FLYING CARS ARE NEARLY HERE - AND THEY´RE ELECTRIC / BARRON´S MAGAZINE

Flying Cars Are Nearly Here—and They’re Electric

Companies like Joby and Archer are about to begin production of electric vertical takeoff and landing aircraft. For investors, the upside could be in the billions.

By Bill Alpert

An electric vertical takeoff and landing aircraft, or eVTOL, by Archer Aviation, which could receive certification for civil flights by 2025. PHOTOGRAPH BY KATIE THOMPSON

You don’t have to believe in flying cars to be intrigued by electric-aircraft start-ups like Joby Aviation JOBY and Archer Aviation ACHR.

A century of unfulfilled science fiction has left understandable skepticism about the half-dozen firms that floated shares in the past few years on promises of commercializing electric vertical takeoff and landing aircraft—or eVTOLs. 

It doesn’t help that most of the stocks have sunk 50% or more since.

But these flying taxis are real—and coming in a couple of years. 

Crowned by rotors, these craft will carry a pilot and four passengers up to 100 miles, taking off like a helicopter and cruising at 200 miles an hour—with little noise and no exhaust.

In a few years, eVTOLs could start replacing helicopter transportation in and around urban centers. 

In a decade, urban areas could have hundreds of eVTOLs each, operated by Uber-style fly-share services. 

The potential upside: tens of billions of dollars in annual revenue.

Flights probably will cost about the same as today’s taxi rides, but take a tenth of the time.

“Aviation has historically been the preserve of those who are fortunate enough to be able to afford it,” says Michael Pye, a portfolio manager at investment firm Baillie Gifford. 

“Electric powertrains have the potential to change that radically.” 

Edinburgh-based Baillie was an early backer of Tesla TSLA (ticker: TSLA). 

Now, it has bet nearly $250 million on eVTOL leader Joby, and a smaller sum on Germany’s Lilium (LILM).

          A Joby eVTOL takes flight. COURTESY OF JOBY AVIATION

These stocks are worth taking seriously. 

EVTOL demonstrations drew some of the biggest crowds at the Paris Air Show in June. 

After thousands of test flights, Joby Aviation (JOBY) and Archer Aviation (ACHR) are gearing up to make their first eVTOL sales to the U.S. Department of Defense. 

Federal regulators aim to certify the aircraft for civil flight by 2025 in hopes that air taxi services can become routine by the time tourists and athletes crowd Los Angeles for the 2028 Olympics. 

“These are not PowerPoint presentations,” says Canaccord Genuity analyst Austin Moeller. 

“It’s all technology that exists and is being used in electric vehicles on the road today. 

Instead of having the electric motor spinning wheels on the ground, it’s spinning propellers on an aircraft.”

Flying enthusiasts began thinking about electric power about 15 years ago, as China’s DJI made drones a hobby and Tesla shipped its first Roadsters. 

At his California ranch in 2009, entrepreneur and engineer JoeBen Bevirt formed Joby Aviation with a few colleagues. 

They began testing electric motors and batteries in model aircraft that could hover and cruise like the Osprey tiltrotor military plane made by Textron (TXT) and Boeing  (BA).

They weren’t alone. 

Over the next decade, dozens of start-ups pursued electric flight as enabling technologies came together.

Three technologies made eVTOLs possible, says Joby Aviation Chairman Paul Sciarra. 

Batteries have steadily improved, thanks to billions of dollars in spending by electric-vehicle makers. 

Carbon fiber airframes lighten the load. 

And computerized controls have become available for small aircraft.

The resulting aircraft have multiple rotors and battery packs, so there’s no single point of failure. 

With many rotors, each can spin more slowly than in traditional aircraft. That’s the key to making eVTOLs 100 times quieter than a conventional helicopter.

“You really have to hear it to believe it,” says Baillie Gifford’s Pye. 

“When it’s flying overhead, it’s indistinguishable from background noise. 

I liken it to leaves rustling.”

Fuel won’t be the big cost of flying that it is today. 

Today’s batteries can fly four passengers and a pilot some 50 to 100 miles, with quick recharging as passengers get on and off. 

Battery improvements will boost those numbers.

And with few moving parts, electric motors can be cheaper to maintain than the engines of today’s small aircraft. 

So, the switch to an electric powertrain allows aircraft that are safer, quieter, and cheaper, says Archer Aviation CEO Adam Goldstein. 

He lives across the street from Stanford Medical Center in Menlo Park, Calif., where, he says, a noisy helicopter flies daily. 

“I’m sure the community would be very appreciative if their next vehicle was not like that,” he says.

The eVTOL industry hopes that quiet, emission-free flights will spur cities to permit more frequent flights, to more landing pads, than they allow with helicopters. 

Takeoff space and electric charging infrastructure will be needed to drive the industry’s growth.

One last innovation helped eVTOL start-ups take off: the special-purpose acquisition company. 

The flying-EV story appealed to small investors who bought SPAC deals. 

As the investment craze swelled in 2021, one after another eVTOL firm merged into a public pool of SPAC cash. 

Joby came public first, in August 2021. 

Lilium and Archer followed a month later. 

Britain’s Vertical Aerospace (EVTL) went public in December of that year, and in May 2022, an eVTOL program spun out of Brazilian aerospace firm Embraer (ERJ) called Eve Holding (EVEX).

The SPACs brought hundreds of millions of dollars in capital to each of these eVTOL start-ups, but the stocks plunged when the SPAC bubble burst. 

After Joby’s merger announcement in February 2021, the company’s stock slid from a peak of $17 to $3.30 by the end of 2022. 

