I tipped my Marketplace subscribers to an opportunity in Eve Holding, Inc. (NYSE:EVEX) two weeks ago and the stock has risen 70%. In this article, I will discuss this airline stock in more depth.
United Airlines Holdings (UAL) recently announced a $15 million investment in Eve Air Mobility and placed a conditional purchase agreement for 200 four-seat electric aircraft and options for an additional 200 aircraft. The first deliveries are due to come in 2026. The companies also plan to collaborate on future projects, including studies on the use and application of the urban air mobility ecosystem. Eve Holding emerged from an accelerator program at Brazilian aerospace firm Embraer (ERJ) and still has development connections and support there.
The United deal was signed only a month after a $10 million deposit was placed with Archer Aviation for 100 eVTOL aircraft. That followed a February 2021 provisional agreement to buy up to 200 of Archer's four-passenger eVTOL aircraft in a deal valued at $1 billion.
United Airlines has spotted an opportunity for clean energy air taxis and it could be a big market for all parties involved. The investment idea would also be attractive to ESG funds.
The latest investments are also part of United's carbon reduction targets "designed to support the company's 100% green commitment to reach net zero emissions by 2050 without the use of traditional offsets."
Eve Holding Inc. launched on the NYSE in January 2021 and the company said at the time (emphasis added):
"Today, we celebrate a historic milestone in a journey that we began nearly five years ago in EmbraerX, the market accelerator of Embraer, a leader in the global aviation industry. This transaction is a key enabler of our mission to become a leading player in a potential $760 billion UAM addressable market."
"We believe Eve is uniquely positioned to develop, certify and commercialize our UAM solutions on a global scale," said Jerry DeMuro, Co-CEO. He added:
"Our pipeline of launch orders for 1,825 vehicles secured via non-binding letters of intent from 19 customers consists of industry leaders who also invested in Eve, including Azorra Aviation, Falko Regional Aircraft, Republic Airways, and SkyWest, and provides powerful validation of our business strategy and vision."
That order book has now grown to 2,060, and it boasts a wide range of companies from different sectors.
The air taxi idea is front and center with orders from the likes of Bristow Group (VTOL). However, the company also has orders from airlines, ride platforms, and defense companies. If we look at the bigger picture, then it is not hard to imagine ride-sharing an Uber (UBER) air taxi from an airport into the city.
Eve Holding has raised $377m from investors, and the company's order book is valued at ~$6.0 billion (non-binding). The company traded at a valuation of £2bn two weeks ago, but it is now closer to $4bn.
The company has a strong balance sheet with no debt. R&D costs have ramped up to create a $20m loss for the quarter, but the company could run at those levels for another 5 years based on the capital raise. That gives the company plenty of time for this idea to become more mainstream and attract further investment.
The company said in its second-quarter earnings report:
"It is important to highlight Embraer currently has almost two hundred full-time employees dedicated to the eVTOL development program through its MSA with Eve. The MSA costs are included in Eve’s R&D and represent most of its R&D expenses. SG&A costs have also increased due mostly to the growth in the number of collaborators at Eve – we now have the equivalent of more than 300 equivalent people working on the program, almost twice the number of 2Q21."
The company also said that it was:
"always monitoring the capital markets for debt financing options to bring additional cash resources to Eve at attractive terms as the company currently does not have any debt."
"Before service is commenced, Eve may also seek incremental capex lines – via corporate loans, to help fund its manufacturing and production facilities."
United Airlines had also joined American Airlines (AAL) with orders for Boom Supersonic's Overture aircraft. Delta Air Lines has been taking a more cautious approach to the eVTOL craft with no investments, while the company's CEO Ed Bastian told CNBC that he has "more questions than answers" on Boom.
Despite this hesitation, other airlines and travel firms will see the opportunity to reach their emissions targets with electric aircraft. As mentioned earlier, the sector would appeal to ESG investment funds, and insiders own 92.5% of total outstanding shares while institutional holders control only 7.05%.
The first headwind that eVTOL manufacturers will have to face will be regulatory. In a recent joint statement on eVTOL from the FAA and the United Kingdom CAA, the parties said:
"The Federal Aviation Administration and the United Kingdom Civil Aviation Authority recognize the potential of electric vertical take-off and landing (eVTOL) and other Advanced Air Mobility aircraft to benefit the public significantly. To support future eVTOL aircraft development and operation, the US and UK civil aviation authorities are engaged in a range of bilateral and multilateral discussions focused on facilitating certification and validating new eVTOL aircraft, production, continued airworthiness, operations, and personnel licensing."
"As these aircraft enter the aviation ecosystem, we must continue to maintain the high safety standards that the public expects," they added.
That is a positive statement from the regulators and should see them working further towards a solution that could add to the uptake of electric aircraft.
Eve Holding Inc. provides an opportunity to get involved at a $2bn market cap in a $760bn addressable market. The company has a strong balance sheet and room to raise existing capital, including credit lines for capex. The company has been supported by United Airlines but has a wide-ranging order book that has now added defense to its list of customers. The use cases could expand into ride-sharing and other markets.
Although there are regulatory hurdles, the FAA has been making positive statements about the potential for this line of travel. A further benefit for EVEX investors would be low institutional ownership and the potential to attract ESG investment funds and further large corporate customers.
While eVTOLs are becoming popular, there are some hurdles the industry must face, like establishing robust infrastructure to accommodate the operation and outlining regulatory standards that uphold safety.
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This article was written by
Author of "The Stock Market is Easy - How to Avoid the Pitfalls of the Average Investor".
I am an active trader in stocks, FX and commodities with over 15 years' market experience. I hold a master's degree in finance and have developed a strong skill base in technical analysis. I run the Global Markets Playbook on Seeking Alpha's Marketplace.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.