Flying Cars Are Here (Almost)
Who's Leading The eVTOL Race?
From the movie - 'The Fifth Element' - 1997
No, we are not getting what you see in the picture above. Flying cars are closer than you think but it’s not turning out to be how Hollywood imagined it.
In all honesty, what we refer to as ‘Flying Cars’ today, is in reality, an electric vertical take-off and landing (eVTOL) vehicle. eVTOLs are closer to helicopters than they are to cars but let’s just say it is the first step? I would never put anything past technology, never say never, right? If we look far out into the future, it’s possible that you can fly a car out of your backyard but what I am going to cover in this article is coming to a country near you in 2025.
An electric vertical take-off and landing (eVTOL) aircraft is a variety of VTOL (vertical take-off and landing) aircraft that uses electric power to hover, take off, and land vertically. Here is Joby’s eVTOL in Action:
Source: JetBlue Technology Ventures Giphy
Traffic Congestion is a big issue:
Traffic congestion is a pressing problem in cities worldwide, impacting the daily lives of millions. Major urban centers such as Los Angeles, United States, are notorious for their heavy traffic, with long commutes and congested highways becoming the norm. In Mumbai, India, a dense population and inadequate infrastructure result in chaotic traffic conditions and significant delays. The vibrant city of Bangkok, Thailand, faces severe congestion, causing frustration for commuters and hindering economic productivity. European cities like London, United Kingdom, combat congestion through measures like congestion charges and promoting public transport usage. Istanbul, Turkey, struggles with traffic gridlock due to rapid urbanization and insufficient transportation infrastructure. These examples demonstrate the global nature of the traffic congestion problem, emphasizing the need for effective solutions to ensure smoother and more efficient movement within cities.
Old Solutions:
Public transportation: Public transportation is a more efficient way to move people around than cars. By investing in public transportation, cities can reduce traffic congestion and improve air quality.
New Solutions:
Micromobility: Micro Mobility refers to transportation options that are smaller and more agile than cars, such as bicycles, scooters, and electric bikes. Micro Mobility can help to reduce traffic congestion by providing people with alternative ways to get around.
Shared mobility: Shared mobility refers to transportation options that are shared by multiple people, such as carpooling and ride-sharing. Shared mobility can help to reduce traffic congestion by reducing the number of cars on the road.
Future Solutions:
Artificial intelligence (AI): AI can be used to analyze traffic data and identify patterns that can be used to improve traffic flow. For example, AI can be used to predict where traffic jams are likely to occur and to adjust traffic signals accordingly.
Self-driving cars: Self-driving cars have the potential to reduce traffic congestion by communicating with each other and coordinating their movements. This could help to prevent accidents and to smooth out traffic flow.
Hyperloop and Urban Air Mobility: Futuristic transport concepts like the Hyperloop and urban air mobility systems aim to provide high-speed, efficient transportation options. These technologies have the potential to alleviate congestion by offering alternative modes of transportation that bypass traditional road networks.
For this article, we are going to focus on Urban Air Mobility aka “Flying Cars”.
Electric Vertical Takeoff and Landing (eVTOL)
Vertical Takeoff and Landing: eVTOLs can take off and land vertically, eliminating the need for traditional runways or roads. They can utilize helipads or designated landing zones on buildings, reducing the requirement for extensive ground infrastructure. This vertical capability allows for more flexible routes and efficient use of urban airspace.
Direct Point-to-Point Transport/Utilizing Underutilized 3D Airspace: eVTOLs enable direct point-to-point transport, bypassing road congestion. They can navigate through the air using predetermined flight paths, taking advantage of 3D airspace to provide faster and more efficient travel. Passengers can bypass surface-level traffic, reducing travel time and congestion on the ground.
Environmental Benefits: eVTOLs powered by electric propulsion systems produce zero direct emissions during operation, contributing to improved air quality and reduced environmental impact. Shifting some urban transportation to electric air taxis can help reduce emissions and promote sustainability.
However, it's important to note that the widespread integration of eVTOLs into urban transportation systems is still in the developmental stage. Significant challenges, such as infrastructure development, air traffic management, noise regulations, and public acceptance, need to be addressed before eVTOLs can effectively alleviate traffic congestion. Nevertheless, ongoing research, testing, and collaborations between aerospace companies, urban planners, and regulatory bodies are driving progress towards a potential future where eVTOLs play a role in reducing traffic congestion in cities worldwide.
