Will These Six eVTOL Stocks Ever Take Off?

Tech investors who are tenured enough to recall the dot-bomb days may also remember the hype surrounding a personal transportation device that was said to disrupt walking. Investors lined up to throw money at the vehicle hailed as being “maybe bigger than the Internet” by notable venture capitalist John Doerr. “As big a deal as the personal computer,” said St. Steve Jobs when he saw the contraption which was supposed to transform personal transformation until it didn’t. That device was the Segway which finally met its demise in 2020. Even the Chinese couldn’t make it work.

Just because a new transportation method is lauded by critics doesn’t mean society will adopt it. That’s where we’re sitting with a new type of electric vehicle – the electric vertical takeoff and landing vehicle (eVTOL).

Electric vertical takeoff and landing vehicle (eVTOL).
Credit: Vertical Aerospace

Mankind has been using helicopters to take off and land vertically since 1939, but advancements in materials and batteries have brought a new generation of helicopters powered by electricity and multiple rotors. Investors have thrown billions at the idea and there are even six publicly traded stocks for retail investors as seen below:

 Market CapRevenuesSPACPerformance To Date
Joby Aviation (JOBY)3360NoYes-44%
Vertical Aerospace (EVTL)1564NoYes -25%
Archer Aviation (ACHR)1116NoYes-52%
Lilium (LILM)974No Yes -66%
EHang (EH)707Yes No Even since IPO 
Blade Air Mobility (BLDE)548Yes Yes -23%

The only company with revenues is one we looked at in our piece on Blade Air Mobility Stock and Urban Air Mobility. Here are some assumptions we laid out regarding the urban mobility thesis.

  • Urban air mobility largely involves fixed-point routes that don’t exist yet
  • Routes can initially be planned and brought into service using helicopters
  • Initially, there will be no cost advantage for flying eVTOL aircraft, but they will be quieter, which means more routes can be enabled
  • As autonomy becomes a reality, routes will expand as costs drop
  • Trying to assess the potential size of this new transportation market is difficult

There are lots of unknowns surrounding a burgeoning transportation network that doesn’t even exist yet. Blade Air Mobility has shown that demand for shorter fixed routes exists, but their total addressable market (TAM) estimates are based on what people say in a survey. Is there really a multi-billion-dollar opportunity in the greater New Yawk area? The only way we’ll know for sure is to start offering routes. That’s what Blade has done, so they’re uniquely positioned to probe just how much demand exists for urban air mobility. When a certified eVTOL aircraft is made available it can replace their choppers. The question is, when will the first eVTOL aircraft be available? According to EHang, we passed that milestone a long time ago.

We delivered two, five and seven passenger-grade AAVs abroad in 2018, 2019 and 2020, respectively.

Ehang 20-F document

The Problem with EHang

Where to start? There are loads of problems with EHang, beginning with their use of a variable interest entity (VIE) structure which allows them to trade in the United States. As we discussed in our Big Bear Thesis for Ali Baba Stock, VIEs are opaque legal structures based in places like the Cayman Islands where shareholders don’t have a legal right to the shares they think they’re holding. It’s a risk that’s largely been ignored by the investment community thus far, and China has promised they’ll rectify the problem. Until they do, we’re avoiding VIE structures like the plague.

Putting the VIE risk aside, EHang seems to have the revenue growth that would prove traction, though it’s recently stalled over the past three quarters along with their share price. Just over a year ago, EHang commanded a market cap of nearly $6.8 billion until the below report was published by short activist Wolfpack Research.

EHang commanded a market cap of nearly $6.8 billion until this report was published by short activist Wolfpack Research.
Credit: Wolfpack Research

As we discussed in similar short attacks targeting Berkeley Lights and Ginkgo Bioworks, these reports need to be taken with a grain of salt. You can always find disgruntled ex-employees to badmouth a company. The difference here is that we’re dealing with a Chinese firm that’s already opaque to begin with. To truly investigate the internal workings of a Chinese technology firm, you need boots on the ground. If a short seller takes the time to do this level of investigative reporting and finds red flags, we’re not going to assume they made the entire thing up. Could there be embellishment around the edges? Sure. But where there’s smoke, there’s fire. Dozens of Chinese tech companies have floated in the United States and turned out to be stock promotions. If even only some of what the report said is true, we want absolutely nothing to do with this stock that waves more red flags than a Chinese military parade.

Another stock on our list targeted by a short firm is Lilium.

A Short Flight for Lilium

Here’s what we had to say about the company in our piece on Lilium Stock: An Electric Jet Aviation Company:

The plan comes together in 2024 when the company expects to produce 90 aircrafts which will automagically produce $246 million in the same year – $29 million from transporting people via regional hubs (the air taxi model) and $217 million from selling their electric airplanes to companies such as Germany’s own Lufthansa and Brazilian airline Azul which said they’ll buy 220 aircraft in 2025.

