Reposting due to over officious bot
There’s no investment advice here. If that’s what you’re looking for, then off you fuck.
Spotted an error? Good for you. Don’t like something? Unless it’s celery that you don’t like then I don’t care. If it is celery you don’t like then you can be my friend.
There’s a fuck ton of personal opinion in this. Deal with it.
This ain’t no due diligence. If you want to be duly diligent about something then make it about the route you take walking away from here.
Anyway, that’s the niceties over and done with, so here we go……
4 new products promised: a 4.25 ton delivery van (Q3 ‘22), a “large” van, a bus (Q2 ‘22) and a car primarily designed for ride hailing (Q3 ‘23).
Number of employees: >2,400 at Q3 report date
HQ: UK, London
Mkt Cap: ~$5bn (NASDAQ)
Battery Supplier: Cells from LG Chem, battery packs assembled in-house.
Planned Production Sites: US x2, UK x1, Spain x1
Pre-orders: >64,000 units including 10,000 vans to UPS (total also may include options for an additional 10,000 units), ~7,700 buses and 3,000 vans to Lease Plan. All done through MOUs, LOIs etc. All orders appear to be cancellable / non-binding.
Major investors pre-SPAC: Black Rock (€98.8m), Hyundai Kia (€98.3m), UPS (€9.8m), WCPF II (€49.2m).
Short Positions: ~10% with ~5.5 days cover
$ARVL is attempting to gain value by a unique, highly automated, micro factory production model with a capacity of 10,000 units per microfactory. Although there is scant evidence that it’s close to being ready (and a lot more evidence that it’s behind schedule and over cost), if the low-cost and low capex production system works then it will set $ARVL up with a potentially highly profitable business. It wouldn’t be outside the realms of reality for it to take a lot more time for the production system to work effectively, however, the Bus may well be easily assembled by hand, giving a source of revenue. The Van products would likely be more heavily affected by a lack of automation (a bus is large, but will have proportionately less parts on it for its size compared to a van, and therefore you can have more people working on assembling it)
They’ve gone for a lot of vertical integration in their parts without stating which parts they are designing, which although gives greater flexibility on design and better control over costs, it also forces all liability onto them as well. With no history of vehicles on the road, this could be seen as a cost risk once vehicles are in-market. Unique technology includes an impressive, in house, carbon composite used for exterior panels.
Vehicles are designed to not need stamping, welding and paint facilities which reduces CAPEX requirements for production facilities. Without stamping it will remove a normally very high cost burden in vehicle design as well.
Even with 2,400 employees, 4 vehicles is a lot to be working on simultaneously, and while trying to establish 4 micro factories and designing homegrown components, any delays in generating revenue are likely to strain cash reserves, despite what was generated through the SPAC process and subsequent bonds and follow-on share offerings.
The Q4 report is going to be critical. Revenue targets for 2023 given during the SPAC process were withdrawn in the Q3 report. If it doesn’t have A LOT of good news and revenue targets for 2023 then the share price is likely to take a hit, especially since they aim to be at full production capacity in Q1 2023 – in 12 months time.
Next $ARVL Report: Q4 results, approx Mid Feb 2022
- Positive news about a working microfactory, with a definitive date for finishing commissioning and preferably the percentage of build automation that they are able to achieve
- Confirmation of a start date for the First Group bus trial.
- Reintroduction of sales volume and revenue estimates for 2023
- An update on progress of the Bus proving ground trials, with numbers to support the information
- No further microfactory announcements without confirmation that the first two are operational and effective.
Vehicles – Market and Engineering viewpoint and opinion. Take it or leave as you will. I don’t give a shit either way!
$ARVL have stated that of approx 64k pre-orders as of Q3 report date, 12% of these are buses. With a price target to be “competitive with diesel” equivalents, and a diesel bus in Europe costing in the range of €200,000, that gives a loose revenue projection in the range of €1.5bn for this product, though it’ll likely take a while to produce over 7k buses.
