On The Radar
Joby Aviation appears to be on course to complete its merger with special purpose acquisition company Reinvent Technology Partners. The eVTOL aircraft developer announced the deal in February with projections that it would raise around $1.6 billion in gross proceeds. The merger, which is still being processed by the Securities and Exchange Commission will result in a New York Stock Exchange listing for the combined entity with an anticipated market capitalization of $6.6 billion.
This week, the prospective bride and groom distributed an Investment Memo to spell out their value proposition to Wall Street and beyond. The 112-page document is rich in detail on what Joby calls its “highly attractive and scalable business model” for building and operating eVTOL aircraft on flights of up to 150 miles.
Based on an investment payback in 2026, California-based Joby says that after entering commercial service in 2024, each of its $1.3 million four-passenger aircraft will be generating annual net revenues of $2.2 million and net profits of $1 million. On this basis, total revenues in 2024 are projected to hit $2.05 billion, with gross profits of $1.18 billion and adjusted earnings of $824 million (representing a 40 percent EBITDA margin).
For the uninitiated, the memo provides a succinct summary of the case for urban air mobility and why this is the moment for eVTOL aircraft and aerial ridesharing to transform public transportation. Contrary to reports that some Americans are deserting urban areas and working remotely, Joby maintains that the U.S. population will inexorably gravitate to cities over the next few decades. On this basis, there is a shout-out to the Biden administration’s $2 trillion infrastructure splurge with the direct implication that this can only be good news for those riding the urban air mobility wave. Why invest in new light rail lines at $100 million per mile or subways at $600 million per mile when you could be investing in the infrastructure to support eVTOL aircraft operations at “minimal” but unspecified costs per mile. Some would say that’s a big missing number, with real estate and regulatory expenses associated with vertiports and air traffic management expected to be substantial.
In the Joby narrative, it is ahead of the eVTOL pack in the race to be first to market, with more than 10 years of R&D under its belt and more than 1,000 flight hours logged with various iterations of its still-unnamed aircraft. Having agreed on the basis for Part 23 type certification with the FAA with the issue of its G-1 documentation, and a military airworthiness approval in hand from the U.S. Department of Defense through its work for the Air Force’s Agility Prime program, the company makes a case that it has a seemingly clear path to market that not all rivals can credibly claim.
With Urban Air Mobility’s Year Zero of 2024 fast approaching, Joby points to its manufacturing partnership with its automotive giant investor Toyota as the bedrock for its plans to start large-scale series production. However, still far from fully explained is how exactly the Joby operating model will work. The memo mentions its connection with ride-hailing pioneer Uber, whose Uber Elevate platform it acquired in December 2020, but there’s no explanation as to how this connection may be exploited in practice.
Nonetheless, Joby’s spin doctors say that its business model is set to face fewer challenges to achieving a dominant market position, which it characterizes as a “winner takes most” scenario, on the basis that the barriers to participation are far higher with the air taxi sector than with their ground-based equivalents. They point to how its muse Uber has achieved more than 65 percent market share in some mature urban transportation markets, glossing over the fact that in first-quarter financial results published in May, Uber was still logging large, albeit diminishing, net losses with bottom-line profitability still proving elusive after years in the business.
It's when you get to the “overview of unit economics” section on page 35 that the numbers start to become a bit dizzying. Each of some 20 U.S. cities with 750,000 or more people and more than 500 global cities with one million-plus population is expected to have between 100 and 300 of Joby's aircraft, generating potential revenues of up to $600 million per city and profits of up to $300 million. This is based on the assumption that each aircraft will fly seven hours per day on trips averaging 24 miles, with load factors of 2.3 passengers, seat-mile costs of $3, and a cost per available seat mile of 86 cents.
Worldwide—and factoring in other applications such as cargo, military, and logistics work—Joby finds itself with a total addressable market worth more than $500 billion.
The company stresses that its intention is not to share its technology by selling its vehicles; instead, it plans to retain full control of all operations as a fully integrated transportation company. However, further into the memo where it deals with “what do the downside cases look like” Joby leaves open the possibility that it may after all sell to airlines such as Delta, JetBlue, Emirates, Air France, and Lufthansa. The memo also suggests that Joby is eyeing urban air mobility markets in countries such as the UK, Japan, Brazil, Singapore, South Korea, and Thailand.
Cash raised from the anticipated flotation is set to fill Joby’s capital fuel tanks for the flight to market, giving it $2 billion cash on the balance sheet to face a projected $1.4 billion burn through market entry in 2024. This, says the company, takes account of a capital buffer for any possible certification delays.
And who does Joby expect to compete against? Volocopter and EHang with their multicopters, Wisk, Embraer’s Eve subsidiary, Beta Technologies, and Archer with lift and cruise eVTOL designs, as well as Lilium and Vertical Aerospace with the vectored thrust technology. The memo provides its assessment of these rivals on page 90.