We are here to talk about that progress. As I mentioned at the beginning of the article that eVTOLs are closer than most people think (think 2025) and the two companies that are front of the line are $JOBY & $ACHR - which are both out of favor in this high interest rate environment.
Please take note that both are loss making, cash burning, with significant risk of regulatory approval and risk to commercial launch. They don’t make any significant revenue today.
Joby Aviation, Inc. (NYSE:JOBY), founded in 2009, is a California-based transportation company developing an all-electric vertical take-off and landing aircraft which it intends to operate as part of a fast, quiet, and convenient air taxi service beginning in 2024. The aircraft, which has a maximum range of 150 miles on a single charge, can transport a pilot and four passengers at speeds of up to 200 mph. It is designed to help reduce urban congestion and accelerate the shift to sustainable modes of transit.
While it says, “air taxi service beginning in 2024”, I would take that with a pinch of salt. Analysts don’t expect meaningful revenue ($500M+) until 2026.
Joby’s Certification Status:
Joby Aviation Inc. is the leader in eVTOLs & has completed 2 out of 5 Certification Steps needed from the FAA to allow eVTOLs to operate commercially in the United States.
Source: Joby Shareholder Letter Q1, 2023
Here are details on countries that Joby hopes to offer services in and has taken formal steps towards that goal: (In Chronological Order)
South Korea:
In February 2022 SKT and Joby Aviation Joined Forces to Bring Air Taxi Service to South Korea. The partners intend to leverage SK’s T Map mobility platform, Korea’s largest mobility platform, and UT ride hailing service to provide multi-modal journeys to customers seamlessly integrating both ground and air travel. UT was established as a joint venture between SKT and Uber in 2021, bringing together SK’s T Map platform and Uber’s ride sharing technology. Joby and Uber have been collaborating since 2019.
UK:
In July 2022, Joby Aviation became the first eVTOL company to apply for the U.K. Aircraft certification. Joby’s application builds on a joint statement by the FAA and CAA in March, announcing their intent to leverage the existing Bilateral Aviation Safety Agreement between the two regulators to streamline the introduction of eVTOL aircraft using existing regulatory frameworks.
Japan:
In October 2022, Joby Aviation formally applied to the Japan Civil Aviation Bureau for the validation of an FAA "type certification" to get its eVTOL aircraft design certified to launch aerial ridesharing services in Japan.
Japanese and U.S. regulatory authorities have reached an agreement to deliver a streamlined approval process for U.S. applicants who wish to validate their eVTOL aircraft designs in Japan.
Joby also has a long standing relationship with Toyota which is discussed below.
Joby had also announced a partnership with ANA to bring air taxis to Japan in Feb 2022.
United States:
In Feb 2023, Joby Aviation announced that it has effectively completed its G-2 Means of Compliance (MOC) approval process with the FAA, becoming the first electric vertical takeoff and landing (eVTOL) vehicle startup in the U.S. to complete the second phase of the five-stage aircraft certification process.
Other Regions:
The industry is evolving at a breathtaking pace and the FAA has announced similar partnerships with Canada, Australia and New Zealand in the National Aviation Authorities Network to harmonize certification and integration plans for advanced air mobility projects.
Source: Reuters New Article
Important Relationships:
Toyota:
Joby welcomed Toyota (TM) as a strategic partner in 2018. In June 2020, Toyota invested $394M in Joby. Toyota also agreed to share its expertise in manufacturing, quality and cost controls for the development and production of Joby Aviation’s breakthrough eVTOL aircraft.
In April 2023 Joby Aviation expanded its partnership with Toyota. Joby Aviation announced it has inked a long-term agreement with Toyota Motor Corporation to supply key powertrain and actuation components for the production of the company’s aircraft.
Uber:
In Dec 2020, Uber Technologies, Inc agreed to invest a further $75 million in Joby as part of a broader transaction involving the acquisition of Uber Elevate by Joby and an expanded partnership between the two parent companies. This investment comes in addition to a previously undisclosed $50 million investment made as part of Joby’s Series C financing round in January 2020
Delta Air Lines:
In October 2022 Delta Airlines Invested $60M in Joby - Seeking Alpha News Link
The companies will work together to integrate a Joby-operated service into Delta’s (DAL) customer-facing channels, enabling passengers from New York and Los Angeles to reserve a seat for short-range journeys to and from city airports when booking Delta travel.