The pricing of the bus is worth noting: if $ARVL can truly make an EV bus for €200k and make money on it, and other European EV bus manufacturers are selling at double that price, then $ARVL not only has scope to significantly increase their price to generate more profit and revenue, they can do it while still undercutting their competitors. Cities across Europe and other geographic areas are driving the requirement for zero emissions buses, so demand will be there with an expectation that they’re expensive.
On December 28th, the company announced that proving ground trials had begun, hence meeting their objective to start trials in Q4…..just. The timing, 3 days before the end of the quarter, seems a bit too convenient to be fully truthful!
On-road trials are scheduled to begin in the UK with First Group in Q1 2022, giving them until the end March to start.
If the proving ground trials which involve “rigorous validation and testing ahead of certification” (which doesn’t mean anything in engineering terms – it’s likely to be an accelerated durability test as per the Van announcement, along with whatever certification tests they want to do before the official tests) started late December it’ll several months to complete – approximately 2 to 6 months depending on exactly what they’re doing – assuming there aren’t any major issues. However, major issues for a new product from a new company are absolutely to be expected. By the time these issues have been investigated, part revisions designed, engineered and produced, then retrofitted onto vehicles, it will add a significant chunk of time onto the schedule to start the First Group trial. The only other alternative is to start the trial on schedule but proceed with known risk(s) of failure which could ultimately hurt their chances of picking up sales from First Group.
They also have plans on the US bus market as well. Comments made during a meeting to discuss the SPAC with CIIG included “An electric bus in the US generally sells at around $750 thousand dollars. A diesel bus generally sells for $450 thousand dollars. We expect to produce an electric-powered “better” bus for less than $450 thousand dollars with an attractive operating margin”. They announced an order for 5 buses from Anaheim, CA in July 2021.
Conclusion: Massive potential revenue and profit, but it’ll likely be slow to get into market in any volume.
In May 2021 they announced a “collaboration” with Uber to produce a ride-hailing focussed vehicle for the UK and EU markets. There is no indication of any money exchanging hands or orders being placed for this, rather that they are “exploring strategic partnerships” so it would appear to be more of a marketing arrangement for the time being, rather than anything else. That may change.
Uber has stated that they are targeting all city based vehicles to be zero-emission by 2025 as part of their Clean Air Plan, and have been growing a fund to assist drivers with the cost of changing their vehicles. Uber already has EVs from most of the major manufacturers on their allowed-vehicles list. Given the current waiting times for the most popular EVs (anecdotally upto a year for the VW ID4), a late 2023 SOP date may not be harmful to $ARVL.
The success of the $ARVL car will come down to costs. Any standard passenger car sale is sensitive to total cost of ownership (excl ultra premium and sports cars). That includes not just day-to-day running costs, but also residual value. But herein lies the problem – a new vehicle from an unknown manufacturer is likely to have a very low residual value as there’s little demand in the second hand market for an unknown brand car, which in turn pushes up lease costs. If the vehicle is further being used to generate income (i.e. from ridehail drivers) then it’s unlikely to be purchased / leased unless it’s at a compelling price. Their solution to this may be to offer a guaranteed minimum buy-back price after any lease finishes. That would control the residual price but at the same time give them a significant cost burden if they can’t then subsequently re-lease the vehicles as “used” or sell them for a sensible price in the open market.
They “revealed” an Alpha prototype of the Car in a video on December 16th 2021 (https://www.youtube.com/watch?v=jv5vS2ZNgfA).
It’s difficult to tell from the information available how “premium” the car is, but as a rough guideline, there’s the sliding scale relationship between sales volume and price / profitability – as with most stuff – you either produce very high volume at low margin per vehicle (Fiat 500), or you slide up the scale towards very low volume / very high margin (Mercedes S Class). So the question is, where on the scale is the $ARVL car? Since there’s no data on range, battery options, mass, drive train, equipment, performance and only an implication on overall size (“the footprint of a VW Golf”), and no real interior shots, it’s not really possible to draw any firm conclusions. From what’s in the video, it looks like they’ve followed the Tesla approach of ultra-minimalist (read: cheap), though that doesn’t infer anything about cost. In any case, they’ll probably need to offer the vehicle at a hefty discount vs the price of whatever vehicle(s) they’ve defined as the competitor(s).
