Arrival President Avinash Rugoobur, with the Arrival Van.
Courtesy of Arrival
Another electric vehicle start-up is going public via a merger with a special purpose acquisition company, or SPAC. Investors should pay attention to this one. It’s different from its peers in several key ways. It challenges conventional manufacturing and design wisdom in potentially disruptive ways.
The company is U.K.-based Arrival, which plans to combine with CIIG Merger (ticker: CIIC) in a transaction that valued the enterprise at $5.4 billion. If a 60% surge in CIIG stock since the merger was announced on Wednesday holds, then Arrival will debut with a market value much greater than that. The companies expect the deal to close early next year, when Arrival will begin trading under the stock symbol “ARVL.”
Arrival’s target niche in the EV market is commercial vehicles like city buses and delivery vans. It isn’t delivering vehicles yet, but has amassed orders for thousands of units worth hundreds of millions of dollars in sales. Management expects to reach $14 billion in annual sales by 2024, and sell some 250,000 vans and buses that year.
That’s a big number and a bold goal. Investors can be forgiven if they have become inured to the acronyms “EV” and “SPAC” alongside phrases such as “start-up” and “2024 projected sales” in business articles this year.
Many, many new EV companies have burst onto the scene in 2020, and many have chosen the SPAC route to public markets. Players focused on commercial markets, like Arrival, include Nikola (NKLA), Hyliion (HYLN), and Lordstown Motors (RIDE). The latter plans to make a light-duty truck; roughly half of those are used by businesses.
Arrival boasts a few key differences from the other newly or soon-to-be public EV players. For starters, the company has more than 1,200 employees, and “90% are engineers,” Arrival president Avinash Rugoobur tells Barron’s. What’s more, half of those are software engineers, with the rest split between traditional automotive engineers and engineers dedicated to robotics and manufacturing efficiency.
Arrival peers Hyliion, Nikola, and Workhorse (WKHS) employ hundreds, not thousands, of people.
Arrival plans to make its vehicles in facilities it calls “Microfactories,” that Rugoobur says require less capital and a smaller footprint to set up and begin production. Rather than wanting a slightly customizable but largely one-size-fits-all sedan or SUV for the masses, the commercial vehicle market is a collection of many niches. Every fleet operator’s use case is specific, and commercial buyers require more meaningful changes to the default option than a different paint color or trim.
Flexible factories buzzing with autonomous robots will mean that Arrival can assemble its buses and vans at a lower cost, and with the ability to quickly scale up locally to meet demand, Rugoobur says. The five-year-old company currently has two facilities, one in South Carolina and one in southeastern England.
It expects to begin delivering buses in the fourth quarter of 2021, followed by two van models in the third quarter of 2022. A smaller vehicle platform is planned for the following year.
Arrival’s vehicles also won’t be made out of steel. Instead, the company will use a proprietary composite material that it argues will be lighter and further save production cost by removing the need for expensive stamping and welding equipment.
Arrival’s anchor order comes from United Parcel Service (ticker: UPS), which worked with the company to produce purpose-built vehicles for its needs. The delivery company has some vehicles that drive 60 miles a day, while others travel three times that distance on average. Arrival, using its manufacturing approach, can adjust the amount of batteries—purchased from LG Chem (051910. Korea)—that go into each vehicle. It hopes that will give it an advantage on cost.
No prices are public yet, but Rugoobur says that Arrival’s vans and buses will cost in the same ballpark as comparable diesel vehicles.
The UPS order is for 10,000 units, with an option to double that. Combined, that represent $1.2 billion in revenue for Arrival, according to company projections. UPS is also an investor in Arrival, along with serious strategic and financial players including BlackRock (BLK), Fidelity, and Hyundai Motors Group.
The deal with CIIG will provide Arrival with about $600 million in cash after expenses. That comes from the $260 million in the SPAC’s trust, plus a $400 million private investment in public equity, or PIPE, from several institutional investors. Proceeds will be used to roll out and scale up microfactories to produce Arrival’s bus and van in the coming years.
In addition to its $14.1 billion in sales in 2024, Arrival management projects $3.2 billion in earnings before interest, taxes, depreciation, and amortization. The company expects to record its first free cash flow in 2023.
Arrival’s current shareholders are rolling over their entire stakes, and will own about 88% of the public company. PIPE investors will hold 7%, SPAC shareholders will have 4%, and the remaining point goes to CIIG’s sponsors. CIIG CEO Peter Cuneo will join Arrival’s board once the deal closes.
Time will tell whether Arrival’s new and potentially disruptive approach will be a success. That is true for all the new EV companies jostling for future market share and investors’ attention. But Arrival appears to at least be starting at home plate, when some of its competitors are still just getting warmed up in the battling cage.
Investors have been relatively indiscriminate when it comes to EV stocks this year: Nikola, Hyliion, and Lordstown Motor stocks are up about 150% year to date on average. Workhorse shares have gained more than 600%, and Tesla (TSLA) has soared 500%. EV stocks’ gains have crushed comparable returns of the S&P 500 and Dow Jones Industrial Average.
Arrival is off to a similar start. CIIG stock is up almost 60% since the merger was announced Wednesday. Pro forma, that values Arrival at more than $10 billion. That’s roughly the same as Nikola—or Lordstown, Hyliion, and Workhorse combined.
Write to Al Root at [email protected] and Nicholas Jasinski at [email protected]
