Arrival (ARVL) on Q3 2021 Results - Earnings Call Transcript
Operator: Hello, everyone and welcome to Arrival’s Third Quarter 2021 Earnings Webinar. My name is Kelsey and I will be your operator today. Now, before I hand the webinar over to the Arrival team, I would like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. After the speakers’ remarks, there will be a question-and-answer session. We thank you for your attendance today. And now, I will turn the webinar over to Mitesh Soni, Investor Relations for Arrival. Mitesh, over to you. Mitesh Soni: Thank you all for joining us today for Arrival’s Third Quarter 2021 Financial Results. My name is Mitesh Soni, VP of Investor Relations. And with me today is Denis Sverdlov Arrival’s CEO; Avinash Rugoobur, President; Mike Abelson, CEO of Automotive; and John Wozniak, CFO. Before we begin, I’d like to remind everyone that certain statements made on this call today are forward-looking statements. These statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and the information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these factors and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC and our third quarter earnings release issued today on November 8. During the call, we also refer to certain non-IFRS financial measures. These should be considered in addition to and not as a substitute for or in isolation from our IFRS results. For further information, please refer to our Investor Relations website at investors.arrival.com. With that in mind, I will turn it over to Denis. Denis Sverdlov: Thank you, Mitesh and thanks to everyone for joining us today. We are on a mission to replace our vehicles to electric. I would like to use this opportunity to remind everyone Arrival is unique. It is not an automotive business. It is a platform technology business. We have invested in enabling technologies, software components, materials, robotics and microfactories that provide strong competitive advantages for us. We are doing things that have never been done before and expect our powerful technologies will change the fundamentals of automotive industry. These transformative technologies are coming together in our first microfactories and we like what we see. Our First Bus to be used for validation has been completed, which is an important milestone for the company. And I can share it is a remarkable product. We have hosted a number of events around the world, where customers were able to experience our van firsthand. The car is progressing well. And this exterior is developed to the level, where we are happy to share it today. Startup production for the bus and the van are unchanged. We are currently developing five vehicle platforms, van, large van, bus, bus for emerging markets, and car. But to achieve our mission to replace all vehicles with electric, we want to create tens of vehicle platforms and produce them in hundreds of microfactories. We have revised our ‘22 expectations with a more conservative view. However, I am very confident we are well positioned for significant growth in the next several years. We believe that the size of our business will be defined by the number of microfactories we deploy and the number of microfactories is primarily defined by the capital we have access to. It could be tens of microfactories or hundreds. And for this reason, we withdraw our long-term forecast. We have over 2,400 employees who share Arrival mission and values and have a strong sense of purpose. With that overview, let me now hand over to Avinash, President of Arrival. Avinash Rugoobur: Thanks, Denis. In Q3, our teams have been working tirelessly towards our product and microfactory launch dates. Alongside this, we have also been executing in other vital areas of our business as we have ramped the first production. As we progress to launch, we wanted to update the market on changes to our 2022 forecast. John and Mike will go into the details, but the main message is we have decided to adjust the timing of our fourth microfactory as well as the launch of our large van to invest further in our platform technologies and started production for our bus and van. Our current non-binding orders and LOIs reached 64,000 vehicles. And we have added a number of high-quality customers to our pipeline. These LOIs continue to be weighted toward our van program at this stage. As previously communicated, bus sales typically require public road trials. Our first of these will start early next year. We continue to build vans and buses as we prepare for launch. And today I am pleased to give you a first look at our own new bus. From the wraparound screens inside and out to the use of ambient lighting, reconfigurable seating and the ease of maintenance to name a few. We believe the Arrival Bus brings a whole new level of experience to the drivers, operators and passengers. Our bus, van and car use the same in-house developed components, composite material for body panels, and all connected through the cloud to our back-end ecosystem. We believe Arrival’s method creates truly compelling products for our customers at a competitive price point and the feedback to-date has been very positive. You will see these buses on-road trials in the UK early next year. Arrival Car is progressing well. And we are also giving a first look today with our first prototype expected by the end of this year. There were several highlights in the quarter, but to pick a few, we provided UPS with vans to be used for deliveries at the Dubai Expo, where UPS is the official logistics partner. We were chosen as one of the green dozen companies at the Global Investment Summit in London, selected for our pioneering green technologies. The summit was hosted by the