From Russia with electric vans

Hello! This week our top story is an in-depth look at electric vehicle manufacturer Arrival that just received the regulatory go-ahead for a $5.4 billion listing in the United States. We also explain why the war of words between Putin and Biden won’t lead to any significant changes in the bilateral relationship, and a new law in Russia that looks set to severely restrict educational freedoms. 

Russian electric vehicle start-up greenlighted for $5.4bln listing

Perhaps the biggest Russian business event in the U.S. this year took place Friday when electric vehicle manufacturer Arrival got the go-ahead for a merger that will allow the company to list in New York with a valuation of $5.4 billion. That’s a lot for a company that — so far — is only producing prototypes and has just one major client. The Bell looked in detail at how a former deputy minister in the Russian government has taken an electromotive start-up into the big league of global business.

• Arrival manufactures electric vehicles for public transport and light commercial use. The plan is to launch an entire line of vehicles by the end of 2023, and the following year the company hopes to be building 168,000 vans. Arrival’s most promising model is its most ambitious: a mid-range electric van weighing about two tons and capable of covering 300km without recharging. U.S. logistics giant UPS has already placed an order for 10,000, and Arrival plans to earn around $1 billion from selling this model. However, the vehicle is currently still in the trial phase.
• According to Arrival, the vans will be lighter, more spacious and more energy efficient than its main rivals: the Ford Transit and Mercedes Sprinter. Priced at $40,000, it’s roughly half the price of the electric vans currently on the market.
• To manufacture its vehicles, Arrival is planning a network of ‘micro-factories’ that are about half the size of a traditional car plant, can be built in six months, need just a few hundred staff (compared with thousands at traditional auto factories), and will deliver over 10,000 electric vehicles a year. Three of these are under construction in the U.S. and one in the United Kingdom.

Who is behind it?

Denis Sverdlov gained fame as the head of Russian telecoms operator Yota. One of his innovations was a two-screen smartphone, which was presented to then-president Dmitry Medvedev as Russia’s answer to the iPhone in 2013. However, it never reached the production lines. By the time the prototype was unveiled, Sverdlov had already moved on. He was appointed deputy communications minister in 2012 and remained in post for just over a year before resigning — to be in line with new legislation preventing officials from owning foreign assets (Sverdlov owns property in France where his family lives).

After quitting the government, Sverdlov set-up the Kinetik venture fund in Luxembourg and Arrival became the first project in the fund’s portfolio. Since being established, Arrival has attracted hundreds of millions of dollars in investment: BlackRock investment fund stumped up $118 million last year, and a further $110 million has been put in by Asian auto manufacturers Hyundai and KIA.

What’s the catch?

Like everyone in the electric vehicle market, Arrival faces questions about whether it can scale up production and if it has overestimated demand. At present, there are more than 10 electric vehicle developers valued at over $1 billion — but, so far, not one has launched a fully-fledged sales program. This hasn’t stopped them announcing highly ambitious plans.

Experts told The Bell that there are several unanswered questions about Arrival: does the company have a unique technology that sets it apart from its rivals? Will these micro-factories deliver? Can a fledgling survive if a giant like Tesla muscles into the market?

Why the world should care

The electric vehicle market may well be overhyped, but ultimately it’s the future. Arrival’s U.S. listing means there’s now a Russian player joining the battle between big auto manufactures and start-ups.

Why Biden’s ‘killer’ soundbite won’t affect US-Russia relations

When President Joe Biden gave an affirmative answer to a question from a journalist this week about whether Russian President Vladimir Putin was a murderer, he guaranteed himself plenty of airtime in Russia. The ruble and the markets jolted downward, while Putin used the story to galvanize anti-American sentiment. Nevertheless, studies suggest anti-American feeling in Russia is half as strong as in 2015.

Biden and the Russian market

Most foreign affairs experts agreed Biden’s words were unprecedented. Not surprisingly, some recalled Ronald Reagan’s notorious 1984 ‘Evil Empire’ speech. Indeed, the current trough in East-West relations is easily compared with the early 1980s: confrontation over the Olympics, the disputed downing of a civilian aircraft, war in the Middle East and a stagnant economy

The reaction to Biden on the stock and currency markets was dramatic. The ruble dropped 80 kopecks against the dollar, and the Moscow Exchange sank 2.28 percent: the biggest falls in three months. Economists interviewed by The Bell assessed this as ‘sanctions anxiety’. The markets fear that new sanctions from Washington, expected next week, might strike at Russia’s influential business elite (in 2018 sanctions against billionaires Oleg Deripaska and Viktor Vekselberg sparked panic).

