Cowen has initiated coverage of electric vehicle startup Arrival (NASDAQ:ARVL), labeling the firm with an outperform rating and setting a price target of $28.50 per share.

The company went public on March 25 through a merger with special purpose acquisition company (SPAC) CIIG Merger Corp. The stock price has dropped from nearly $25 per share to $15.40 in midmorning trading Monday since then. Still, Cowen sees upside in the company's approach, calling it unique.

"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," the Cowen report said.

Cowen did note the "extremely high risk and potentially high reward" for the company, noting that 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 cited Arrival's "from the ground up" approach to electric vehicle production and proprietary manufacturing process that leverages microfactories that can be built in six months and produce 10,000 vehicles a year across two shifts as keys to the company's success.

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.

"Arrival's cost advantages stem from a series of differentiated design choices, which are all underpinned by the company's microfactory manufacturing approach," Cowen wrote. "Traditional automotive manufacturing is linear, with output bottlenecked by the slowest process in the manufacturing line. The company's process uses a ‘technology cell' approach by leveraging robotics, which allows stations to be used multiple times on the same vehicle."

Arrival 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. Cowen notes the expected continued growth of e-commerce as a factor that drives demand for Arrival's vehicles.

Cowen expects Arrival to begin producing revenue in Q3 of 2022, with 9,000 vans/large vans and 1,000 buses delivered that year. The research firm believes Arrival will also be profitable that same quarter. It anticipates Arrival generating nearly $5 billion in revenue in fiscal year 2023.

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