UK Prime Minister and supported by members of the Royal Family, bringing together 200 of the world’s most prominent decision-makers. We also announced the Arrival Service Network program using our in-house digital service platform, which trains and certifies technicians to service our vehicles. The service platform uses data from Arrival’s vehicles and proprietary algorithms to enable existing service providers to repair and maintain our electric vans and buses. We have recently announced 8 partners in the U.S. and Europe, who have signed up to repair and maintain our vehicles through our program. These initiatives serve to highlight the ways in which Arrival has captured the attention of large global companies and organizations around the world. We have also been ramping up our sales efforts and hosted a global tour of the van in the U.S. and Europe for our customer base. This was very well received and gave us a chance to showcase Arrival’s unique vehicles and customer value proposition. I want to remind everyone that Arrival is the only company with a new method in the whole industry. We are focused on developing enabling technologies, components, platforms, materials, microfactories, software and robotics and we utilize these technologies in all of our products. We see Arrival as a pioneer in the EV space, leading the transition to EVs globally by creating products that are zero emission, more desirable, more sustainable, and more equitable. ESG is at our core. And I am proud to say that in Q3 as part of our engagement here at COP26 from which I am currently joining this call, we have announced our pledge to reach a net-zero carbon position by 2040, helping to achieve the goals of the Paris Agreement 10 years early. As the management team though, we are looking into how we could do this even faster. Our CFO of Arrival Automotive, Mike Abelson will now give us an update on our program development and microfactory status. Mike? Mike Abelson: Thanks, Avinash. I want to begin by reiterating that we continue to expect started production to the bus in Q2 of 2022 and started production to the van in Q3 of 2022. This slide shows our upcoming program milestones and the milestones remain unchanged from when we presented them in our Q2 earnings call. It won’t surprise anyone to hear me say these milestones are the priority for the entire Arrival organization over the next three to four quarters. Equipment installation has begun in Rock Hill and will be substantially complete by the end of the year. Since Bicester is used as our process development microfactory, we have been installing equipment there for some time and expect it to be substantially complete by the end of Q1 next year. Charlotte will be our third microfactory in 2022, which started production there, expected in Q4 of 2022. Bicester is a unique facility, because it serves a dual-purpose as Arrival’s Global Center for Robofactoring and as the company’s first van microfactory. As such, you can think of Bicester as our Version 1.0 van microfactory. One of the advantages of the microfactory approach is the ability to further optimize the layout, equipment and operations of each subsequent microfactory. At Bicester, we are already installing the second generation of our composites manufacturing line and have recently installed 6 of our third generation technology cells in the assembly area. We are now assembling our fifth generation of autonomous mobile robots, or AMRs, the mobile robots used to move vehicles and parts through the microfactory. This latest generation AMR has a 2-ton payload capacity and it’s capable of coordinating movements wirelessly so that multiple robots can be used to move a vehicle or component that’s too heavy or too large for single AMR. Given all of this ongoing development, we know that Bicester does not represent an optimized van microfactory, but only the first version. On the product side, as Denis and Avinash have already noted, we have completed assembly of our first gamma phase prototype bus, it’s great to see the bus come to light. The impact of both the exterior design and the experience inside the bus are just as dramatic as we have always expected. This bus is the first of several that will be used for final product validation. And we have a number of buses and build right behind it that will be completed in the next few weeks. We have also completed the first accelerated durability test for our van and have completed two of the European certification tests for bus. From a cost perspective, this slide highlights the cost we expect to incur at our first two microfactories, which include production equipment and non-production CapEx such as site readiness and logistics. Total CapEx for Rock Hill is expected to be approximately $50 million and CapEx for Bicester is expected to be approximately $75 million. As I said, Bicester is our first van microfactory. And because we have been simultaneously developing our product and our manufacturing process, spending at Bicester is now higher than we originally forecast. An additional contributing factor to the higher CapEx is the fact that we have decided to bring the majority of logistics operations in-house. Since logistics is such a key component of the microfactory operational costs, we prefer to have this under internal control for our first microfactory. We are still evaluating different operating models for logistics at future micro factories and the optimal approach may actually differ by region. We anticipate the Charlotte and other future van microfactories will have a more efficient footprint and improve processes compared to Bicester. With the microfactory method, we have the opportunity to further optimize each microfactory as its deployed. Charlotte will be the second version of our van microfactory process and we therefore expect total CapEx to be lower than Bicester. We have also decided to bring our battery module assembly in-house. As a reminder, in the Arrival battery architecture, battery cells are assembled into battery modules that are shared across all of our vehicles. The battery modules are then assembled into vehicle-specific battery packs at the microfactory. The first battery module assembly facility will be in the UK and will support initial production in multiple microfactories. Today, we have already manufactured more than 1,850 high-voltage battery modules to support our prototype builds. I will now turn it over to our CFO, John Wozniak to go through our financials and provide more detail on how these updates impact our projections. John? John Wozniak: Thanks Mike. First, I will cover our Q3 financial results before moving on to longer term trends. The loss for the period was €26 million compared to a loss for the period of €22 million in the third quarter of 2020. The adjusted EBITDA loss for the quarter was €40 million compared to a loss of €18 million in the third quarter of 2020. Administrative expenses were €38 million and non-capitalized R&D expenses were €9 million compared to administrative expenses of €20 million and non-capitalized R&D expenses of €1 million in the third quarter of 2020. Capital expenditures in the quarter were €81 million compared to €21 million in the third quarter of 2020. We ended the quarter with cash and cash equivalents of €381 million or approximately $440 million. We expect CapEx for Q4 2021 to be between €110 million and €120 million and adjusted EBITDA for the fourth quarter of 2021 to be modestly higher than Q3 reflecting our headcount. We have decided to make additional investments in R&D and tooling to improve our platforms to bring battery assembly and logistics in-house to secure battery lines for multiple years through prepayments to our supplier and to add resources to our sales, finance and legal functions. We have made these investments in areas that we believe better prepare us for our first product launch and makes our business stronger and more resilient for when we scale. We are also experiencing price increases in certain raw materials including aluminum and petrochemicals. Because we are investing more in our platforms, we have revised our microfactory investments for next year. We now planned three microfactories in 2022: Rock Hill, Bicester and Charlotte and have moved our fourth microfactory to 2023. We continue to expect van microfactories to produce 10,000 vehicles per year at full capacity on two shifts, though we are expecting a more conservative production ramp next year as we start each microfactory on one shift and are not planning to reach full capacity until early in 2023. As a result, we expect both vehicle volumes and revenue to be modest next year. Revenue is expected to start in the second half of 2022 and be weighted towards the fourth quarter. As Denis mentioned, beyond 2022, revenue growth will be dependent on the number of microfactories we can deploy, which is a function of the timing and availability of capital, the quantum and timing of which is uncertain at this time. Given this and the rapidly changing nature of our business, we no longer believe prior long-term financial forecasts should be relied upon. We will continue to update you on key operational milestones, including the status of our vehicle programs and our planned microfactory rollout, which we believe are the key indicators of the progress we are making. We also expect future volume mix to be even more weighted towards van, which is consistent with the robust LOI activity we continue to see for this product. From a cost perspective, we expect 2022 adjusted EBITDA and CapEx will be in the range consistent with the third quarter of 2021 on an annualized basis. We are forecasting marginally higher SG&A cost associated with adding sales and finance resources. Over the next several years, we will continue to capture additional efficiencies in our microfactories and expect to achieve total required CapEx for microfactory of approximately $50 million. We will also continue to lower the OpEx requirements at our microfactories and expect long-term production and assembly OpEx of approximately $15 million per microfactory. Initial operating cost for logistics is approximately $10 million for microfactory. However, we expect to optimize our logistics model as we scale the number of microfactories to significantly reduce this cost over time. From a working capital perspective, we have proactively secured two cell lines and are continuously evaluating opportunities to further de-risk long-term cell procurement. In general, as we scale, we believe our working capital terms will improve through larger volumes and better leverage with our suppliers. I will now hand the call back to Avinash for our conclusion. Avinash Rugoobur: Thank you, John. To repeat our message, Arrival is unique. We believe our new method will change the fundamentals of the auto industry. We reconfirmed our key milestones for the bus and van. And today, we showed you the outstanding bus. The van which is a great product the market needs and gave you a first look at the Arrival Car, which is an important vehicle for shared mobility. Arrival is not a traditional OEM. We are developing technology platforms that allow us to create multiple products and build them in local microfactories with relatively small resources. Arrival is on a mission to replace all vehicles with electric. We continue to see strong growing demand from customers all around the world and we expect this to continue as we bring our remarkable products to market in the coming months. The commercial vehicle market is in the beginning of an enormous and imperative transition and we believe we are coming to the market at the right time with our transformative new method of production and superior products. Thank you. We will now move on to Q&A. Operator: Thank you so much. And Denis, if you will go ahead and start your video for me please? Denis Sverdlov: Yes. Hello, everyone. I shared my screen. Can you see my screen now? Operator: Yes, we sure can. Thank you, Denis. I appreciate it. Denis Sverdlov: Yes. So actually, it’s quite important for our company in Q3 is because we didn’t show the out – we are actually working hard to develop exterior of our car, which we do together with Uber as you know and it’s the first time we are showing the exterior of the car today. We are quite happy like – we are extremely actually happy about this product. And it’s quite difficult to understand from this picture, but actually the height of the vehicle is much higher than like normal cars and which creates a totally different experience for the passenger side in terms of leg rooms and the space overall. And actually, in the left bottom corner, we have sketch of our bus for emerging markets. So, it’s a high floor bus. It’s a very derivative from our low floor bus platform, which we are developing now. We announced in Q2 that we started to develop this type of product using our Indian R&D Center. And we are also very pleased like to say that this product is developing really well. So, that’s probably yes, so this is the car. That’s a big picture. So, we are happy to answer your questions. Operator: Thank you so much, Denis. We will hear first from Jeff Osborne with Cowen. Jeff Osborne: Yes, good afternoon, guys or good evening for you. Couple of questions on my end. One, what – just in light of the slowdown at the build-out given the capital situation as well as the bus market, can you give us a sense of future capital needs that you will have? I was under the impression that in particular for the bus market, some of the municipalities would be participating in the funding around the world, is that still an opportunity or not so much? Mike Abelson: In terms of the market, Jeff, absolutely. We – fundamentally, I think we are going to be capacity limited, not demand next year. We are still seeing enormous interest in it. And we just showed you a glimpse of our new bus, that’s actually going to be going on to trials next year, just to remind everybody, the cell cycle of the bus is such that the trials comes first. So really, I think the bus market will continue to heat up. This transition is occurring right now. I am at COP right now. And I am not sure we are going to hear if there were announcements from governments around the world about the need to electrify public transports and fleets in general. In terms of our capital needs, John, do you want to comment? John Wozniak: Sure. Obviously, we have a variety of financing options available to us, which we continue to review regularly. I think it’s important for everyone to remember that unlike a traditional OEM, we don’t have a significant upfront amount of capital, it’s not billions of dollars that we need to put in the ground immediately, which gives us greater flexibility, which I think you have seen as we have prioritized capital this year and into next year. We have certainly accelerated some spending on our vehicle platforms as we mentioned in the script. The purpose of which is really to make those platforms more resilient as we prioritize startup production next year. So, we believe that we have a lot of flexibility as we look ahead. As we think long-term, our view of capital is that – our growth is really tied to the amount of capital that we can raise to deploy new microfactories. And as a management team, we believe we would like to be very aggressive in that deployment and that will all be dependent on when we tap the markets and we will be opportunistic in that regard. Denis Sverdlov: I also would like to give just few comments, the way how you asked the question, you mentioned about the market condition. Actually, market conditions are great. So there we have a strong tailwind and we still – we see a huge demand on our product across all our portfolio. So, that’s not even a challenge right now. In terms of optimization, we just like we have, as John said before some events like when we did the advance payments for the batteries to secure our volumes that it’s extremely important for any automotive EV company today and some other strategic decision which we made. And answering your question directly about other funding opportunities, we obviously – every microfactory could be SPV in some way, right. So – and actually we have a lot of different opportunities, how the capital for mircrofactories can be raised. It’s not necessarily the capital coming from the public markets for that. Jeff Osborne: And very quickly, could you just give a few examples of the $10 million in OpEx for logistics in each microfactory, why bring that in-house? What are some of the things that we are doing that you are using third-parties for? Denis Sverdlov: We just build out – Mike, I am sorry. Mike Abelson: No, no, that’s okay. So, Jeff… Denis Sverdlov: Yes, please, yes. You answer please. Mike Abelson: To your point, we have had a lot of questions about logistics, because the microfactory model is different from a logistic standpoint than a traditional model. And so as we looked at how we are moving parts and subassemblies around onsite microfactory, how they get presented to the automation inside the microfactory, even how we receive them