Over the past few decades, there have been many technology hype cycles: 3D printing, hyperloops, and the metaverse are just three examples. Most of these failed to live up to expectations. And while it is too early to know for sure, electric vertical takeoff and landing (eVTOLs) might buck the trend because of their clear real-world utility.
Early movers like Joby Aviation (JOBY -2.51%) promise to bring the rapid improvements in battery-electric vehicle technology into the skies. Let's explore what the next five years could have in store for the company.
Why eVTOLs?
Morgan Stanley's automotive and mobility research team is no stranger to making grand projections about new technologies, and eVTOLs are no exception. In a 2021 report, the analysts estimated these aircraft could become a $1 trillion addressable market by 2040 -- rising to $9 trillion by 2050 as they replace land-based taxis in cities and find other applications in cargo delivery, law enforcement, and the armed forces.
While these lofty estimates might sound unrealistic on the surface, eVTOLs have several advantages over traditional helicopters. On top of being more environmentally friendly, electric power trains can be smaller, quieter, and less mechanically complex than gasoline-powered alternatives. These characteristics could make them easier to mass produce and better suited to operating in dense urban environments.
Does Joby Aviation have an edge?
Joby Aviation went public through a merger with a special purpose acquisition company (SPAC) in 2021, raising more than $1 billion to help develop and test its eVTOL program. However, like many SPAC companies, Joby listed at an uncomfortably early stage in its development, as evidenced by bleak third-quarter earnings.
The company generated only $28 million in revenue, which pales in comparison to the $156.7 million it lost on operations, mainly because of research and development. With $737.8 million in cash and equivalents on its balance sheet, Joby can sustain these losses for at least a year. However, investors should expect management to eventually turn to outside sources of capital like new share issuance, which could hurt the stock price by diluting investors' ownership stake in the company.
Image source: Getty Images.
That said, Joby is making progress. This month, it received Part 141 approval from the Federal Aviation Administration (FAA) to open a pilot training academy to develop a pipeline of qualified pilots. Joby's focus on pilot training highlights a key difference in its business model compared to other publicly traded eVTOL start-ups like Archer Aviation.
Unlike Archer, which focuses strictly on manufacturing, Joby aims to both build eVTOLs and operate its air taxi service independently.
This business model will involve significant capital expenditures on infrastructure. In November, management announced the start of construction of a "vertiport" designed to facilitate air taxi service at the Dubai International Airport. The company plans to create a network of launch and landing pads with additional vertiports expected in downtown Dubai and other city landmarks like Palm Jumeirah and the Marina.
Where will Joby Aviation be in the next five years?
The next five years will be exceptionally difficult for Joby Aviation as its cash-burning operations lead to more equity dilution. The company's business model also introduces more potential points of failure. Instead of only worrying about manufacturing, it also must invest cash and managerial resources to build a taxi business.
While hype and excitement can keep Joby's shares buoyant in the near term, eventually, the market will come to grips with the scale of these challenges. Like many SPAC companies, Joby looks too immature for public markets and would have made more sense as an experimental division of a larger company with money to burn.
