Why Arrival Is The Most Exciting Electric Vehicle Stock Out There

Why Arrival Is The Most Exciting Electric Vehicle Stock Out There

over 2 years ago4 mins

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Tell us about yourself, Roshan

I’m Roshan D’Souza and I’m always on the lookout for the next 10x stock.

What’s the pitch?

Long Arrival (ticker: ARVL). 

What does Arrival do?

Arrival’s mission is to transform the design, assembly, and distribution of commercial electric vehicles (EVs) globally. It has an army of 1,900 engineers and scientists focused on developing vertically integrated technologies and products that create a new approach to the design and assembly of EVs. They intend to convert existing warehouses and turn them into scalable micro factories, thus enabling them to produce EVs that are competitively priced to fossil fuel variants with a substantially lower Total Cost of Ownership (TCO).

What’s your investment thesis?

  • Asset Light Strategy. Arrival has designed a scalable micro factory with low capex intensity ($50 million per factory, producing 10,000 vehicles per year). This is a highly differentiated approach in the industry that leads to highly automated manufacturing and supports profitability at low volumes. These micro factories will enable Arrival to establish markets with high set-up speed inside existing large warehouses. Their open job roles advertised on LinkedIn are consistent with this mission, giving me great hope that they have a clearly thought out method for project execution.
  • Decent Order Book And Secular Tailwinds. Arrival is party to an agreement with UPS whereby UPS has agreed to purchase 10,000 vans for $1.2 billion, including the option of an additional 10,000 vans. Other significant partnerships are with Kia and Hyundai to jointly develop vehicles using Arrival’s technologies. LeasePlan, one of the world’s leading car-as-a-service companies, has an initial order of 3,000 vans. Arrival has an additional 49,000 vehicles in their pipeline via non-binding letters of intent with various undisclosed parties.

What are the key events you’re watching?

  • Speed of factory roll out. Arrival plans to construct four micro factories by the end of next year, seven more by the end of 2023, and a further 20 by end of 2024.
  • Vehicle deliveries and autonomous trials. Arrival’s vehicles are in the development stage with the first electric bus expected to be produced in the fourth quarter of 2021.
  • Inflation and commodities prices. I’m researching the vehicles’ Bill of Materials to understand the impact of inflation on Arrival vehicles – especially the cost of aluminum, copper, steel, and battery minerals.

What’s the upside potential if your thesis is correct?

Arrival expects to be cash-flow positive by 2023 and generate more than $14 billion in revenue by 2024, without needing additional capital. Factoring in the estimates provided by the company and adjusting for risk by using conservative forecasts for revenue and stock dilution, my discounted cash flow (DCF) modelling shows an upside potential of 300% to 500%. The lower end of these estimates is in line with estimates by Barclays and Wolfe Research. 

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

  • Arrival’s growth is highly dependent upon the adoption of EVs by the commercial and municipal fleet industry. Though there are secular tailwinds in markets where Arrival operates, with governments in North America, Europe, and India supporting a transition to cleaner fuels, the target markets for Arrival’s products are highly competitive and characterized by rapidly changing technologies, price competition, evolving government regulation, and industry standards.
  • A material portion of Arrival’s projected revenue comes from just two customers: UPS and LeasePlan. Currently, no customers have paid deposits, or – other than UPS – have made any contractual commitments to purchase vehicles.
  • The deals with Hyundai and prevent Arrival from developing vehicles with other manufacturers until November 2022.

Conclusion

An investment in Arrival is not for the faint hearted and calls for regularly tracking its progress on micro factory construction and vehicle orders. Though Arrival states that it doesn’t require further capital, it’s entirely possible that dramatic expenditure in a particular quarter may occur and coincide with the loss of a key contract which could be viewed by the market as a negative or an existential crisis, leading to a sell-off. 

This insight was submitted by a community member for information and educational purposes. It doesn't represent the views of the Finimize team and shouldn't be taken as financial advice.

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