from suppliers, working with suppliers on packaging that’s friendly to automation, they are just – we saw so many different aspects of logistics that we thought we could do better if we had direct control over them that we could optimize it from microfactory method. Obviously, when we go out and talk to 3PLs, they don’t know what we know about microfactory methods. So that was why we decided we really did want to bring this all in-house. The $10 million covers a variety of expenses obviously heads, but also other expenses around packaging and so on. Jeff Osborne: Thanks Mike. That’s all I had. Denis Sverdlov: I would like to add here is that, as Mike said, first of all, we want to control that process now, because it’s the first time we are running that and we just want to control every aspect of that to reduce our risks to run through factories. And the second one is which is also quite important is that we like, obviously – if legislation – this external company, we are reducing our margins on the product. So for us, it’s actually better decision to make a bit more CapEx, but actually have better margins. Jeff Osborne: Makes sense. Operator: And we will now move on to Michael Filatov with Berenberg. Michael Filatov: Hi, guys. Can you hear me? Denis Sverdlov: Yes. Michael Filatov: Thanks for taking my question. Just quick question on the non-binding orders and LOIs, you have probably provided a little bit of detail, but maybe you could talk about sort of the timeline for some of those LOIs and orders and maybe potentially, what the sort of revenue opportunity would be for those? John Wozniak: Yes. So we have announced 64,000 LOIs to-date. It’s probably worth just reminding everybody that for us LOIs are early stage conversations they are still non-binding, but they are typically more extensive discussions that have gone on where we signed contracts from both parties with a number of indicative terms, such as the type, the range of volumes over how many years, the base pricing and when the vehicles would be due. And then we moved them to vehicle agreements where we have the pricing laid out and also the spec and the timing. So, to answer your question, when we look into – without giving the exact numbers when we look at next year, as I mentioned earlier, if those LOUs convert to orders, we have essentially sold more than we can produce next year. So, we are in extremely healthy position on demand. In the longer term – and those LOUs typically span anywhere from 3 to 5 years in terms of the range and the timing for the orders. And if you look at what’s happening in the market with, as I mentioned earlier, not just governments, but companies themselves needing to transition, I think we are just in a very healthy place on demand. So next year, in terms of orders, right now, we are very healthy and it’s only just going to grow. I really believe we are fundamentally right in the early years, capacity limited. So, our role is to really bring out as many microfactories as we can and increase capacity. Michael Filatov: Got it. Thanks. Another quick question. One of your competitors sort of on the bus side puts out sort of a public market bid universe for the buses. And I am wondering if you could comment in sort of the pipeline of bids in the bus universe that you are seeing right and how that compares to sort of the volumes that we are expecting over the next couple of years? Mike Abelson: Yes, it’s a great question. We are seeing that many companies have the RFPs out for the bids. We did just announced, for example, that we won the Anaheim contracts. We are going to see more and more of that. Our team is heavily at work in submitting for bids, organizing trials for customers. Our first trial is early next year. And so in terms of the – I would say the amount of RFPs coming out right now, it’s quite significant, because the bus operators are needing shift that could be driven by government mandates or incentives, but it’s also the fact that one of the interesting things for example, if you look at the Arrival Bus and its price point which is extremely competitive, well, we believe it’s fundamentally the best price electric bus on the market. It also means that the residual value of the diesel buses over time will go even lower. And so it’s forcing – I believe it’s forcing more hire turnaround in the early years. Denis Sverdlov: Just to add on the pipeline, obviously, in the build – better build here in the U.S. and Avinash’s point at the COP26 Conference, we expect to see a very sizable upswing in support for electronic bus fleets. As far as talking about specific RFPs on the horizon, we haven’t named those. There are associations both in Europe and the U.S. that when you joined, you get a view of the entire RFP pipeline across all municipalities. So basically, every bus manufacturer has access to that same information. Mike Abelson: And then also just to end on that, Michael that, I mean, this is global. The interest in our products, bus, van, and microfactory, it’s in now our team is covering, I would say every inch of the globe right now. Michael Filatov: Got it. Thank you. Operator: And Rod Lache with Wolfe has the next question. Rod Lache: Hi, I think you can hear me now. Can you hear me? Denis Sverdlov: Yes. Rod Lache: Okay, great. Okay, it sounds like there is absolutely zero question about the demand for the buses and vans or frankly any of your products at this point. I just wanted to – I was hoping you can maybe elaborate a little bit more about firstly, what has led to the slower ramp? I didn’t quite understand that. And maybe what kind of volumes do you expect to hit it – your maybe your exit rate from next year? Denis Sverdlov: If I may have probably started