Credit: Nanalyze

Being able to produce aircraft at scale and at an economically viable price point is just the beginning. A whole lot more needs to come together after that for planes to be generating revenue by 2024. That’s why investors expressed concern when Iceberg Research published a report last week claiming that “none of Lilium’s demonstrators have flown for more than three minutes even after seven years of work.” The criticisms surround the technology being utilized by Lilium which involves 30 engines per aircraft. A follow-up report by Iceberg claimed that Lilium tried to address these concerns in a FAQ that suddenly appeared on their website. The second report then went on to raise questions about battery technology and IP which seems too deep into the nitty-gritty. If, as the firm says, Lilium “has about 18 months before its cash runs dry,” then the rubber meets the road in 2023 when they’re expected to have a sufficient number of test flights for certification. Says Iceberg Research:

Both Joby and Lilium hope aviation authorities will certify their eVTOLs for commercial flight in 2023. This means both firms must have sufficient test flights for certification credit to hit that target. Joby is closer to the mark with ~1,000 test flights under its belt. Lilium is likely to miss the 2023 target by miles. It has completed less than 50 test flights on its fourth and fifth (current) demonstrators. 

Credit: Iceberg Research

Looks like we’ll have to wait a few years to see who’s right.

Three eVTOLs That Might Fly in 2024

By now, you’re probably realizing that the next big milestone for eVTOL companies to hit is certification from the Federal Aviation Authority (FAA). That’s why SMG Consulting produces the Advanced Air Mobility Reality Index that ranks which companies are closest to having fully certified eVTOL aircraft plying our skies. The metric “entry into service” or EIS is the year during which the manufacturer expects to begin operating commercially. It also coincides with the year during which all the revenues come pouring in according to the glossy SPAC decks. Three publicly traded eVTOL stocks expect to enter service in 2024 with varying degrees of likelihoods (probabilities assigned by SMG consulting).

Three publicly traded eVTOL stocks expect to enter service in 2024 with varying degrees of likelihoods (probabilities assigned by SMG consulting).
Credit: SMG Consulting

Of the three remaining SPACs on our list – Joby Aviation, Archer Aviation, and Vertical Aerospace – just one has a “likely” chance of having an aircraft in operation by 2024. Archer would probably disagree with that assessment based on their decision to “leverage existing certified subsystem technologies from various vendors to develop its aircraft.” By choosing not to be vertically integrated, Archer expects the approval process to go more smoothly, and it certainly has. Archer is one of only two eVTOL companies in the world with an FAA G-1 Issue Paper, a step in the long process towards getting certified to fly brand new aircraft in our urban skies. The other is Joby Aviation, a firm that’s not only the highest valued on our list but also is said to be the closest to commercializing VTOL aircraft.

We don’t invest pre-revenue so none of these companies would be of interest to invest in. However, there’s clearly a race to achieve certification, and three stocks plan to achieve that goal in 2024 along with meaningful revenues from production aircraft (according to the glossy SPAC decks).

  • Vertical Aerospace: $192 million revenues / 50 aircraft
  • Joby Aviation: $131 million revenues / 141 aircraft
  • Archer Aviation: $42 million revenues / 10 aircraft

Achieving certification is critically important because these firms are burning loads of cash. Sure, they have war chests following their SPAC deals, but they’ll need to show progress if they expect to raise again at favorable terms. In a coming article, we’ll take a closer look at how these three companies compare, from who they’re in bed with to what business models they plan to adopt.

We like Blade Air Mobility’s business model because it’s asset-light. Not having to own and maintain aircraft takes a lot of complexity out of the equation. Investors should ask themselves if a vertically integrated eVTOL business model is appealing. Joby has employed first-principles thinking and built everything from the ground up which means a lot more investment is needed and a lot more problems can happen. Perhaps choosing to manufacture aircraft only doesn’t provide a compelling enough growth story which is why we see all eVTOL companies adopting some form of vertically integrated business model.

Conclusion

One of the world’s most notable venture capitalists said the Segway would be the fastest outfit in history to reach $1 billion in sales. Most VCs who invested in eVTOL companies believe something similar – that the eVTOL will enable urban air mobility and transform the transportation industry. Trying to cherry-pick a winner prior to the emergence of revenues is too difficult a task, but we do know that certification will be the great filter of eVTOL technologies. In the same way that the FDA dictates the success of drug discovery companies, the FAA will dictate the success of urban air mobility companies. Given all the dogs in the race, there will likely be more than one winner and more than one loser.

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