It’s probably also worth saying that they have made a point of the amount of space in the rear – in this engineer’s opinion, while it’s not a bad thing, it’s not a good sales point either. There are plenty of passenger cars in the market which have a lot of rear space but few of them are currently in use throughout most of Europe as passenger car based Ubers. There are however quite a few examples of failed vehicles which were marketed as having a lot of rear space……
The boot (trunk) also looks quite small in terms of ground area and is awkwardly shaped (basically it’s a small ground area but very tall).
I’d also be interested to see what the final seat design is. For their sake, my hope is that they’ve gone for an existing seat design from a large supplier, trimmed to an $ARVL spec. Seats are notoriously difficult to design due to safety constraints, and the ones in the video look unique to me.
Conclusion: It’s an odd mix of the back of a London Taxi without the passenger carrying capacity, and the external appearance of a slightly squashed 1980s Renault Espace. Unless they can sell them at a bizarrely high profit (>>100% COP), I suspect they’re heading down the wrong path with this one. Even with a high margin, volumes may well be limited to a few hundred units a year at most. They’ve said that the 2022 focus is on Bus and Van so resources on it may be limited.
There’s little information on the large van, and no published split between the sizes in pre-orders. In the car video (above) there is a large van with awkwardly small wheels, in the background. This could be it, done as an easter egg in the video, but I’m not entirely trusting that this hasn’t been staged to give some misleading information.
Electric vans in Europe which are over 4,250kg GVW require different driving license entitlements – the next license category goes up to 7,500kg GVW (that I know of, there’s no weight extension for EVs in this weight class). I would therefore expect this van to have a maximum of a 7,500kg GVW. At over 7,500kg, there aren’t really any “vans” in the market – they’re trucks of various sorts. There’s no other published information that I could find.
The smaller van has been through a major design iteration since it was first unveiled as a “Postman Pat” van in ~2019 (look it up if you’re not British). The latest version was shown in March 2021 and promises to have a Gross Vehicle Weight of minimum 3,500kg to max 4,250kg which makes it driveable in Europe on a car driving license. However, payload is a key driver for commercial vehicle sales. This varies from 567kg to 1,840kg depending on the configuration. That’s ahead of Ford’s ambition for the e-Transit.
Vehicle efficiency will affect the total range / payload – there’s not enough information available to conclude anything in this area.
The market for electric commercial vans in the EV 4,250kg category is undoubtedly increasing, but is still a limited market. 2020 sales of these e-Vans totalled around 8,000 units across the EU, UK and Norway.
Leader of the pack is Mercedes with the e-Vito (3,200kg GVW), who claimed only 2,318 sales in 2020. The second biggest selling van was the Mercedes e-Sprinter (3,500kg GVW) with 1,836 units.
If only 14% of the 56k van pre-orders are for the European 4.25T van, then they are poised to almost immediately take a >50% market share. But for that, they have to convert pre-orders into order contracts, and get production out quickly. Neither of these things is an easy thing to do with a new product and production process.
There is no pricing information available, but as with the Bus, they are saying that it is “equivalent to a diesel” van. The market leading diesel is the Ford Transit (>1500,000 annual sales) with prices from ~€20k. The pricing of the e-Vito starts from ~€49k, and the e-Sprinter from ~€66k. This gives $ARVL some significant margin to play with pricing and still undercut competitors for around 24 months after launch. There’s an expectation that electric vans will reach a price parity with diesels around 2024/5 – this is likely partly to come from price increases on the diesel vans, and price decreases on EVs, and depending on how it’s measured, any market dominance from $ARVL could also bring down the weighted average.
Conclusion: Looks good. Actually, very good. Entry timing into the market is about right to start making an impact before an inevitable explosion in market demand. Pricing for anything other than very large orders (which they’ve already got) being on a par with entry price diesels seems unlikely, with residuals becoming less of a concern for these orders. Thumbs up.
4 vehicle assembly locations have been announced, along with 2 battery pack assembly facilities.
