Joby Is Disrupting Air Mobility. It's Time To Buy
Summary
- The global eVTOL market is projected to reach $23.21 billion by 2028 up from $5.41 billion in 2021.
- JPMorgan sees Joby as a long-term winner after it initiated its first coverage of the company this week.
- Air mobility will play a key role in the transportation of the future as well as in other applications such as air ambulances and the military.
- Joby has a clear mission plan and is on track for FAA certification and commercialization ahead of its competitors.
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In a world where green energy, transportation and productivity are becoming increasingly important, the industry of electric vertical take-off and landing aircraft (eVTOL) is coming to disrupt the normal way of transportation.
As Urban-Air Port opened its first airport station for eVTOL's in the UK this week, I will explain why I believe Joby Aviation, Inc. (NYSE:JOBY) to be among one of the best players in the eVTOL sector to buy now, and give you a unique perspective on the industry.
Product and Developments
Joby is a transportation company specializing in eVTOLs. The management team aims to launch its app-based aerial ride-sharing service for end users by 2024. This service can be requested through their own app, or through the app of ride-hailing giant Uber, from whom they acquired Uber Elevate to ensure high customer demand, from day 1.
The aircraft itself is estimated to have a maximum range of 150 miles, although management expects the average flight time to be about 24 miles, making it perfectly viable for short- to medium-distance trips. The aircraft can accommodate up to 5 people, including 1 commercial-level pilot. The aircraft reaches speeds of over 200 miles per hour in flight mode and is completely emission-free.
Joby's Specifications (Joby IR)
On Thursday, JPMorgan also launched its initial coverage on Joby, classifying the company as a "long-term winner". Although it is considered a good long-term performer, JPMorgan currently has Joby stock as a "hold" with a price target of $7. This comes after Morgan Stanley last year cut its forecast for eVTOL market size in 2030 from US$45BN to US$12BN, almost a 75% drop.
JPMorgan expects growth to occur mainly in later stages and estimates the potential market size at US$1T over several decades.
Economics, Fundamentals, and Valuation
According to Joby's management team, they should be able to achieve nearly a 50% margin, spending $0.86 per seat per mile in costs and receiving $1.73 per seat per mile in revenue. Each aircraft is expected to generate US$2.2M in revenue, which translates into US$1.3M of gross revenue. This means that each aircraft will be an investment that will be recouped after 1.3 years.
In Los Angeles, this could generate a US$500M market opportunity, following the deployment of 300 jets. After 1.3 years of operation, each jet is expected to generate US$1M in pre-tax net income, which would result in US$300M in annual net income for Los Angeles alone. With an average price-to-earnings ratio like the S&P 500 of 20.88, Joby would potentially trade at a market capitalization of over US$6BN, almost 2x its current market capitalization.
Presume Joby is certified, and begins commercialization in 2024. Joby expects to achieve economies of scale, including a gross margin of more than 50% by 2026, as shown in the figure below. As an approximation, I assume Joby has 400 operational jets in various locations, each generating US$1M EBITDA in 2026 after their first year of operation. In 2025, given Joby's management is right about having sufficient cash to achieve commercialization and at a reasonable forward-looking EV/EBITDA ratio of 18.5, Joby would have a market capitalization of US$7.4B or approximately US$12.21 per share.
Joby's Economics (Joby IR)
Although, the actual production timeline may vary. Given that production is expected to increase exponentially, it is still more than likely that the stock will trade at a higher premium if there are delays, given the high revenue growth/profit growth due to the growing fleet of aircraft that is operational.
Thus, I expect Joby's price target to exceed $10 by 2025, provided they have received their certification from the FAA and management is still on track for commercialization, which I will return to later. This forecast is also in line with other analysts such as Morgan Stanley and Deutsche Bank.
In the fourth quarter, Joby even managed to post a net profit of US$5M despite not yet being commercially viable and available to customers. This is thanks to other revenues totaling US$71.7M, plus tax benefits of US$10.5M related to their acquisition of Uber Elevate. Total operating expenses were US$77.2M for Q4 2021.
Joby is well funded, with US$1.30BN in cash and other liquid assets as of December 31, 2021. According to management's Q4 2020 outlook, cash burn for operating activities is expected to range between US$340M and US$360M. At this burn rate, I expect the company to survive for more than 3 years before raising more capital well in advance of the commercial launch in 2024.
Cash Burn and Funding (TIKR Terminal)
Competition
Last week, Vermont-based startup Beta managed to secure US$375M in their latest round of funding, indicating other competition is on the way, both in the public and private capital markets.
