British Electric Van Startup Merges with US Firm to Produce for American Markets

Once viewed as the "British Tesla," UK-based electric van startup Arrival is now shifting its gaze towards the United States, in a hopeful move to reestablish its footing in the industry. Since its inception in 2015, Arrival has worked with high-profile clientele such as United Parcel Service (UPS) and Uber Technologies, however, it has yet to reach mass production, draining resources and pushing it to retarget its operational focus. 

Arrival plans to use the $283 million anticipated from its second reverse merger with special-purpose acquisition company (SPAC) Kensington Capital Acquisition Corp V to concentrate on the production of a single U.S.-produced vehicle—a Class 4 medium-duty delivery van. This strategic move aims to take advantage of the substantial $40,000 IRA subsidy that this larger vehicle class attracts, surpassing the $7,500 subsidy for smaller electric vans. 

Despite Arrival's teething issues, early investor UPS has stuck around and remains a significant customer, having ordered up to 10,000 vans. However, the patience of the logistics giant seems to be wearing thin. A UPS spokesperson has noted that the company is closely scrutinizing Arrival's decision to refocus its production strategy. 

With the Inflation Reduction Act (IRA) of 2022 paving the way for customer tax credits for EV purchases, Arrival has seen renewed investor interest. The startup now aims to begin the production of its medium-duty XL Van at a Charlotte, North Carolina "microfactory" by late 2024, and CFO John Wozniak is confident of meeting this timeline. 

At its height, Arrival was actively developing two electric vans, an electric bus, and a unique EV designed specifically for Uber drivers. However, transitioning from concept to mass production proved a costly and complex endeavor, forcing the company to make significant cuts. After posting combined losses of $2.3 billion in 2021-2022, Arrival reduced its workforce by nearly 75%, leaving it with $130 million cash at the end of Q1, in an industry where launching a single model could cost upward of $1 billion. 

Arrival's second merger with Kensington—a company with a track record of bringing startups such as QuantumScape, Amprius, and Wallbox to market—is viewed as an "absolute lifeline" by industry insiders, offering a survival path that would be otherwise unobtainable. This unusual double SPAC move is being watched closely by others in the industry to assess its viability as a potential rescue strategy. 

For Arrival to have a successful turnaround, David Bailey, a professor of business economics at the University of Birmingham, emphasized the pivotal role of the IRA. He observed the irony of the once "great British hope" now being primarily supported by the U.S. government. 

Arrival's entry into the U.S. medium-duty Class 4 van market is strategic, with sales in the segment ranging from 30,000 to 40,000 units annually—a size generally too small for most major manufacturers but presenting an opportunity for Arrival. The startup will face competition from Shyft Inc, Daimler Trucks' Rizon brand, and California-based Xos Inc. 

Despite the challenges, Arrival remains optimistic about its prospects. Wozniak noted, "We think that (Class 4) is a sweet spot where Arrival can make a lot of money. We looked across the competitive landscape, and from where you sit today, there's a lot of room to run in that segment."