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Surging container rates, semiconductor shortage only blips on radar for Arrival, ELMS

Research firm Cowen says electric vehicle startups should power through and remain strong long-term bets

Rising container rates and the semiconductor shortage could hurt electric vehicle startups Arrival and ELMS, but not enough to dampen the outlook, according to the analysts at Cowen. (Photo: ELMS)

Two electric van startups are facing different challenges in the months ahead, but at least one analyst remains supportive of both firms’ long-term potential.

Electric Last Mile Systems (ELMS) will be first out of the gate with its Class 1 electric van, but shipping costs could alter the pricing dynamics for customers, according to research firm Cowen. Conversely, Arrival (NASDAQ: ARVL) will take longer to bring its vehicles to market, but as a result should avoid the peak of the global semiconductor shortage that is hampering vehicle manufacturers, the firm noted.

Cowen is maintaining an outperform rating on both companies, setting a price target of $28.50 per share for Arrival and $14 per share for ELMS.

ELMS (NASDAQ: ELMS) went public via a merger with special purpose acquisition company Forum Merger III Corp. this summer and released its first earnings as a public company on Friday, reporting a second-quarter loss of $8.6 million. But with no available product yet, the report was about projections. ELMS reiterated the start of production for its Class 1 Urban Delivery vehicle in the third quarter of 2021 with a production target of 1,000 vehicles by year-end. It also said its 2022 production volume was on target.

“We made great strides in the second quarter, achieving multiple key milestones in our mission to redefine productivity for the last mile. We are affirming our intentions to launch production of the U.S. market’s first Class 1 commercial EV, the Urban Delivery, by the end of the third quarter,” said James Taylor, co-founder and CEO of ELMS. “From an engineering perspective, we are on schedule to finalize our testing. Reception of the Urban Delivery has been positive, and we are now actively working to finalize order commitments. Meanwhile, we have scheduled pilots for our EVs, including our second product, the all-electric medium-duty Urban Utility, with potential customers across industry verticals.”

Read: Funding in hand, ELMS readies for electric vehicle launch later this year

Read: Tiny electric delivery vans occupy former home of hulking Hummer H2

Assembly of the vehicle will take place at the former General Motors (NYSE: GM) Mishawaka, Indiana, plant that used to make the Hummer model. The van will have a range of 250 miles.

ELMS is building its vehicles based on a Chinese design and adapting it for the North American market. That is something that has given Cowen some pause — not on the production plan itself, but rather the ability to hit the target price of $32,500 per vehicle because of higher ocean container shipping costs related to bringing the base vehicle to the U.S.

“ELMS has experienced container costs up 4-5x, which is expected to bring gross margin down from greater than 20% to low single digits near term,” the Cowen report said. “We are assuming logistics cost per vehicle of $7,700 after taking into account land shipping increases (which have been lower relative to ocean shipping cost increases) above the company’s SPAC merger deck guidance of [approximately] $3,000. We note management will attempt to raise the price of the vehicle from $32,500 to $34,500 or higher to help mitigate some impact.”

Still, Cowen is confident in the ELMS business plan, and that is driving the outperform rating.

“We view Electric Last Mile as well positioned in the market given the lack of excess competition and the booming demand for electrified Class 1 delivery vans that was fueled by the surge in e-commerce from the COVID-19 pandemic. We are impressed by the company’s experienced management team and capital light go-to-market business model that focuses on keeping its approach to manufacturing simple,” it wrote.

ELMS showed both its Class 1 and Class 3 vans at the recent Route Consultant Contractor Expo, a FedEx (NYSE: FDX) contractor event. The company has 45,000 pre-orders for its vehicles.

Arrival avoids semiconductor shortage

Cowen remains bullish on Arrival, the U.K.-based electric vehicle company, which has secured 59,000 letters of intent (LOI) to purchase its vehicles. Arrival is making both vans and buses, and has received new bus LOIs from India to go along with Europe and the U.S.

Cowen noted that Arrival’s later production target range of Q2 2022 for its bus and Q3 2022 for its van should help it avoid the semiconductor chip issues plaguing so many firms. The company is said to have enough chips to handle production in 2022. Still, the company represents a higher risk/reward scenario for investors, Cowen noted.

Read: Cowen: Arrival’s unique approach sets up opportunity in EV space

Read: Arrival and its automated driving system reach major milestone

“We are constructive on Arrival’s unique approach to electric vehicle production leveraging microfactories and vertical integration. The company’s technology and strong value proposition for short-haul commercial operators warrants a premium to other less vertically integrated competitors,” Cowen wrote in the report. “However, we note that the stock is extremely high risk and potentially high reward given where we are in the technology and production cycle. We expect investors will be keenly focused on the company’s production ramp, which should help to further validate Arrival’s approach to vehicle production and prove out its TCO proposition.”

Cowen also noted the company’s earnings call highlighted the high price of steel, which is helping close the price gap for Arrival, which is using more expensive aluminum and composite materials in its vehicles. The company has also secured a five-year battery supply agreement with LE Energy Solution, giving it certainty on the critical power supply.

Arrival plans 33 microfactories globally, including a $41.2 million facility in Charlotte, North Carolina, that will support a 10,000-vehicle UPS (NYSE: UPS) order. The company plans four vehicle platforms, starting with buses later this year, followed by smaller vans and larger vans in 2022 and a small vehicle platform in 2023.

Click for more Modern Shipper articles by Brian Straight.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected].