The electric vehicle (EV) market is growing prolifically amid climate change concerns, advancement in technologies and favorable government policies. Banking on the EV frenzy and chasing
Tesla
’s
TSLA
success, there is an influx of new entrants in the e-mobility space. While competition in the industry is heating up, investors seem to be ultra optimistic about EV prospects and are betting high on green vehicle stocks. However, not all stocks in the space would be able to make it big in this super competitive industry.
In this write-up, we put the spotlight on Oregon-based
Arcimoto, Inc.
FUV
and will find out whether the company will be able to live up to investors’ expectations. Over the past year, the stock has skyrocketed around 640% and is currently trading at more than $12 per share. The firm has managed to gain popularity on the back of its uniquely designed flagship product, the Fun Utility Vehicle (“FUV”) — resonating well with the stock’s ticker. While the lightweight and affordable FUV may be worth your money and offer a thrilling ride experience, does the stock appear a prudent investment option? Let’s delve deeper.
What Do We Like About Arcimoto?
Impressive Product Lineup
: Well, the maker of specialty electric three-wheeled vehicles is indeed carving out a niche for itself while offering smaller and efficient electric transportation solutions. The firm’s five different product lines including its flagship “FUV”, Deliverator, Rapid Responder, Cameo and Roadster cater to different niches.
The stylish “FUV”, suited for everyday driving, is currently available to preorder customers in California, Oregon and Washington. A couple of days back, Arcimoto announced that it is targeting sales in Florida, the first non-West Coast market for the company. Shipments to Florida are expected to start from the first quarter of 2021. The company has partnered with DHL, a subsidiary of
Deutsche Post AG
DPSGY
, for nationwide deliveries of electric FUVs.
The Deliverator and Rapid Responder — first announced in 2019 — are designed to provide last mile delivery and emergency response functionality, respectively. Both the vehicles are available for preorder. Deliveries of the Arcimoto Roadster, designed to be the ultimate on-road fun machine, are anticipated in late 2021. The Cameo — designed for the film and influencer industry — is still in the planning stage.
Balance Sheet Strength
: As of Sep 30, Arcimoto’s cash and cash equivalents were $16.9 million, up from $5.8 million recorded on Dec 31, 2019. Long-term liabilities totaled $2 million at the end of the last reported quarter. Notably, its debt-to-capital ratio stands at 0.1 compared with the industry’s 0.47. Arcimoto boasts a quick ratio of 5.26 versus the industry’s 1.12. Low leverage and high liquidity of the firm increase its financial flexibility and lowers credit risk.
We Still Have Reasons to be Skeptical
While it took years for the company to start vehicle production, rolling them out to customers will be another daunting task. Notably, Arcimoto started the production of its flagship product FUV in 2019, more than a decade after the company’s incorporation. During the nine months ended Sep 30, it built a mere 79 vehicles and delivered 69 vehicles to customers.
Despite being in the business since 2007, Arcimoto is still struggling with losses and is yet to turn a profit. For the nine months ended Sep 30, the firm incurred a net loss of $11.9 million. Its cost of goods is flaring up, in turn denting margins. With minimal revenues of $1.4 million, the company incurred a gross loss of $3.4 million over the nine months ended Sep 30. Operating expenses including R&D and SG&A costs are also on the rise. Moreover, it expects revenues for the upcoming quarters to be negatively impacted by coronavirus-led production woes and supply chain distortions.
While Arcimoto aims for annual production capacity of 50,000 units within two years, one can’t ignore the fact that the firm does not have any track record of high-scale production. Also, the company’s cash burn rate, expenses and capex are likely to rise, given that it is still in the early development stage. Any possible delays in the delivery deadline and production challenges might create more problems.
Of late, it has been capitalizing on the stock price gain amid the EV hype and raising capital via equity offering. While the proceeds from the stock offering may help it to ramp up production, there is a risk of share dilution. Also, betting only on the company’s promises of development and EV euphoria does not seem a wise decision.
As it is, with eye-popping gains, the stock’s valuation has got out of hand. It has a P/S ratio of 16.42 versus the industry’s 0.8, which raises a red flag. Seemingly, investors are piling on the stock based on the EV frenzy but are overlooking the company’s fundamentals. It would be better if investors give the stock some time to prove its worth instead of buying into the EV hype.
Arcimoto, with a
VGM Score
of F, has been witnessing downward estimate revisions of late. The Zacks Consensus Estimate for 2020 and 2021 loss has widened by 4 cents over the past 30 days.
Last Words
Indeed, the firm’s future product lineup is interesting and its balance sheet healthy compared with many other new EV companies including
Workhorse
WKHS
and
ElectraMeccanica
SOLO
. Arcimoto’s weak operating results, rising expenses, lofty valuations and the absence of any track record make us wary. At this moment, this Zacks Rank #4 (Sell) stock seems a risky bet and should be avoided.
You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
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