There have been some interesting companies that have listed in 2021 through a SPAC business combination. Further, there has been no dearth of companies that have listed in the electric vehicle industry.
Arrival (ARVL) seems like an attractive company in the commercial electric vehicle industry. After listing at $22.8 in March 2021, ARVL stock has been in a downtrend. The stock bottomed out at $10.40 last month and currently trades at $13.03. (See ARVL stock charts on TipRanks)
Considering the addressable market and its business developments, ARVL stock seems positioned for further upside. I am bullish on the stock as the commercial electric vehicle market growth gains traction.
As an overview, Arrival has a diversified vehicle portfolio with an electric bus, electric van and large electric van in the pipeline. By the company’s own estimates, the total addressable market for vans is $280 billion. Further, electric buses have a potential addressable market of $154 billion.
Clearly, there is a big opportunity and Arrival seems positioned to benefit.
Strong Growth in the Order Pipeline
It’s worth noting that Arrival expects electric bus production to commence in Q4 2021. Its electric van and large electric van are slated for launch in Q3 2022. Therefore, there is still time before Arrival generates meaningful revenue.
However, the company’s order intake has been robust. This is an early indication of the market potential. At the time of the SPAC business combination, Arrival reported orders worth $1.2 billion from United Parcel Service (UPS). The order is for 10,000 vans with the option for another 10,000.
Last month, Arrival reported Q2 2021 results. The company’s non-binding orders and LOI has swelled to 59,000 vehicles.
In another important development, Arrival and Uber Technologies (UBER) have collaborated on an electric car for the ride-hailing industry. The first Arrival car is expected to enter production in Q3 2023. The company is also in talks with other ride-hailing companies. This will open up another big market for Arrival.
The Microfactory Approach
In terms of manufacturing, Tesla (TSLA) has a Gigafactory approach. Arrival is entering the industry with a potentially game-changing Microfactory approach.
As the name suggests, the idea is to have smaller manufacturing units with a low capital requirement. Arrival estimates that the cost of setting up one Microfactory is $44 million. Currently, the company has a cash buffer of over $450 million. This can be utilized to set up ten microfactories.
The key advantage is that Arrival can easily create global presence through this approach. Further, with automation, the company’s Microfactory has a low break-even and lower number of employees per vehicle manufactured.
The approach can also be used for tailor-made solutions for big orders. Arrival is already setting up microfactories in U.S. and U.K. Based on the order backlog, these factors can be set up within six months in multiple locations.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, ARVL stock comes in as a Moderate Buy, with one Buy assigned in the past three months.
The average ARVL price target is $20.00 per share, implying 53.49% upside potential from current levels.
Another interesting fact about Arrival is the company’s extensive focus on innovation. The company has a team of more than 500 software engineers, and a strong portfolio of intellectual property. Last quarter, the company also partnered with Ambarella to deliver advanced driver assistance systems.
Overall, Arrival still has not generated revenue. However, the company has built a strong order backlog that provides growth visibility once the microfactories commence production.
It’s also worth noting that United Parcel Services, Uber and Leaseplan are big entities with global presence. Based on the initial delivery of vans, the orders might be scaled-up significantly.
These factors make ARVL stock attractive after a meaningful correction.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.
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