Shares of Joby Aviation Inc. (JOBY, Financial), a company developing an all-electric aircraft for commercial passenger service, jumped about 40% on June 28, closing at $8.96, after announcing its prototype air taxi was cleared to fly.
Joby Aviation receives permit to fly first prototype
Joby revealed the Federal Aviation Administration granted it a Special Airworthiness Certificate for the first aircraft built at its Pilot Production Line in Marina, California. The certificate allows the company to begin flight testing the prototype.
In a statement, Joby Aviation founder and CEO JoeBen Bevirt said, “Today’s achievement is the culmination of years of investment in our processes and technology and it marks a major step on our journey to scaled production.”
This is very big news as the permit brings the company one step closer to getting its operations running and start generating revenue.
However, is the surge in the price justified? I would argue it is more likely a short-term overreaction for a number of reasons.
Benefits of all-electric aircraft for commercial passenger service
Joby Aviation has applied a very smart business approach to shape the future of air transportation as a service. It has partnered with Toyota (TM, Financial), which is its largest external shareholder, having invested approximately $400 million since 2020. According to the companies, they have worked closely together on a number of projects to support the development of Joby’s aircraft, including the design of engineering tools and the layout of its production facility. In April, they also signed a long-term agreement for Toyota to supply powertrain and actuation components for the production of Joby’s aircraft.
This is very clever because Joby Aviation is taking advantage of Toyota's technological expertise to build a very efficient, reliable and innovative product. There are several important advantages for the company's all-electric aircraft that can help it build revenue and hopefully be profitable.
One of the most significant benefits of all-electric aircraft is their reduced environmental impact. They produce zero direct emissions during operation, resulting in lower carbon dioxide and other greenhouse gas emissions. Electric aircraft can contribute to mitigating climate change and improving air quality, especially in densely populated areas. Furhter, they have the potential to significantly reduce noise pollution compared to conventional aircraft. Electric motors are generally quieter than internal combustion engines, resulting in a quieter flight experience and a reduced impact on communities surrounding airports. This can help alleviate noise-related concerns and enhance the quality of life in affected areas.
Next, electric aircraft have the potential to lower operating costs over time. While the upfront costs may be higher, electric motors are typically more energy-efficient than combustion engines. Electric propulsion systems have fewer moving parts, reducing maintenance requirements and associated costs. Additionally, as renewable energy sources become more prevalent, the cost of electricity for charging these aircraft could decrease further.
Additionally, electric aircraft can achieve higher energy efficiency compared to traditional planes. The electric motors can convert electrical energy into propulsion more efficiently than internal combustion engines, resulting in potential energy savings. The use of regenerative braking systems, where the aircraft's kinetic energy is recovered during descent and used to recharge the batteries, can further improve efficiency. This also opens up new design possibilities due to the unique characteristics of electric propulsion systems. For instance, electric motors can be distributed across the airframe, enabling novel aircraft configurations and reducing the reliance on centralized engines. This could lead to more aerodynamic and efficient designs, potentially improving performance and range.
Finally, electric aircraft help reduce dependence on fossil fuels, which are finite resources and subject to price volatility. By transitioning to electric aviation, the industry can diversify its energy sources and reduce its vulnerability to fuel price fluctuations, enhancing long-term sustainability and stability. The development and adoption of all-electric aircraft drive technological innovation and create opportunities for job growth in the aviation and clean energy sectors. Advancements in battery technology, electric propulsion systems and charging infrastructure can have spillover effects in other industries, fostering economic development and job creation.
While there are numerous benefits, it is important to note the adoption of all-electric aircraft for commercial passenger service is still in the early stages. Technical challenges, such as battery energy density and charging infrastructure, need to be addressed to improve range, efficiency and operational feasibility. However, as technology continues to advance, all-electric aircraft have the potential to revolutionize the aviation industry and offer significant advantages for commercial air travel.
A closr look at fundamentals
Although Joby's air taxis appear to be a great product, they currently generate zero revenue. The company has a very high rank for financial strength with a low debt-to-equity ratio of 0.03 and a very high cash-to-debt ratio of 37.28, but it is no surprise that with zero revenue so far, the company is losing money. Additionally, it is burning cash, having negative free cash flow over the past three years. Joby Aviation generated free cash flow of -$129.21 million in 2020, -$228.09 million in 2021 and -$290.82 million last year.
Since business operations are not expected to start until 2025, I believe it is currently too risky to invest in the stock. The Toyota partnership adds a lot of credibility to tje venture, but from pure fundamental analysis, it is very hard to see a potential opportunity.
