The electric vertical take-off and landing aircraft (eVTOL) industry is ready to revolutionize the way people get from place to place.
eVTOLs will make it possible for people to move around cities at a rapid pace, thereby sustaining human productivity and solving the global vehicle traffic problem.
I believe that Joby Aviation, Inc. (NYSE: JOBY) is one of the most promising players in the eVTOL sector to invest in now, as I'll explain in this article.
Introduction
In 2009, JoeBen Bevirt founded Joby Aviation after having visions of flying electric vehicles as a child, and now some of the biggest names in technology, including Uber, Baillie Gifford, and Toyota, are backing him.
The aircraft is capable of reaching a speed of 200 mph and will have a range of 150 miles on a single charge (just for comparison, the average speed of a civilian helicopter is around 120mph and The world's fastest civilian helicopters can fly at a speed of 190mph). The management expects the average flight time to be about 24 miles, making it perfectly viable for short- to medium-distance trips. The aircraft can accommodate up to 5 people, including 1 commercial-level pilot. In addition, it also will be 100 times quieter than conventional aircraft.
The company went public in 2021 via a SPAC (Special Purpose Acquisition Company) called RTP (Reinvent Technology Partners) which was backed by LinkedIn Co-Founder Reid Hoffman. The stock price is currently down 48% from its initial $10 SPAC level, due to the adverse perception of SPACs and the unfriendly enivorment for early-stage companies. Given these factors, Joby now trades at ~$5 which at approximately 2.7 times its $1.2 billion in cash on hand, and thus I find a very attractive price.
Let's have a look at the important benefits that will allow Joby to take flight in the future:
The Uber of the Sky
Joby's eVTOL is a six-rotor vehicle that can house one pilot and up to four passengers. It can travel at a maximum speed of 200mph, which is significantly faster than the maximum speed of a civilian Helicopter (160mph).
The Company began flying full-scale prototypes in 2017 and has completed more than 1,000 flight tests to date. Its eVTOL did a 155-mile flight on a single charge in 77 minutes which is the longest and farthest flight by an eVTOL aircraft to date.
The main use case touted by the company will be airport pickup and drop-off in congested cities. According to Joby, a trip in Los Angeles City from a downtown helipad to Los Angeles International airport (LAX), would take just 8 minutes by flying taxi, as opposed to 30+ minutes by a standard taxi.
Furthermore, Joby's flying taxis are also designed to have extremely low noise levels, making them ideal for city pickups and dropoffs. This is confirmed by a recent noise test completed with NASA. NASA scientists measured the aircraft's acoustic profile during landing and takeoff and found it was below 65 dBA. This is historic news, as the noise level is comparable to a normal conversation, at a distance of 330 feet (100 meters) from the flight path.
Joby is committed to making air travel safer than ever before
According to a whitepaper published by Uber Elevate, eVTOL developers assert that safety is four times as high as that of most helicopters. Human error is said to be the cause of the majority of helicopter accidents, and this is why autonomous flight control systems can help mitigate future risks or at least provide guided flight assistance.
The FAA Part 135 Certificate is a Huge Milestone
Certification, Testing, and Regulations are the main challenges for the company before they can reach commercial operations by 2024. In order to operate commercially, the company needs to obtain 3 important FAA approvals before operating as a commercial business:
- Part 135 Certificate
- Type Certificate
- Production Certificate
So far progress has been good with the company achieving a U.S. Air Force Airworthiness and FAA Special Airworthiness Certificate for its second production vehicle. Joby was also the first eVTOL developer to sign a G-1 (stage 4) certificate with the FAA in 2020.
Moreover, Joby received the Part 135 certificate well ahead of schedule so the company can focus on testing its aircraft and preparing for the 2024 commercial launch.
This certificate has been achieved a couple of months earlier than expected, which is a positive sign. The next step is to obtain the type and production certificates, which will put Joby one step closer to generating revenue.
According to the Advanced Air Mobility Reality Index, Joby has a 75-100% chance of going commercial in 2024.
Joby has a strong Investor Base
In 2018, Joby Aviation raised $100 million in a Series B funding round backed by Intel Capital (Venture arm of Intel (INTC)), the world's largest car maker Toyota, JetBlue Airways (JBLU), and even Baillie Gifford an early Tesla Backer. In 2021, going public by SPAC led by Reid Hoffman, co-founder of LinkedIn, Joby raised $100MM+ investment in PIPE from Hoffman's Reinvent investment vehicles.
The early stage backers of the company give them many competitive advantages. For instance, Joby solidified a manufacturing partnership with Toyota in 2020, which gives them many competitive advantages. scalability, for example, is one of them.
Elon Musk has previously stated in prior interviews that
"Making a prototype is relatively easy, scaling the manufacturing is the real challenge".
In addition, the market leader in ride-sharing, Uber, provided a $75 million investment into Joby, when the company acquired Uber's flying taxi development Arm Uber Elevate. This is a landmark strategic partnership as it now means Joby flights will be able to be booked directly from the Uber App which had 118 million users in 2021.
The vision of Joby and Uber Elevate is to make ordering a flying taxi as easy as ordering a normal taxi. Joby hopes to release an app-based aerial ride-sharing service by 2024 that is commercially viable.
