Flying Cars and Flying Too Close to the Sun

Ever since The Jetsons, people have dreamed of flying cars. Now, thanks to advances in electric motors and battery technology, we're finally on making them real. But the path from science fiction to viable business is rarely straightforward, and the emerging eVTOL (electric Vertical Takeoff and Landing) industry faces some interesting challenges.

The Opportunity

The potential market for eVTOLs is enormous. Morgan Stanley estimates it could reach $1.5 trillion by 2040. That's the kind of number that makes investors' eyes light up. But as any experienced founder knows, a big potential market is just the beginning.

What's exciting about eVTOLs is that they represent a genuinely new category of transportation. They're not just incrementally better helicopters or planes - they're a fundamentally different way of moving people and goods. This creates opportunities not just for the companies building the aircraft, but for an entire ecosystem of supporting businesses: vertiports, air traffic control systems, maintenance services, and so on.

Market Overview

The eVTOL landscape can be broadly categorized by product, application, and operation. From the simplest helicopter-like configuration to the more advanced tandem tilt-wing architecture, these designs are based on both innovation and market considerations. 

Pivotal's BlackFly, for example, is the first eVTOL aircraft to be both commercially sold and delivered to an individual.

• Its unique tandem wing architecture offers several key advantages including reduced manufacturing cost, fewer potential failure points, and fewer design complications, especially relative to tilting-rotor configurations.

• Its ease of transport and launch-30 minutes to be deployed via 16-foot trailers - and its triple modular redundancy to prevent failure have garnered it interest from the US military as well.

• While its cost of $190,000 is much higher than even a premium car, it does come in at a lower price than certain small aircraft.

• However, as this industry is primarily focused on carrying multiple passengers, the lack of scale and smaller capacity per craft will always limit it's total market share.

Industry Landscape and Competitive Analysis

Key players in eVTOL market can be categorized as follows:

1. Pure-play eVTOL companies:

   • Joby Aviation

   • Lilium

   • Archer Aviation

   • Volocopter

   • Pivotal

2. Traditional aerospace companies:

   • Airbus (CityAirbus)

   • Boeing (partnership with Wisk Aero)

   • Embraer (Eve Air Mobility)

3. Automotive and technology companies:

   • Hyundai (Supernal)

   • Toyota (investment in Joby)

   • Intel (investment in Volocopter)

While Pivotal and others have targeted the individual consumer by emphasizing aircraft like the BlackFly, a substantial portion of the industry is concentrating on manufacturing aircraft designed for urban air taxi services, which we'll dive into in the next section One of the most prominent players in this space is Joby Aviation.

Joby Aviation: A Pioneer Facing Headwinds

Emerged as a frontrunner in the eVTOL race, becoming the first company in the sector to go public in 2021 through a SPAC merger. Initial investor hype propelled its stock to over $14 per share, reflecting some reddit and legit excitement in the nascent industry. The company, founded by JoeBen Bevirt, has spent years developing its eVTOL aircraft, securing partnerships with industry giants like Toyota, and making significant progress toward FAA certification.

However, cracks started appearing in Joby's narrative. The company's early financials were marked by heavy R&D expenditures and substantial operating losses. Moreover, Joby's marketing efforts seemed to outpace its technological development, as seen in costly Super Bowl ad spots while still generating very low revenue. CEO Bevirt's grand pronouncements – envisioning Joby as the

appeared detached from the company’s product focus, raising concerns about a diluted vision and unrealistic expectations. Savvy investors recognizing these warning signs began shorting the stock, further contributing to its decline, trading at $5 per share, which is less than one-third its original valuation, as of 2024.

Dissecting Financials and Technology

Technology: Joby's eVTOL utilizes a unique tilt-rotor configuration, allowing for vertical take-off and landing while transitioning to efficient forward flight. This design combines the benefits of helicopters and fixed-wing aircraft, optimizing both maneuverability and speed. The aircraft's electric propulsion system offers environmental advantages, reducing noise and emissions.

