Arrival achieves impressive IPO share price! SPAC speculation or prime equity?

The hype and speculation surrounding SPAC IPOs continues. Is Arrival going to be a top EV stock investment or a share to avoid?

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Arrival (NASDAQ:ARVL) is a British vehicle company developing electric commercial vehicles. Its electric passenger bus has generated considerable buzz, with electric vans planned for next year. The company just listed on the New York NASDAQ stock exchange. It launched via special purpose acquisition company (SPAC) CIIG Merger Corp. So, is this a good long-term investing opportunity?

Arrival share price outlook

Arrival started trading on 25 March at $22 per share. It raised around $660m at IPO, valuing the company at approximately $13.6bn (£9.5bn). This is a very impressive debut. The company is operating when the push for electrification has never been greater. But could it be benefiting from hype more than belief?

It has major ambitions, with a target of $1bn in revenues next year and $14bn by 2024. It hopes to become profitable in 2023. However, I think it’s going to have its work cut out to fend off competition and meet those high targets. Amazon has already ordered 100k electric vans from Arrival’s competitor Rivian and Ford intends to release an electric transit van in 2023.

Innovative approach to electrification

The thing that sets Arrival apart from rivals in this highly saturated market is its innovative approach to manufacturing. The six-year-old company plans rapidly scalable micro-factories. They’ll be situated close to high demand areas and cost between $45m to $50m to set up. Arrival hopes to have 31 micro-factories in production by 2024. Each micro-factory should be capable of producing 10,000 vans or 1,000 electric buses annually.

This should ensure low capital expenditure with the company’s investor information citing lower capex than for established vehicle operations producing similar numbers.

The plan is to make these electric vehicles competitively priced against traditional internal combustion engine vehicles. And the company intends to mass produce its first electric bus before the end of 2021. United Parcel Service (UPS) has already placed an order for 10,000 vans with the option for 10,000 more.

Impressive backing

Arrival is financially backed by BlackRock, Kia and Hyundai. And the company has some impressive leaders on its board. For instance, Chairman Peter Cuneo previously took Marvel Comics through a 10-year transformation that led to its acquisition by Disney for $4bn in 2009. Plus, its global board of directors includes Tawni Nazario-Cranz, a venture capitalist at SignalFire and Rex Tibbens, the CEO of $4bn company Frontdoor.

SPACs became a popular IPO launchpad in 2020, and the trend continues. For the company, it’s easier than a traditional IPO, but often results in the founders giving away more equity than they would otherwise. There’s also concern that SPAC launches have become hyped with speculation, pushing share prices too high, only for them to crash back down. Time will tell if that’s the case with Arrival. 

The company will rely on lithium-ion battery cells from South Korea’s LG Energy Solution. But an industry-wide shortage of the raw materials required to manufacture lithium-ion batteries may lead to inflated prices.

The green revolution is raising investor interest in this area and with governments pushing for electrification it’s an exciting area to invest in. Nevertheless, the electric vehicle market is fierce and I think that only a few will thrive long term. Arrival is showing innovative determination and an impressive boardroom line-up, but competition is rife and costs are high. This makes me nervous and I’m not tempted to buy shares in it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kirsteen owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon and Walt Disney and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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