with the answer, so first of all, what is important is that the document which we were referring before, it was – we were creating this in the middle of 2019. So, it’s actually like 2 years ago. And of course, during those 2 years, we have learned a lot about like the process and other things. So, that’s the important point here. And the second part of the point is that look, we obviously want to produce as much as possible and we are putting the capital in – for the parts like to procure like and receive all those parts available for us like to produce as many products as we want as possible. But because we are just starting those operations like first time, so instead of pushing the quantity, we want to kind of focus on the perfection of the process and do it. First, we want to kind of do everything perfectly and then like scale after that. So, that’s like major reasons why we have taken a bit more conservative view. I would not call it as a slowdown. I would say it’s just more careful, I would say approach to the start of production. Mike Abelson: And I think 2022 expectations we should not imply from that or overestimate its impact on future periods. Once we ramp the microfactories, particularly the van microfactories to full production, we still expect to be able to produce 10,000 vehicles at full capacity on two shifts. Next year, we are just taking a more conservative view of our initial ramp, because as Denis mentioned, we want to make sure we get it right. That’s absolutely the most important point that we have here is it’s about getting it right so that we are in a good position to scale. And post-2022, our expectation is that we would like to deploy microfactories as quickly as we can. Rod Lache: So, with the run rate, if you are successful, it sounds like it’s just you have better visibility on what it’s going to take in the initial ramp. Not any kind of real technical issue or supplier development issue. If you were to exit, when you think about your exit rate next year, would you – would we be thinking that maybe you are with one shift you are at a run rate of maybe 95,000 or so per microfactory or something like that. In FMs, I was hoping maybe you can just clarify for us how we should be thinking about whether the extent to which the economics at the plant are changing. So, you are saying that the $15 million of OpEx, that sounds to me like that, that’s sort of comparable to the $12 million that you were originally thinking in your plan, the $10 million of logistics? Is that sort of shifting from one bucket to another? So really, the economics aren’t changing, it would have either been in your suppliers’ costs and billed to you or you are taking that in-house, can you just maybe clarify that aspect…? John Wozniak: Yes. I think it’s important. You mentioned $50 million, that’s not OpEx, right. That’s our – continues to be our expectation for CapEx, so. Rod Lache: I have said $15 million. John Wozniak: I am sorry. Yes. So, $15 million is our OpEx expectation relative to numbers we have published a couple of years ago, which was $12 million. We continued to expect to have very competitive OpEx in the microfactory. We are seeing higher initial logistics costs. And I think it is fair to say that when we were initially thinking about that, we were expecting a large portion of that to be outsourced and potentially come back to us in the form of component part, if you will or inventoriable cost. So, we do expect that there is a large element of that which is moving between buckets. But also we believe that that costs will reduce significantly over time as we scale. And we would have expected to see the same thing, even on an outsourced basis. Avinash Rugoobur: And I think the last point Rod that John made is an important one that with us handling a lot of those in-house, we also then can study how to bring it down quickly. Whereas when we looked at the 3PL model, it wasn’t as clear to us how we established a path to continue to work on logistics going forward. Rod Lache: Okay. And just one last thing, one of the things that is really interesting about your business model is it is – it’s so much less capital intensive than any other manufacturing of similar products. And that kind of leads you to the conclusion that it just doesn’t take a lot to get to cash flow breakeven. But you are going to go through this period and I just want to make sure I understand kind of the investment phase. So, you mentioned a run rate of $40 million of EBITDA per quarter. So, you might correct in thinking about a $200 million negative EBITDA over the next five quarters, and it sounded like you reference $80 million per quarter of CapEx, it’s another $400 million from that. So, I guess between those two and a little bit of working capital, is that sort of the work the capital needs as we think out over the next…? John Wozniak: I think it’s important that the numbers you have referenced, so we are clear, are euros, not dollars. Rod Lache: Oh, sorry. Yes, sorry, euros. John Wozniak: But roughly, that’s our expectation. Rod Lache: Okay. Denis Sverdlov: Yes. And actually, what is important about our business model is it’s very modular. So, you are absolutely correct to at least those elements of the module. So, one part of economics is the unit economics, microfactories, and we are extremely focused on that microfactory is a product for us. And we see it not as one lesser attributes in terms of production rates, but also every pound cent we are spending there in terms of OpEx and CapEx, it’s very much controlled. Other things which are relates mostly to R&D budgets, we are also controlling that very well. And our methods are supporting, producing many models and variants at the