of $1 billion in FY2022 and expects this figure to increase five-fold and exceed $5 billion in 2023. Considering its revenue projections, the company’s three-year P/S ratio stands at around 0.9x which is substantially lower than the sector median. Arrival also expected to be cash positive in 2023.
The Bottom Line
While ARVL is in a solid position to generate solid long-term returns because of its healthy balance sheet and key partnerships with industry leaders, WKHS’s weak financials, as well as lowered guidance, could limit its growth opportunities.
In terms of valuation, ARVL looks undervalued compared to the sector based on P/S multiple, while the WKHS P/S figure significantly exceeds the sector median threshold. In addition, Arrival had already 10,000 ordered units worth around $1.2 billion, bringing more light to their growth prospects.
Hence, we believe ARVL, at these levels, is a better long-term buy. The average price target for ARVL is $35.92, which represents a 92% upside.
WKHS shares were trading at $8.94 per share on Tuesday afternoon, up $0.69 (+8.36%). Year-to-date, WKHS has declined -54.80%, versus a 11.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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