Improving vehicle design and safety will help get the electric vertical take-off and landing (eVTOL) industry off the ground, but governments will need to do more to address any regulatory concerns and ensure the industry operates efficiently.
- Joby Aviation has recently received the green light to start flight testing of its flying taxi; Archer has appointed a former FAA official.
- Morgan Stanley sees the eVTOL industry being worth $9trn by 2050, but decisive action from governments will be needed.
- How to invest in eVTOLs: the SPDR S&P Transportation ETF is up 14% in the past six months.
For many people, the idea of flying cars sounds like something out of the 1960s animated TV series The Jetsons. But prototypes are beginning to take to the sky as the industry grows and becomes more competitive.
Excitement around the eVTOL industry began to intensify during the pandemic. Both of the major players, Archer Aviation [ACHR] and Uber [UBER]-backed Joby Aviation [JOBY] listed on the NYSE in 2021 via SPAC mergers — as did British firm Vertical Aerospace [EVTL], which is backed by American Airlines [AAL].
When the pandemic bubble burst, the SPAC market came crashing back down to earth and with it the valuations of eVTOL companies, whose share prices had been flying high on future earnings projections. This has created an opportunity for investors to step back and reassess the eVTOL industry’s investment case.
The principal pitch is that flying taxis would reduce the strain on urban infrastructure as cities become more populated and transport networks more congested. Fewer combustion engine vehicles on roads would mean less time spent idling and hence a reduction in carbon emissions.
While sceptics will point to noise pollution and safety concerns as stumbling blocks to getting the industry off the ground, major players in the industry have been making headway with their prototypes and investment could finally be set to pay off.
Joby gets the green light
At the end of June, Joby received a certificate from the US Federal Aviation Administration (FAA) to begin flight testing its first production prototype. The pre-production prototype has flown more than 30,000 miles in the past four years.
Back in May, Archer, which is working with Stellantis [STLA] to develop its vehicles, completed assembly of its first aircraft in preparation for its maiden test flight later this summer.
“This aircraft will accelerate and reduce risk on our certification program, paving the way for our team to focus on building and conducting piloted operations with conforming aircraft to support the goal of entering into service in 2025,” commented Archer CEO Adam Goldstein.
Archer has also recently announced the hiring of a former FAA acting administrator, Billy Nolen, as chief safety officer. It’s an appointment that should consolidate the company’s position in the eVTOL industry.
“The commercialisation of eVTOL aircraft is no longer a question of ‘if,’ but rather ‘when’,” said Nolen in a press release.
Vertical Aerospace, however, has pushed back its entry into service to 2026 due to technical issues, as the company explained in a letter to shareholders in May. “We believe the industry as a whole will experience some timeline corrections, and we are already seeing signs of peers acknowledging this,” it added.
Is the public warming to the idea of flying taxis?
While Archer and Vertical Aerospace plan to sell their vehicles to consumers directly, Joby is pinning its hopes on a ridesharing service à la Uber.
The demand for an air taxi service is going to depend on the cost of journeys and how safe the public perceives them to be.
One survey by Horizon Aircraft found that 73% of Canadians support the development of flying taxis, while 78% would be happy to take a ride in them once commercially operational. Only 7% said they would be against riding eVTOLs.
Aside from its commercial push, Joby has a partnership with the US Department of Defence (DoD) that will be critical to its growth. In April, it was announced that the company would deliver up to nine of its vehicles to the US Air Force. The agreement is worth $55m and takes the total value of its contract with the DoD to $131m.
Further investment crucial for growth
The eVTOL industry’s total addressable market could be worth $1trn by 2040 and up to $9trn by 2050, according to a 2021 Morgan Stanley report.
If the industry is to reach these heights, then it is likely to need further investment, especially as industry players will probably not be profitable until their air taxis are in operation.
Despite losing $113.4m in the first quarter of 2023, wider than the $62.3m loss reported for the first three months of 2022, Joby has no debt and, as of 31 March, had a strong cash position of $978m in cash, cash equivalents and short-term investments. Baillie Gifford and South Korea giant SK Telecom [017670.KS] clearly believe in the company’s long-term potential as the past couple of months have seen them invest $180m and $100m, respectively.
Governments will need to address regulatory concerns
While the eVTOL industry has an opportunity to fly high in the future, there will likely need to be collaboration between private and public stakeholders. This should help to develop industry standards and ensure the industry can operate efficiently.
Back in March, ADS, the UK trade association for aerospace, defence, security and space, published a five-point plan for how the UK could make the eVTOL market a reality.
“The efficient and sustainable operations offered by new and innovative eVTOL vehicles could help better connect communities across the UK,” said ADS, but it nevertheless emphasised the importance of “decisive action from government and regulators”.
How to invest in the eVTOL industry
ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.
Funds in focus: the SPDR S&P Transportation ETF
There’s no fund focused specifically on the eVTOL industry, but there are a few different ways to play the theme.
The SPDR S&P Transportation ETF [XTN], which has Joby as its top holding as of 10 July, has allocated 30.71% of its portfolio to passenger airlines and 28.27% to cargo ground transportation, while air freight and logistics accounts for 16.99%. Passenger ground transportation, marine and rail transportation all have weightings of less than 10%. The fund is up 14.3% in the past six months.
The ARK Space Exploration and Innovation ETF [ARKX], which also holds Joby, has weighted its portfolio in favour of aerospace beneficiaries (39.9%) as of 31 March, followed by enabling technology (30.1%), orbital aerospace (21.1%) and suborbital aerospace (8.3%). The fund is up 12.9% in the past six months.
The Invesco WilderHill Clean Energy ETF [PBW] holds both Archer and Joby. As of 31 March, industrials account for 43.66% of the portfolio, followed by consumer discretionary (19.46%), information technology (16.08%), materials (12.08%), utilities (7.83%) and energy (0.89%). The fund is down 2.2% in the past six months.
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