Arrival: The EV bet of the century?

Arrival is an EV company founded by Denis Sverdlov in 2015. It focuses on B2B vehicles. Arrival positions itself uniquely in the market by rethinking the manufacturing process: Instead of using a serial approach for manufacturing, where every vehicle passes the same set of assembly stations, Arrival developed a manufacturing approach based on a single manufacturing cell. A cell can produce any vehicle in the company's lineup for most of the production process. Construction material is delivered to the cell by robotic skateboards. By doing this, Arrival is essentially a pioneer in breaking with the conveyor belt principle introduced by Henry Ford.

Advantages of Arrival's manufacturing process

• Arrival uses colored composite material for the body panels and does not use any paint. This eliminates the paint shop from manufacturing. Also, scratches don't show that easily since the Composite material is died through. On top, the material is so flexible that when dented, it mostly snaps back into form by itself.
• Arrival completes most of the assembly of a vehicle within the boundaries of a robotic cell. A cell is not unique to a certain vehicle type. This approach dramatically reduces the footprint of the minimal viable factory size and allows for easily scaling the factory by simply adding more robotic cells.
• The vehicles are tailored for maintainability, meaning everything from lights to body panels to even the electric motors are made to be easily replaceable should the need for that arise.
• The micro-factory approach allows having multiple small factories in cities with major customers and vehicle fleets. Politicians like the fact that Arrival might bring Jobs and tax revenue to their cities, giving state-owned customers a reason to buy from Arrival. Also, factories work within the size constraints of average warehouses, giving a lot of flexibility to the exact location of a micro-factory within a city. Arrival compared their micro-factory to a Nespresso machine for cars.

Arrival's vertical integration

Unlike many other car manufacturers, Arrival has pulled many of the component design and manufacturing processes in-house.  That approach has allowed designing components to be in a sweet spot between vehicle classes allowing them to be used across the complete future product lineup (car, van, and bus). Arrival will also sell components, dubbed "elements," to third-party manufacturers. Available elements are listed by Arrival on https://elements.arrival.com.

Capitalization, Burn Rate, SPAC, Management, ... and second SPAC

As mentioned, Arrival was founded by Denis Sverdlov, a formerly Russian businessman that made a sizable capital investment at the beginning of Arrival. This allowed the company to take a good amount of time to spend on initial R&D.

The initial good capital endowment led to Arrival spreading out efforts into multiple directions. There was a branch dealing with autonomous racing, another one envisioning an electric jet, a car, a bus, and van. While the last 3 were pretty much in line with the company's mission statement, the other projects burned capital without really adding to the goal of the main go-to-market strategy.

Bit by bit, as a capital squeeze became imminent, Arrival decided to get fresh money via a SPAC move. Arrival went public via merging with CIIG Merger Corp. The plan was to use the fresh capital to bring car, van, and bus to the market.

However, the completion of the manufacturing process based on the robotic cell proved more difficult than anticipated, leading to delays causing greater than anticipated cash burn over time. As a result, countermeasures were put in place.

• In August of 2022, Arrival announced that it would focus on the van first before continuing work on the bus and car projects.
• At the end of November 2022, Denis Sverdlov stepped down as CEO of Arrival, and CIIG's Peter Cuneo took over as Interims CEO, finally appointing Igor Torgov as the new CEO at the end of January 2023.
• Due to the subsidies for commercial vehicles put in place by the Inflation Reduction Act in the US, Arrival shifted its focus from the UK to the US, trying to bring the US version of the van to market first.
• Arrival secured 300 million of additional funding from Westwood Capital in March 2023 to bring the project to completion.
• Arrival secured another 283 million USD from a second SPAC merger with Kensington Capital Acquisition Corp. V in April 2023.

Arrival does not yet sell vehicles. While Arrival started out being capitalized very well, the capital burn rate and production delays have caused Arrival to need to lay off staff to extend the capital runway. Critics have accused the former management team of mismanagement.

Plans are to reduce the overall quarterly spending to 30 million USD. Given this information, the current cash on hand should be sufficient to get to production.

Arrival is in a unique spot: It is very rare to see a company whose cash at hand outnumbers its market value by so much. We'd call that situation actually a bit crazy.

Answering the demand of the B2B market

Arrival's focus on the B2B market puts them in a unique position to rethink the ideal offering. We recommend the following video to get a grasp on what it is all about:

Our take

Looking at Arrival's business model, we summarize as follows:

• a clear focus on B2B, and using this focus to make adjustments towards fitting the process to a localized micro-factory.
• micro factory approach that is favored by local politicians due to tax revenue from the business and local jobs.
• vehicles that are easy to maintain, mostly immune to dents and scratches
• composite body panels that do not rust
• vertical integration that gives Arrival a Tesla-like control about the User experience
• reselling parts to other companies (https://elements.arrival.com -> already supplies https://charge.cars)
• good capitalization combined with reduced quarterly spending: The combination should enable a reasonable go-to-market strategy

The overall approaches and ideas seem to really make sense to us. In comparison, the current market cap of 94 million USD seems like a steal to us, also given that the cash at hand is greater than that number... But, still, any investment in Arrival is high risk. Should the company go out of business, chances are the value of any acquired stock goes to zero. On the upside, should everything work out, Arrival could indeed be the EV bet of the century.

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