Arrival Due Diligence report.
By: Oto Suvari
Tags: Hatchworks, Electric Vehicles, Sxdt

Hatchworks conducted due diligence on Arrival, a UK-based electric vehicle start-up focused on offering electric commercial vehicles (rather than selling to consumers), primarily vans and buses.

Arrival is set to merge via a SPAC (Special Purpose Aquisition Company), called CIIG Merger Corp, ‘’CIIC”, ran by U.S. businessman Peter Cuneo. It is expected to go through Q1 2021 and is a deal that gives Arrival an enterprise valuation of $5.4 billion (up from a $3.5 billion private valuation in January 2020). This will give Arrival a ‘’Unicorn’’ status.

The newly combined company, “Arrival Group”, expects to raise in the region of $660 million in gross cash proceeds, and predict that they will become cash positive in 2023. Arrival Group will be listed on the Nasdaq Exchange under the new ticker symbol “ARVL.”

Arrival’s projected revenue for 2022E — 2024E is:

2022E: $1 billion, implying an EV/Sales multiple of 5.4x.

$1 billion, implying an EV/Sales multiple of 2023E: $5 billion, implying an EV/Sales multiple of 1.08x.

$5 billion, implying an EV/Sales multiple of 2024E: $14.1 billion, implying an EV/Sales multiple 0.4x.

Arrival already has full working prototypes, including an all-electric small van for which it’s had a major order for 10,000 units from logistics giant and early investor UPS. In June 2020, Arrival announced a new passenger bus designed for coronavirus social distancing. They are looking to expand to a second UK site in 2021, with production of the buses set to start in Q4 2021, and of the vans in 2022.

Arrival plan to have four electric vehicles in the market by 2023 and has already signed contracts with a total order value c. $1.2 billion.

Besides UPS, Kia Motors Company and Hyundai are also early investors, along with BlackRock, the American global investment management company and world’s largest asset management company.

Other big investors such as Fidelity Management & Research Company, Wellington Management, BNP Paribas Asset Management, Energy Transition Fund took a position in Arrival as well. All combined, it raised a total amount of around $400M to help maintaining Arrival’s growth.

Next to the production of its buses and vans, Arrival has another unique patented technology, namely the ‘’microfactories’’. Each of Arrival’s vehicle are produced in those small, low CapEx factories. These factories could be deployed anywhere in the world and while using such factories it also supports the environmental impact of manufacturing.

According to Forbes, Denis Sverdloc, CEO of Arrival said that each factory could produce around 10,000 vans or 1,000 buses a year. The first 2 microfactories will open up next year in England and U.S. South Carolina. He also stated that a microfactory only has to make 10,000 vehicles a year to become cash flow positive. Whereas, traditional auto plants require more production a year in able to become profitable due to the capital intensity.

Arrival holds a range of intellectual property with a patent portfolio that consists of around 180 filed various patent applications such as components, batteries, skateboard, materials, software and Microfactories.

Hatchworks believe that Arrival has some several key advantages compared to the EV sector, namely:

Its patented low CapEx microfactories that could ramp up its expansion to key areas, starting in the UK and USA.

Arrival already has a contracted order book worth of $1.2 billion.

billion. The EV sector has been around for a decade and most often they still cost too much. Arrival could change this by making a product that’s green without paying too much.

Arrival has a weight advantage, using composite material, which is much lighter than the traditional steel used in the industry and therefore could double their payload relative to other EV companies.

Arrival got traction from various postal service companies such as UPS, DHL and Royal Mail that are currently testing Arrival’s vehicles and UPS being the first, ordering 10,000 units.

The Hatchscore is out 5 of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies

According to Hatchworks analysis, with its estimated pro-forma valuations and its cash holdings, along with a unique patented technology and a team that hold a proven track record, backed by several big institutions, Hatchworks believes that Arrival is relatively well structured for the EV space.

However, if we take a look at the current valuation of CIIG Merger Corp, where we use the current share price times the total shares outstanding on the merger close, minus cash, it gives us a current approximate valuation of $11.5 billion. While this is a modest valuation relative to EV giants such as Tesla, Hatchworks will keep Arrival on its radar.