Other major competitors include EHang (EH), Lilium (LILM), Archer (ACHR), Vertical Aerospace (EVTL), Eve Air Mobility (ERJ) and Blade (BLDE). As seen in the chart below, Joby's biggest competitor, in terms of range, is Lilium Air Mobility. Lilium is a German aerospace company that is currently developing the "Lilium Jet".
Compared to Lilum, Joby has more or less managed to meet its expectations and deadlines and work towards a commercial launch. Lilium recently delayed its certification timeline even further to 2025, and does not have commercial partnerships like Joby has with Uber. All other competitors still seem far away from FAA certification, with the exception of EHang and Beta Technologies.
Range Comparison (Visualisation Created By Author)
Market Size
Popular hedge fund manager Cathie Wood, founder and CIO of Ark Invest, also seems to be very positive about air mobility, which is particularly true after the launch of her "ARK Space Exploration & Innovation ETF" (ARKX). Her fund currently holds 1.40M shares of Joby, alongside other competitors such as Archer Aviation and Blade Air Mobility.
In 2019, Ark Invest published an insightful piece on how broad the Urban Mobility market could be. When people think of air mobility, they usually think of "Air Taxis" for short to medium distances. However, Ark Invest estimates that:
other implementations such as eVTOL ambulances could save up to 20,000 lives and open up a $20 billion market alone.
Another major industry in which eVTOL's seem to be gaining traction is the military. This year, eVTOL developer "Beta" announced its second partnership with a branch of the U.S. military.
Ambulance Cost Comparison (Visualisation Created By Author)
Estimates of the market size for eVTOLs range from US$12BN to US$30.8BN. However, according to Morgan Stanley, the market will exceed US$1.5T by 2040 and reach US$9T by 2050, accounting for 6% of US GDP.
The Company & Team
Another key factor in assessing Joby's potential is its strong and robust management team, made up of vetted industry experts with a growth mindset. The company's founder, and ongoing CEO JoeBen Bevirt, founded the company in 2009 from a workshop in the Santa Cruz area. He has a track record in robotics and electric propulsion dating back to 1999.
Other key members include Paul Sciarra, the founder of Pinterest (PINS), Jon Wagner, Director of Battery Engineering at Tesla (TSLA), Reid Hoffman and other executives with high level positions at Uber (UBER), Apple (AAPL), Ford (F), Virgin Galactic (SPCE), and others.
Joby's Management Team (Joby IR)
One of Joby's directors and the CEO himself seem to have a lot of confidence in the company and bought additional shares in the company last year according to insider trading. This without having sold a single share since launch, which I take as a very positive sign.
Insider Trading (Open Insider)
Every Rose Has Its Thorn
To date, Joby has flown more than 1,000 flights in its test program, and is well on its way to receiving FAA certification in the coming years. Currently, the company's eVTOL is going through the implementation process, which is phase G2 of the FAA process. They are also in phase 4 of the 5 to obtain their Part 135 license for commercial operations.
This means that there is still some uncertainty as to whether they will be able to obtain FAA certification, and if so, when they will receive it. Currently they are aiming for 2023 to obtain FAA certification. According to the Advanced Air Mobility Reality Index, Joby has a 75-100% chance of going commercial in 2024.
Joby's FAA Process (Joby IR)
The biggest risk, it seems to me, is how they can put this into production, especially when you know that management has a gross profit margin of almost 50% in mind. And as with many other companies, including Tesla, setting optimistic deadlines for mass production is not a new phenomenon.
Mass production can also be delayed by a handful of factors, such as delaying FAA approval or crashes and accidents. In February 2022, one of their planes crashed, which then prompted an investigation by the FAA and the NTSB, according to their latest 10-K. However, at this time, Joby does not expect any delays due to this particular occurrence.
Prototypes are easy, but achieving volume production of a new technology is insanely hard. - Elon Musk
Seeking Alpha's Quant rating values Joby as a "Hold", as profitability and valuation still fall short. Although I expect both parameters to improve significantly between 2023 and 2022, with their commercial launch.
Conclusion
Joby has many strengths, but there ae also some uncertainties associated with the company. Looking at the rest of the industry, Joby still strikes me as the best investment of all the eVTOL companies in terms of risk-reward.
If you are willing to take a leap of faith in the name of innovation, and as an investor have the time to not look at its stock for at least a few years, it may be a good idea to consider adding a small position in the company to your portfolio.
Joby offers both a realistic timeline, a strong management team, a viable business model, and strong financing, as indicated earlier in this article. I am optimistic about the future eVTOL industry, and Joby strikes me as one of the pioneers at this time, with ample opportunity to expand in the distant future.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of LILM, ACHR, EH, BLDE, JOBY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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