The partnership will be mutually exclusive across the U.S. and U.K. for five years following commercial launch, with the potential to extend that period.
US Air Force:
In April 2023, Joby Aviation announced the third extension of its Agility Prime contract with the United States Air Force.
The company stated the $55M contract extension brings the total potential value of Joby’s current contract with the Air Force up to $131M and underlines the U.S. government’s continued commitment to leadership in this new sector.
FAA administrator:
In May 2023, Joby Aviation named Michael Huerta, a former FAA administrator, to the company board.
“Michael is joining our team at a pivotal time for Joby and the broader eVTOL industry, and his dual seat on Joby and Delta’s Boards will be invaluable as we prepare for commercial operations,” said JoeBen Bevirt, Founder and CEO of Joby. “He has been a strong proponent of electric aircraft and future aviation technologies, and we’re grateful for the passion and depth of experience he brings to our team.”
Financials:
Strong Financial Foundation
At the end of the first quarter of 2023, Joby had $978 million in cash and short-term investments. Net cash used in operating activities and purchase of property plant and equipment totaled $87 million in the first quarter. In May 2023, Joby agreed to issue approximately $180 million of common stock to further bolster its balance sheet and support operations, including future investments in capacity to accelerate production.
Net Loss
Net loss of $113 million reflected operating expenses of $100 million and unfavorable revaluation of derivative liabilities of $22 million, partly offset by net interest income of $8 million. Operating expenses primarily reflected continued progress certifying the aircraft and early manufacturing operations.
Adjusted EBITDA
Adjusted EBITDA loss of $75 million largely reflected operating expenses excluding depreciation, amortization and stock-based compensation.
With no revenue and a market cap of $3.2 Billion, $JOBY is extremely expensive. Substantial revenue is still a couple of years out (if everything goes to plan), I have therefore been dollar cost averaging into it and will continue to do so.
For the past couple of years, I was only invested in $JOBY. It was far ahead of the rest of the eVTOL companies. However, Archer Aviation has caught up, pretty much.
Aside from Joby, Archer Aviation is the only other U.S.-based company that has completed its G-1 Certification Basis with the FAA, and it also expects to have its G-2 MOC fully approved sometime in the second quarter of 2023 (Step 2 out of 5).
Archer is designing and developing electric vertical takeoff and landing aircraft for use in urban air mobility networks. Archer’s mission is to unlock the skies, freeing everyone to reimagine how they move and spend time. Archer Aviation, in partnership with United Airlines, plans to launch the first air taxi route in Chicago, between O’Hare International Airport (ORD) and Vertiport Chicago. beginning in 2025. Archer’s Midnight Aircraft, which has a maximum range of 100 miles on a single charge, can transport a pilot and four passengers at speeds of up to 150 mph.
Archer’s Certification Status:
Archer continues to steadily progress their certification program with the FAA in support of our planned entry into service in 2025 and scale by 2028. Archer has now submitted 15 of our 18 SSCPs to the FAA, as well as the overarching PSCP.
Source: Archer Investor Presentation, April 2023
Archer has not been as active on the global stage as Joby has.
Important Relationships:
United Airlines
In April 2022, Archer and United Airlines formed a committee to support urban air mobility development - Seeking Alpha News Article.
In August 2022, United Airlines placed a deposit for 100 flying taxis from Archer Aviation - Seeking Alpha News Article. United has agreed to purchase $1.5B in aircraft purchases ($10M received in cash deposit on first 100 aircrafts) - Source: Archer Investor Overview - April 2023
In November 2022, Archer And United Airlines Announced First Commercial Electric Air Taxi Route In The US: Downtown Manhattan To Newark Liberty International Airport - Source: Archer Website.
In March 2023, Archer jointly announced with United that we are working to launch UAM service in Chicago in 2025. This would be the City’s first point-to-point eVTOL aircraft route.
Early launch routes will focus on airport to city center transportation service, which are referred to as “trunk” routes. Once Archer establishes the trunk routes, they will then focus on building out the “branch” routes to connect to surrounding communities.