same time. So, because we have like our method of design, mixing the way that we have, like, radically less people involved in developing of the particular progress compared to what the industry does today. So broadly, you are right with the way to see our finance, yes. Rod Lache: Got it. Okay. Thank you. Operator: Our next question will come from Brian Johnson with Barclays. Brian Johnson: Thank you. Excuse me, given so much which that could be unique about Arrival is around the microfactories, the last question you pointed out, can you give us some, anecdotes or really metrics from last quarter, that gives us a sense that the microfactory composite production approach is still on track? Mike Abelson: So, Brian, absolutely. I referenced in the script we are actually installing right now an updated composite manufacturing line in Bicester. But even on the line that we have had we produced over 1,400 composite panels to-date. So, the composite is absolutely delivering what we knew it would as far as both the product attributes that it brings as well as the manufacturing process. Again, one of the advantages, though of it being Arrival IP is our ability to continue to improve it. And we are going to continue to work on the process to make it more efficient with higher throughput. Avinash Rugoobur: Yes. And just to give you a bit of color here is that we just finished the development of our new forming stations. And on the new line, which Mike was referring to, we are already putting this new generation which have much better attributes than we had before. And because this was so modular, so we have this flexibility on the same composite factory to have like a previous one is the one line and the new one is the new line, and then updating the previous one, like not stopping the production. So, that’s also the advantage of our method as well. Mitesh Soni: Anything else, Brian? Brian Johnson: Yes. Just as a follow-up, so the composite panels are produced? How about the process of actually joining them at scale into a Van? How do we get and get some insight into that, because your competitors would point out that panels are panels and complete vehicles are complete vehicles. So, just want to get a sense of how that production is going. Avinash Rugoobur: Yes, go ahead Mike, please. Mike Abelson: So Brian, when we talk about this composite manufacturing line, the last station or the last cell in that line is a bonding cell. We use that to assemble, say, an inner panel to an outer panel or any other sort of panel assembly. It’s a very flexible cell. It’s done in the Arrival way. So, it’s very highly automated. And then the panels get assembled to the vehicle in the tech cells in the actual microfactory assembly area. Again, with very high automation and a lot of work on making sure the process executes to the throughput and the quality that we need. So yes, panels are only panels, but we are already assembling them into vehicles. I mean, we are using these processes already to assemble our prototype vehicles. So, we are already getting a lot of practice with it. Avinash Rugoobur: Brian, I would say that I expect others to say that because it’s the old method, right. So, in their mind, it’s just okay, you are replacing x with y. But fundamentally, that’s just not true at Arrival. We have designed the composite panel to work with the systems that we have developed with the chassis, and then you have got the components. And you have got, it’s all designed in-house technologies that all work together. So, you can’t take an existing vehicle, replace all of the body panels with our composite and expect it to work that way. It’s fundamentally different. It’s a total step change in how you think about a vehicle and how it’s engineered. I want to make that point. Denis I know, you want to say something there. Denis Sverdlov: Yes. Absolutely, because what I wanted to say is that I want to refer the car which is behind your – which is behind you is that it’s quite amazing in the way that it was designed in the way that we put interiors inside the car robotically. So, it should have never been done before in the industry. And again, like our composite panels and the way how we do the bodies allows us to do that and it was Unibody, with the current manufacturing, you got to look at traditional companies, it’s impossible and with this type of design, we do it’s possible. Brian Johnson: Okay. Thanks. Operator: And with that everyone that does conclude today’s webinar. We thank you all for your participation. You may now disconnect. Denis Sverdlov: Thank you very much everyone. Mike Abelson: Thanks everyone for your time here. Thank you. Bye.ARVL Ratings Summary
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Berenberg Bank Started Coverage on Arrival With Buy Rating and $17 Price Target
Analysts at Berenberg Bank initiated coverage on Arrival (NASDAQ:ARVL), an electric commercial van and bus manufacturer that de-SPACed in March 2021, with a buy rating and a $17 price target.
According to the analysts, the company is differentiated by its innovative new approach to manufacturing electric vehicles through a highly automated and vertically integrated microfactory model. The Arrival micro-factories will require less CAPEX, lower operating costs, and a shorter time to produce than traditional plants while enabling production flexibility and localizing the manufacturing footprint.
While there is an inherent risk associated with a pre-revenue and pre-production company, the company has spent years developing its vehicle architecture and microfactory model and has visibility to several key milestones over the next 12- 18 months with the potential to disrupt the legacy automotive model.
