Focus: British EV maker Arrival seeks second chance with US EV tax credits

Nu Ride

25/05/2023 07:00

By Paul Lienert and Nick Carey
       DETROIT/BICESTER, England, May 25 (Reuters) - British
electric van startup Arrival  ARVL.O , which has hit many road
bumps in its quest to become the next Tesla Inc  TSLA.O , now
hopes huge subsidies from the U.S. Inflation Reduction Act and a
second reverse merger will give it a fresh shot at survival.
    Since it was founded in 2015, Arrival has developed vehicles
for high-profile customers like United Parcel Service Inc
 UPS.N  and Uber Technologies Inc  UBER.N , but has burned
through piles of cash without ever hitting mass production and
is winding down its UK operations in favor of refocusing on the
United States.  
    With the $283 million it should receive from a merger with
special-purpose acquisition company (SPAC) Kensington Capital
Acquisition Corp V  KCGI.N , announced in April, executives at
Arrival said they will focus on just one U.S.-produced vehicle
for now. That vehicle is a larger Class 4, or medium-duty,
delivery van that will bring customers a $40,000 IRA subsidy,
far above the $7,500 for smaller electric vans.     
    Arrival's new investors are "very excited about our U.S.
product and the U.S. market," Chief Financial Officer John
Wozniak said. "There are a lot of tail winds there," including a
recent California mandate requiring commercial fleets to
transition to electric over the next 10 years.
    Crucially, Arrival says early investor UPS is still an
anchor customer - it has ordered up to 10,000 vans - though
admittedly not a happy one after waiting years for vehicles.
    "We continue to evaluate Arrival's decision to refocus its
efforts in production and how this may impact potential, future
vehicle deployments," a UPS spokesperson said.
    Other EV startups like Rivian Automotive Inc  RIVN.O , Lucid
Group Inc  LCID.O , Fisker Inc  FSR.N  and Lordstown Motors Corp
  RIDE.O  have faced similar challenges, trying to ramp up
production while burning through cash at a time when few
investors will give them more.
    But the IRA, which took effect last August, has provided
enough of a lifeline to Arrival to attract new investors. It
includes customer tax credits for purchases of certain EVs. 
    Arrival now aims to begin producing its medium-duty XL Van
at a "microfactory" in Charlotte, North Carolina, by late 2024, 
and Wozniak said he is confident of hitting that target. 
    The company has so far made three prototypes of its smaller
L Van at its Bicester plant in the United Kingdom, which are
being road-tested to aid development of the larger, more
expensive model.
    Class 4 vans are more appealing than smaller models "because
the prices and margins are so much higher," said Michael
Abelson, head of Arrival's North American unit. 
    "The question is, will they have enough cash to actually get
into series production?" said David Bailey, a professor of
business economics at the University of Birmingham.
    
    'ABSOLUTE LIFELINE'   
    At its peak, Arrival was developing two different electric
vans and an electric bus. It was also developing a specially
designed electric car for Uber drivers. 
    But like other electric startups that collectively raised
billions through SPACs, Arrival found that going from concept to
mass production is both expensive and immensely difficult.
    The company projected 2024 revenue of $14 billion in its
initial SPAC deal's investor presentation, but Arrival lost a
combined $2.3 billion in 2021-2022. 
    To conserve cash, Arrival has cut staff almost 75% to 750
employees. It had just $130 million in cash at the end of the
first quarter in an industry where launching a single model can
easily cost $1 billion.
    The startup warned in November it would run out of cash
before the end of 2023.
    Arrival's second SPAC is with Kensington, whose earlier
deals brought startups QuantumScape  QS.N , Amprius  AMPX.N  and
Wallbox  WBX.N  to the market. 
    The rare double SPAC is being watched by others in the
industry to see if it is worth replicating.
    An executive with experience running SPACs, who spoke on
condition of anonymity, said Kensington's deal was an "an
absolute lifeline" for a startup in Arrival's situation.
    "There's no way they would find that kind of money anywhere
else," the executive said. "There could be more of this if these
guys are able to make it happen."
    Reuters contacted all of Arrival's current institutional
shareholders, but they either did not respond or declined to
comment. 

    'ROOM TO RUN'    
    The IRA is key to making Arrival's turnaround work, which
the University of Birmingham's Bailey said was ironic in light
of the company's former reputation as the "great British hope." 
    "It was seen as Britain's Tesla and yet it's the U.S.
government that's essentially supporting it," he said.
    The U.S. medium-duty Class 4 van segment is relatively
small, with annual sales of 30,000 to 40,000 vehicles. That is
too small for most major manufacturers, so it leaves Arrival
with just a few rivals.
    Those competitors include Shyft Inc  SHYF.O , a
Michigan-based manufacturer of multi-brand specialty commercial
vehicles whose Blue Arc electric vans will go into production
this fall.
    Daimler Trucks'  DTGGe.DE  new Rizon brand will start
importing electric vans from Japanese affiliate Fuso later this
year that qualify for IRA subsidies because of free trade
agreements with Japan. 
    California-based startup Xos Inc  XOS.O , which sold just 31
vehicles in the first quarter, is also a competitor.
    With price tags for medium-duty electric vans targeted to
start from around $175,000, the segment represents a potential
market worth $5 billion or more. 
    "We think that (Class 4) is a sweet spot where Arrival can
make a lot of money," CFO Wozniak said. "We looked across the
competitive landscape, and from where you sit today, there's a
lot of room to run in that segment."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXPLAINER-The latest on tax credit rules in Biden's climate and
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EXPLAINER-Why the U.S. Inflation Reduction Act has rattled
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EXPLAINER-When will Americans feel the Inflation Reduction Act's
impact?      urn:newsml:reuters.com:*:nL1N2ZO0YO
British EV startup Arrival gets $300 mln funding, aims to slow
cash-burn     urn:newsml:reuters.com:*:nL4N35L3FC
British EV startup Arrival to lay off half its staff, names
insider as CEO     urn:newsml:reuters.com:*:nL4N34F3E7
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting By Paul Lienert in Detroit and Nick Carey in
Bicester, England
Editing by Ben Klayman and Matthew Lewis)
 ((nick.carey@thomsonreuters.com; +44 7385 414 954;))