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Electric vehicle (EV) start-up Arrival (ARVL 17.52%) has struggled to get its business off the ground. The stock is down more than 90% in the past year. Surprisingly, that is after the stock has more than tripled in the last five trading days.
Today the stock shot up as much as 74% before paring that gain. As of 3:40 p.m. EST, Arrival shares were still trading higher by 13.5%.
Arrival shares tanked last year after the company scaled back its plans for growth and the start of production. It sold additional stock at depressed prices just to stay afloat. So why has the stock tripled in less than a week? The real news to explain that is that there is no news from the company. Rather, it looks like the high short interest in the stock is causing a short squeeze.
Image source: Arrival.
Arrival stock had about 23% of the share float sold short as of the end of December 2022. That’s not surprising based on the fact that the company had to secure additional funds and restructure its business late last year. Arrival pulled back on its plans to manufacture in the U.K. and instead is focusing the business on its new U.S. operations.
The company raised additional capital and cited the tax credits of up to $40,000 for commercial electric vehicles from the Inflation Reduction Act as the reason for the change in market focus. Arrival said that made the U.S. its most attractive market thanks to anticipated higher margins for its electric commercial delivery vans.
That change — and the high amount of short interest — has finally led to a short squeeze where those betting against the company decided to take their gains and buy back those shares. It’s hard to say when a short squeeze will end, but anyone truly interested in an investment in the company can ignore that wild move and just wait for the next company update since it has restructured the operations.
Howard Smith has positions in Arrival. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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