Funding and Development: Joby's journey has been marked by substantial funding, including investments from likes of Toyota Motor Corporation and Intel Capital. The company went public through a special purpose acquisition company (SPAC) merger in 2021, raising significant capital to further its development efforts.  However, despite these significant investments, Joby has faced challenges in meeting its initial timelines and achieving profitability, primarily due to high R&D and testing costs. As of 25 September 2024, Joby's market capitalization stands at approximately $3.69B (down from $6.6B - valuation at IPO), reflecting investor uncertainty about the company's long-term prospects.

Strategic Partnerships: Joby has forged key strategic partnerships, including a collaboration with Delta Air Lines to integrate eVTOL services into Delta's existing transportation network. This partnership aims to provide seamless connectivity for passengers, expanding the reach and accessibility of Joby's UAM network. Joby has also partnered with Uber to integrate its air taxi services into Uber’s ride-hailing platform.

Challenges and Opportunities: Joby faces similar challenges to other eVTOL developers, including regulatory hurdles, infrastructure development, and public acceptance. However, the company's strong financial backing, strategic partnerships, and focus on commercialization position it as a significant player in the evolving UAM market.

Market Demand and Performance: The broader market for urban air mobility is still in its nascent stages, with commercial operations yet to commence on a significant scale. However, the increasing interest from established players like Delta, Uber and Joby, along with rising consumer demand for faster and more convenient transportation options, suggests a substantial growth trajectory for the industry in the coming years.

Challenges and Lesson Learned:

The eVTOL industry's primary challenges extend beyond the issues faced by individual companies like Joby.  The sector must navigate several key hurdles to achieve widespread adoption and profitability.

• Regulatory Frameworks:  Establishing clear and consistent regulations for eVTOL operations, including air traffic management, certification standards, and pilot licensing, is crucial for ensuring safety and fostering investor confidence.

• Public Acceptance: Addressing public concerns about noise, safety, and privacy is crucial for gaining the social license to operate and fostering widespread adoption of eVTOL services.

• Economic Viability: Achieving profitability for eVTOL operations will require careful management of costs, including aircraft manufacturing, maintenance, and operating expenses.  Pricing strategies must also balance affordability for consumers with the need to generate sufficient returns for investors.

• The Value of Strategic Partnerships: Joby's collaboration with Delta and Uber underscores the importance of strategic partnerships in navigating the complexities of a new industry like UAM.  Collaborating with established players can provide access to resources, expertise, and existing customer bases, accelerating market penetration and adoption

• The Importance of a Realistic Vision:  Joby's overly ambitious initial vision, attempting to be everything to everyone, highlights the need for a realistic and focused approach to market entry.  Concentrating on specific use cases and target markets can enhance the likelihood of success in a competitive landscape.

Investment Considerations and Valuation Approaches

Given the pre-revenue nature of most eVTOL companies, traditional valuation metrics are of limited use. Investors should consider:

1. Discounted Cash Flow (DCF) Analysis:

   • Projecting future cash flows based on market size estimates and company-specific factors

   • High discount rates to account for technology and market risks

2. Real Options Valuation:

   • Accounting for the value of strategic flexibility in an uncertain market

3. Comparable Company Analysis:

   • Utilizing metrics from adjacent industries (e.g., electric vehicles, aerospace)

   • Key metrics: EV/Total Addressable Market, Price-to-Book

4. Milestone-based Valuation:

   • Assigning value to achievement of key technical and regulatory milestones

My Long View

Despite the challenges, I'm optimistic about the future of eVTOLs. The potential benefits in terms of reduced traffic congestion, faster emergency response times, and new transportation options for underserved areas are too significant to ignore.

But it's going to take time. The winners in this space will be the companies that can combine technical innovation with business acumen and regulatory savvy. They'll need the patience to navigate a long and complex development process, and the flexibility to adapt their strategies as the market evolves.

Note: This analysis is for informational purposes only and does not constitute financial or investment advice. If you observe any errors in numbers, figures, or other information presented here, please email me at [email protected].