At the same time, foreign policy experts said Biden’s words will have no significant impact on relations between the U.S. and Russia. Andrei Kortunov, director general of the Foreign Ministry’s Council on Foreign Affairs, saw Biden’s characterization as confirmation that Washington will not seek to mend fences with Moscow, but only turn to Russia to resolve specific issues. 

Interestingly, another foreign policy expert, Fyodor Lukoyanov — far from being regarded as a hawk — gave a more furious response. In a column in Kommersant newspaper, Lukyanov described Biden’s comments as “outrageous” and said that, in the past, they would have led to a breakdown in relations. Moscow, Lukoyanov wrote, has grown used to meeting the U.S. halfway and he urged an end to that practice. In addition, he said there should be a “complete freeze in relations beyond the bare minimum of essential technical matters”.

Putin and his ratings

Nobody knows what Putin himself made of Biden’s comments. But the president took full advantage of the situation. His first response came Thursday when he — somewhat pointedly — wished Biden good health, and used a playground riposte to suggest it was actually Biden who was the murderer.

• There was a sequel Friday evening after Putin spoke to a concert in honor of the seventh anniversary of the annexation of Crimea attended by 50,000 spectators (remember several prominent opposition activists are currently facing prosecution for breaching health and safety rules by organizing protests during the pandemic).
• After the concert, Putin told a TV reporter that he wanted a public showdown with Biden and suggested Friday or Monday – but not at the weekend, when, he said, he was “off to the taiga”. While there was nothing particularly untoward in this statement, it was taken as another case of Putin’s confrontational, ‘man in the street’ approach.
• Putin’s challenge obviously wasn’t aimed at Biden (who predictably declined), but was for domestic consumption. Putin’s popularity rating is currently falling — not just among young people but also among his traditional electorate of older, more ‘patriotic’ voters.
• “All of Putin’s statements about Biden were for his domestic audience… and it worked, admittedly only with the older generation that already shares Putin’s position and is deeply suspicious of America,” the deputy director of independent pollster Levada Center, Denis Volkov, told The Bell.
• Even so, the scope for rallying Russian voters around anti-American sentiment is diminished, compared with five years ago. Back then, 81 percent of Russians said they had a critical opinion of the U.S., whereas today the number is 43 percent, according to Volkov.

Why the world should care Putin’s reaction suggests Moscow does not want to risk further harming its relations with the U.S. at the moment – unless new sanctions turn out to be particularly onerous. So, despite all the drama, it’s hard to imagine Biden’s comments sparking any significant change.

Russia tightens state control over education

The lower house of the Russian parliament this week approved a new law on educational activities, rejecting criticism from scientists, business people and cultural figures. From now on, any activity classified as ‘educational’ must be coordinated with the authorities. The law comes into force July 1.

• The legislation was submitted to the State Duma in the fall and its authors claim that academic lectures are often a front for ‘anti-Russian propaganda’. Under the new law, all educational activity – from popular science lectures to international collaboration between universities – will be placed under government control. However, it’s unclear how this will all actually work in practice. Much will be up to the government to decide.  
• A big public campaign failed to prevent the passage of the new law, which many see as an attempt at pre-emptive censorship. Over 600 cultural figures submitted an open letter to Putin, while hundreds of thousands signed petitions against the changes. 
• The law will not only deprive Russians of high-quality educational content, but it will seriously damage the Ed-Tech sector that has expanded rapidly in recent months amid the pandemic. Two such projects — the Skyeng online English language school and the Uchi.ru platform for schoolchildren — were recently placed among Russia’s top 30 most valuable internet companies.
• There is widespread anxiety among online education start-ups canvassed by Forbes magazine: they see it as a means of applying state pressure, especially when ‘educational activities’ are so broadly defined and the government’s exact powers are unclear. “Projects like this are means of eliminating any position that does not suit the authorities,” said Maxim Spiridonov, the founder of Netologia, one of Russia’s biggest educational platforms.

Why the world should care Not only is this law likely to restrict freedoms and affect how Western universities interact with their Russian counterparts, it may be the first of many such initiatives. Amid international tension, undermining seeking domestic ‘threats’ is a convenient fallback for the Russian authorities.