Over a similar stretch, Archer tumbled from $18.60 to $1.62, while Lilium fell from $15.50 to $1.50.

SPACs brought the eVTOL industry public at a premature stage, says Raymond James analyst Savanthi Syth. 

The companies had no revenue, and institutional investors showed little interest when she launched her coverage in July 2022. 

“You really don’t have prerevenue companies in the public markets,” she says.

While public markets turned cold on these electric fliers, governments around the world made efforts to encourage eVTOL development. 

The European Union Aviation Safety Agency has been working with Germany’s privately held Volocopter to certify the company’s aircraft in time for the Paris Olympics in 2024. Lilium hopes to get its European certification by 2025.

Charging an Archer Aviation eVTOL, left; the aircraft’s interior. PHOTOGRAPH BY KATIE THOMPSON (LEFT); COURTESY OF ARCHER AVIATION (RIGHT)

In the U.S., delegations from the White House and Congress have toured test facilities of American eVTOL firms—eager to maintain America’s lead in aerospace technology. 

Both Joby and Archer have orders from the Pentagon for their first units off production lines next year. 

The military will test them for carrying troops and cargo. 

The Federal Aviation Administration drafted new rules for certifying eVTOLs and their pilots. 

Joby and Archer expect FAA certification soon after the rules are completed in late 2024. 

Meanwhile, the FAA will be upgrading its air-traffic control system to be ready for fleets of air taxis by 2028.

“The U.S. won’t be taking a back seat to anybody,” says Billy Nolen, who recently left as the FAA’s acting administrator to become Archer’s chief safety officer. 

His colleague Goldstein agrees: “They just want to make sure this stuff happens in the U.S.”

Investors have also started paying attention again. 

Since the year began, shares of Joby and Archer have more than doubled.

Among public companies, Joby is the best funded and the clear front-runner. 

At a recent $8.25, it is valued by the market at about $5.6 billion. 

In its Wednesday report on the June quarter, the Santa Cruz, Calif., company said it has $1.2 billion in cash. 

That should carry it into 2029, when Canaccord’s Moeller predicts that Joby will have positive cash flow—even after capital spending—on revenue of about $300 million. 

He rates Joby a Buy with an $11 price target, and forecasts that its revenue will top $1.3 billion by the middle of the next decade, with operating margins above 20%.

Joby is the most ambitious of its peers. 

It has developed many core technologies in-house—spurning the outsourced approach taken by aerospace incumbents like Boeing. But Joby plans to be more than a manufacturer. 

It foresees big profits from running a flight-sharing service with an app that dispatches a car from its partner Uber Technologies (UBER) to bring passengers to and from a Joby “vertiport.” 

Delta Air Lines (DAL) and Toyota Motor (TM) are also backing Joby.

Archer is Joby’s main rival. 

With a market cap of $1.5 billion and some $600 million in available cash, it’s the favorite stock of Raymond James’ Syth. 

She predicts that the San Jose, Calif., company can get hundreds of millions in predelivery deposits over the next few years from customers such as United Airlines (UAL), which has agreed to buy up to 300 units. 

Archer, too, has an auto industry backer, Stellantis (STLA).

With its aircraft certification planned for 2026, the Embraer spinoff Eve Holding is perhaps a year behind the others, but its market cap exceeds that of Archer. 

That probably reflects confidence in Embraer, whose standing has helped Eve rack up a backlog of 2,800 units from airlines and leasing companies.

Co-CEO Andre Stein says that Eve started construction last week on its prototype, whose simpler design could make the aircraft 15% cheaper per seat than rival eVTOLs.

Lilium also has booked orders, but it has been busy raising enough cash to fund it through the certification slog. Its unusual plane would have 36 electric jet engines. 

The German firm has the backing of the China tech leader Tencent Holdings (TCEHY). 

China’s crowded cities will make it a big market for air taxis. 

It remains to be seen whether that market can be served by EHang Holdings (EH), whose pilotless remote-control aircraft can carry two tourists on sightseeing flights.  

Embraer spinoff Eve Holding is perhaps a year behind other eVTOL companies, but its market cap exceeds that of Archer. COURTESY OF EVE

While so many start-ups jockey for eVTOL’s lead, the giants of aerospace aren’t snoozing. 

Boeing acquired a pioneer in electric flight called Wisk Aero, whose aircraft will be piloted from the ground, like military drones. 

Airbus has shown an eVTOL prototype. 

Helicopter maker Textron also has an eVTOL unit, and it has told investors that it needn’t spend much to keep pace with the electric pioneers.

Analyst Syth wouldn’t be surprised if successful eVTOL start-ups end up acquired by incumbents.

How big a market will these fliers be scrapping over? 

Several years ago, Morgan Stanley said the urban air market would grow to a cool $1 trillion by 2040, by capturing travel now done in cars. 

That blue-sky dream might come true. 

After all, few early investors anticipated the success of electric cars or automobile ride-sharing.

Still, it’s a safer bet to expect that eVTOLs will supplant the helicopters now used by urban carriers like Blade Air Mobility  (BLDE). 

Blade and the Houston-based copter operator Bristow Group (VTOL) are at the ready: They have each arranged to get dozens of eVTOLs. 

At about $100 a flight, eVTOL travel around cities will generate almost $60 billion a year by 2033, says Canaccord’s Moeller.

Investors will soon see who’s first off the starting line. 

“The next 12 to 18 months will be pivotal, for both Joby as a company and for the industry as a whole,” says Joby’s Sciarra.