Rock Hill, SC, USA: Bus
West Charlotte, NC, USA: Vans + batteries
Bicester, UK: Vans
Madrid, Spain: Van(s)
There is also another Battery facility which is only stated to be in the UK. It would make sense for that to either be in Bicester or Banbury (where an R&D facility is). They’re only about 20 miles apart.
The production concept is to use small footprint “microfactories” and use robotic assembly cells to put vehicles together. This gives a low capex to set up a factory (they claim $43m), low opex and no specialist building required. $ARVL claim they can convert an existing warehouse type building into a functional assembly facility in 6 months, locating them close to where the customer demand is. They state that they could have “hundreds” of these facilities producing “10s” of platforms.
While this appears to be a very good idea for producing low volume vehicles and saving on transit costs, I have some concerns. Firstly, this seems like a supply chain nightmare. It’s difficult enough getting all the parts required into a single high volume car plant from all over the world in a cost effective way. But sending small amounts of parts from all over the world to hundreds of places, all over the world? That’s not a task I’d fancy doing. It makes some sense to put together old-school KD kits in a central location to get around this problem.
Secondly, there is a startling lack of releases or meaningful updates about a working facility. The two which have been started for a while are over on both cost and time, with additional comments and implications that they’re struggling with it. “Production is difficult” as the company president said.
Yet they still make comments about wanting hundreds of these facilities, with 34 more planned by 2024. It would be extremely concerning if they start spending cash reserves on new facilities before they can demonstrably prove that the concept works as intended. As cheap as the microfactory concept is, it’s likely still the biggest single capex on their books, and as few as 5 over the next 12 months would do major damage to their capital reserves if there is any sort of delay generating good revenue.
Conclusion: The microfactory model isn’t just a “nice to have”. It’s something which absolutely has to work for the company to succeed before they commit to more of them. In the short term, providing the vehicles are engineered and the supply chain set-up, they could at least turn to contract manufacturing if they have to, but this would significantly damage (my) confidence in the business.
Raised $660m by the SPAC on 24th March 2021
Cash on hand end Q1 (30th March): $516M
Cash on hand end Q2 (30th June): $445M
Cash on hand end Q3 (30th Sept): $380M
A subsequent bond and share offering was announced in the days following the Q3 report. This generated:
Green bonds: $200m
32.3m follow-on shares @ $9.50ea: $293m after expenses.
Best guess forecast for the Q4 report is cash on hand of $750m if no additional microfactory is started. Income from finance may substantially offset this.
The Loan and an open question
This is an open question because I REALLY DON’T UNDERSTAND HOW THIS SHIT WORKS. Don’t take it as bad. Take it as my perpetually hungover brain being too smooth. Everything here could be entirely wrong or misleading. Don’t make any decisions based on this. You have been warned!
On 14th May 2021 the owner of the company (and majority shareholder holding about 72% of the shares) announced that a $1.5bn loan had been arranged with Citibank, via Kinetik Finance, secured against 75.7m of the owner’s Arrival shares. Of those 75.7m shares, 35.5m shares appear to have been transferred to Citibank as collateral with the remaining shares being held by Kinetik to be transferred on demand. This appears to give a strike price on the loan of $19.8 per share (which was about the share price in May 2021)
In May 2021 the mkt cap was in the range of $11.5bn, making the loan around 13% of the business. However, the mkt cap is now around $4.8bn, meaning that the loan is now 31.2% of the business. Further to that, the loan documentation appears to say that although shares were put up as collateral, Citibank can have access to all of the company’s cash and assets as well. So how does this work for Citibank now? Even if they called in all of the 75.7m pledge shares that would still only give them less than $600m at the current share price – not to mention that daily trade volumes are only around 1.5m shares. How long are they likely to wait for before they call it in? Or is there another mechanism by which they can happily accept the current share price? Maybe the loan hasn’t been fully drawn down or the facility limited / closed?
Documentation is here. I read as much as I could before my eyes started bleeding.
Anyway, that’s it for $ARVL feel free to tear it apart. Next up is $GOEV.
Submitted January 02, 2022 at 02:17AM by Only_Outcome4297
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