Founder-Led Company with Insider Holding
Joby Aviation, an electric aircraft startup, was created by serial entrepreneur JoeBen Bevirt in the early days after he sold his companies Velocity11 and GorillaPod. Joby's early days consisted of researching different motors, software, and battery types. This cutting-edge research even led to NASA's LEAPTech program and the NASA X-57 Maxwell electric plane, which looks similar to Joby's vehicle today.
Joby's founders seem to have a lot of confidence in the company and bought additional shares in the company last year according to insider trading. This is without having sold a single share since launch, which I take as a very positive sign.
Founder JoeBen Bevirt owns 16.32% of the company and the executive chairman of the board Paul Sciarra owns 9.94%. Bevirt purchased more shares in December 2021, May 2022, and July 2022 a total of 175,137 shares, and Sciarra purchased more shares in December 2021 and May 2022 a total of 284,637 shares.
In the words of the great investor Charlie Munger "Show me the incentives and I will show you the outcome". The fact the founder has "skin in the game" means his incentives are more closely aligned with shareholders, which is a positive.
Last, Joby has a great DeSPAC Structure, which aligns interests for the long-term:
- Price-based vesting triggers of $12, $18, $24, $32, and $50 per share on founder shares
- Up to five-year lock-up on founder shares
- Senior Joby management and material existing investors are subject to lock-up arrangements substantially similar to the founder shares
Favorable Economics and Great Balance Sheet
Joby has a business model with favorable economics on paper, like any other company. The revenue-to-cost ratio is expected to be $1.73 per seat mile and the average price for one would be about 86 cents; this means that they should have an overall margin of around 50% or $0.87 per seat mile, which is quite good.
Military Contracts and Civil operations
Even though Joby is yet to bring in revenue, it has partnered with the DoD. In August, this partnership was expanded and the value of the contract increased by $45 million, bringing the total to $75 million. With this expansion, the Army, Navy, Air Force, and Marine Corps have all now identified electric vertical takeoff and landing (eVTOL) aircraft as a critical area of interest.
The expansion widens the Company’s defense partnerships to include the U.S. Marine Corps, which will participate in government-directed flight tests and use case exploration, including resupply, relocation of personnel, and emergency medical response applications.
I could see scenarios where Joby's aircraft are in high demand from different armies across the globe.
Joby's eVTOL aircrafts aren't just for the military. They have loads of other potential applications that can help improve quality of life. For example, police and fire authorities could use them to respond to emergencies quickly and efficiently. Natural health services could use them to transport patients or deliver supplies. Hospitals could use them for quick transport of patients or organs. And the postal service could use them for speedy mail delivery.
Cash Is King
eVTOLs and air taxis offer a lot of promise for the future, but sector companies will need cash to survive until they can start offering commercial flights. Many eVTOLs are predicted to receive FAA certification in 2024, which will lead to a major increase in production in 2026 and sales will follow suit.
Thanks to the significant investments made by Reinvent Technology Partners in 2021, Joby Aviation as of now still has a cash balance of $1.2 billion and is free of any debt. In addition, Joby has excellent cash burn. In the March quarter, operating activities burned $1.4 million and an additional $10.8 million was spent on purchases of property and equipment. The company can manage to burn $72.4 million per quarter for at least 3 years with its current cash on hand.
Competition
In March 2022 Volcopter a startup out of southern Germany (Bruchsal) raised US$170M and in April 2022 and Vermont-based startup Beta managed to secure US$375M in their latest round of funding. These investment rounds indicate that other competitors are on the way, both in the public and private capital markets.
Other major competitors include EHang (EH), Lilium (LILM), Archer (ACHR), Vertical Aerospace (EVTL), Eve Air Mobility (ERJ), and Blade (BLDE). Joby's biggest competitor, in terms of range, is Lilium Air Mobility. Lilium is a German aerospace company that is currently developing the "Lilium Jet".
Lilium has come under fire from short sellers due to battery issues and engineering challenges. In 2020, German aviation magazine Aerokurier published doubts about Lilium's 5-seat prototype and battery performance. Four engineers concluded that the 5-seater could not fulfill CEO Daniel Wiegand's repeated promise that the plane could fly 186 miles and still have reserve power to spare. One of the engineers told Aerokurier that just 60 seconds of hovering would have shaved off more than half of the company's range target at the time.
This controversy has called Lilium's electric aviation ambitions into question, and it remains to be seen whether the company will be able to overcome these challenges.
Final Thoughts
In the words of Elon Musk,
"Life needs to be more about solving problems you need to wake up and be excited about the future"
Flying taxis are one of those industries which captivate the imagination. One day (by 2024) according to Joby, we may see flying taxis in our city skies and it becomes as normal as hailing an Uber. However, there is still a long way to go with technical challenges, regulations, and the cultural shifts required to be overcome.
I truly believe the eVTOL industry will be a complete game changer. Joby Aviation reminds me of Tesla in 2010 when it was an obscure company backed by a bright-eyed eccentric leader named Elon Musk.
I see many similarities in Joby Aviation and a similar level of passion & drive in JoeBen Bevirt. JoeBen Bevirt is so passionate about electric aircraft that he allowed Joby employees to sleep on his property and save money on rent while working around the clock.
This is the kind of dedication it takes to when in a competitive market and I think JoeBen Bevirt could take Joby to the next level in terms of revenue and market share growth.
Disclosure: I/we have a beneficial long position in the shares of JOBY either through stock ownership, options, or other derivatives. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision. The views, thoughts, and opinions expressed here are the author’s alone.