The United and Archer teams continue to work closely to identify additional planned take off and landing locations in the U.S. and mature our plans around operations for the routes we’ve previously announced.
Stellantis:
In January 2023, Stellantis upped its investment in Archer. Stellantis, which has been a partner since 2020, will aid in the manufacturing of Archer’s Midnight eVTOL aircraft by contributing personnel, technology, and engineering know-how to the venture. Stellantis will also increase its investment to $150M of equity capital for potential draw by Archer at its discretion in 2023 and 2024, bolstering the firms’ existing relationship.
“We’ve been working closely with Archer for the past two years, and I am continually impressed by their ingenuity and unwavering commitment to deliver,” said Carlos Tavares, Stellantis CEO. “Deepening our partnership with Archer as a strategic investor with plans for growing our shareholding demonstrates how Stellantis is pushing the boundaries to provide sustainable freedom of mobility, from the road to the sky.”
Source: Seeking Alpha New Article
Financials:
Net Change in Cash
Archer Aviation exited the quarter with $449.9 million in cash, cash equivalents and short-term investments, a reduction of $81.3 million from the fourth quarter of 2022, and a decrease of $254.3 million from the first quarter of 2022, primarily driven by funding operating expenses. Additionally, Archer has $7.2 million of restricted cash generally to support various letters of credit for commercial leases and for the manufacturing facility in Georgia.
Net Loss
Net loss for the first quarter of 2023 was $113.1 million, which increased sequentially by $17.7 million from $95.4 million in the fourth quarter of 2022, driven primarily by the non-cash change in fair value of warrant liability and other warrant costs, and an increase in operating expenses. Year-over-year, net loss for the first quarter of 2023 was higher than the first quarter of 2022 by $53.9 million, primarily due to the $46.7 million increase in operating expenses and the $11.6 million non-cash change in fair value of warrant liability and other warrant costs.
Adjusted EBITDA
Adjusted EBITDA loss for the first quarter of 2023 was $79.0 million, which increased sequentially by $3.0 million from a loss of $76.0 million in the fourth quarter of 2022, and increased by $39.9 million year-over-year from an Adjusted EBITDA loss of $39.1 million in the first quarter of 2022, as we increased operating expenses due to the reasons mentioned above.
Like Joby, Archer is also pre-revenue but with a much smaller market cap than Joby at $586.37M. Joby is 5.6 times more expensive than Archer. Archer is expected to start delivering meaningful revenue ($500M+) in 2027. Since it has now closed the gap with Joby in terms of certifications, I started building a position in Archer and have been dollar cost averaging into it.
If you want the most recent updates on all eVTOL companies, refer to this article.
Recent FAA Update:
The FAA recently updated its Air Mobility blueprint for Flying Taxis.
"I expect that we have air taxis at scale, especially in all of our major cities," Acting FAA Administrator Billy Nolen said at The Wall Street Journal's Future of Everything Festival. "If we've gotten it right from the regulatory framework, from the level of safety that the public expects, and if all that comes together, then it's a world that we only thought about as science fiction before that becomes science fact in the moment."
The FAA expects to grant approval to the first air taxis as soon as next year
Conclusion:
In an effort to find disruptive companies that are out of favor, I like both Joby Aviation and Archer Aviation and will continue to Dollar Cost Average into the foreseeable future.
Both companies continue to make progress towards their certifications and the FAA seems leaned in.
Joby’s relationship with Toyota and Archer’s relationship with Stellantis, gives me confidence that they are consulting the best in the business for manufacturing.
Joby’s relationship with Uber & Delta Airlines & Archer’s relationship with United shows a very clear go to market path.
Joby in particular has been executing extremely well on the global stage & has deep relationships with the US Military, which always helps.
Joby has almost twice the cash reserves that Archer does, but does Joby deserve a 5.6x premium valuation to Archer Aviation? I don’t think there is a way to know. There is just too much uncertainty ahead to say for sure which company will win out in the end. Maybe both do, maybe neither do and a third player emerges. Welcome to venture investing in public markets.
Past performance is no guarantee of future results.
The ideas discussed in this article should not be constituted as investment advice.
Disclosure: We own positions in some/all of the tickers mentioned in this article.