Flying taxis, or electric vertical takeoff and landing vehicles (eVTOLs), may sound like science fiction, but there is a strong business case for adopting them. One-third of CO2 emissions comes from the transportation sector, and thus our cities are heavily polluted. eVTOLs help solve this issue as there are electric. While electric commercial flights are not yet viable, these smaller "electric flying taxis" are very close to becoming viable at scale. We are at an optimum point where battery technology has improved to such a degree to make this possible.
The worldwide eVTOL industry was worth $5.4 billion in 2021 according to Fortune Business Insights and is forecasted to grow at a rapid 23% compounded annual growth rate (CAGR) to be worth ~$23 billion by 2028.
In light of the strong outlook for flying taxis, let's take a look at Joby Aviation (JOBY, Financial), a leader in the eVTOL industry that recently had a strong third quarter.
Flying taxi business model
Joby Aviation (JOBY, Financial) is a leading manufacturer of eVTOLs that aims to solve the problem of traffic congestion in big cities such as Los Angeles and New York by taking to the skies. The company even believes this method will be cheaper than traditional transportation because it mitigates the need to build expensive bridges and more roads. According to a study by Joby, a trip from downtown New York City to JFK Airport would take 49 minutes by an on-road taxi but just 7 minutes by a flying taxi.
Why hasn't this solution been attempted with helicopters, you might ask? Surely saving time is important, even if it burns fossil fuels. The problem with helicopters is that they are expensive to run and not exactly safe. According to one study by Griffith Injury Law, the majority of helicopter accidents are caused by human error. For example, in the case of basketball legend Kobe Bryant, who died in a helicopter crash, the New York Times reports that this was because the pilot flew into clouds, which was in violation of federal rules but likely was not intentional as no one can predict the path of clouds just by looking at them and helicopters are notoriously difficult to steer.
With eVTOL, the use of autonomous flying and driver assistance technology makes the vehicles four times safer than a helicopter, according to a study by Uber (UBER, Financial) Elevate.
Joby Aviation acquired Uber’s flying taxi division Uber Elevate in 2020 and took a $75 million investment from the company. Management has a bold vision to create an integrated system with the Uber mobile application. This means users would simply book a flying taxi Uber as normal on the app and then head to a “Vertiport,” which is a strategically placed vertical airport (usually on a rooftop), in order to take flight.
In October 2022, Delta Air Lines (DAL, Financial) invested $60 million into Joby and aims to make a further investment of up to $200 million as the company achieves more milestones. The vision is to give customers of Delta the ability to book airport transfers via the Delta Air Lines app, which could be a game-changer.
Challenges
Flying taxis sound great on paper, but there are still some major challenges, both from a technology standpoint and a regulatory and safety standpoint. The safety of a Joby vehicle needs to reach that of a commercial airliner, which is regarded as the safest form of transport. According to a Harvard study, the odds of a plane crash are 1 in 11 million, while the odds of a car crash are 1 in 5,000.
In order to test the safety of a flying taxi, a rigorous amount of testing must be done. In July 2021, Joby did a 155 mile flight on a single charge in just 77 minutes, which stretched the limits of the vehicle. In reality, the vehicle would be used for flights of between 20 miles and 50 miles.
In terms of regulation, the company has achieved a U.S. Air Force airworthienss certification. In addition, the company has achieved a Part 135 Air Carrier Certificate from the Federal Aviation Administration, ahead of its pre-planned schedule. The company is 84% through its regulatory requirements and in the third quarter of 2022 had its flight control computer approved by the FAA.
The company has also applied for a U.K. aircraft certificate and has been approved for a Japan aircraft certificate.
Financials
As Joby Aviation is still in the prototype and development phase, the company is pre-revenue. However, the business does have an easy go-to-market platform with Uber and Delta. In addition, the company has recently signed a $75 million contract with the U.S. Department of Defense (DoD) for Marine Corps operations, so there is clearly room for military expansion.
In the third quarter of 2022, the company reported a net loss of $79.2 million, which included operating expenses of $97.1 million. These losses mainly result from certification expenses and manufacturing. The company only has a small manufacturing facility currently and thus will need to invest more into capital expenses in order to build out its manufacturing.
The good news is the company has a solid balance sheet with $1.1 billion in cash and short-term investments.
Valuing Joby Aviation is fairly challenging as the company has huge growth potential and lots of established partnerships but no real earnings yet. We do know the business has a market capitalization of $2.64 billion, which means it is trading at ~2.4 times its cash position.
The company went public via a SPAC merger at $10 per share and has since been cut in half, and now trades at approximately $4 per share.
Surprisingly, value investor Seth Klarman (Trades, Portfolio) purchased the stock when it was trading around an average of $9.84 per share in the third quarter of 2021, though he sold out of the position in the second quarter of 2022. Growth stock investing firm Baillie Gifford (Trades, Portfolio) now owns more than 7.6 million shares as of the end of the third quarter of 2022. Catherine Wood (Trades, Portfolio) of Ark Invest also owns the stock but reduced the position in the latest quarer.
Final thoughts
Joby Aviation is one of the leaders in the flying taxi industry. The company still has a long way to go to become fully certified and scale up manufacturing. However, its partnerships with Uber and Delta means the company has a solid go-to-market strategy already in place. The stock is speculative due to the pre-revenue situation, but the long-term potential is huge.
