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Investment Thesis
Joby Aviation, Inc. (NYSE:JOBY) is a vertically integrated air mobility company that makes electric aircraft that can take off and land vertically and are best suited to provide air travel service. Its long-term goal is to establish an air-based taxi service, most preferably in Japan. They partnered with Japan’s largest airline to execute that plan. The company is investing in eVTOL, which has pushed the commercialization of the eVTOL to 2025.
The company has a bright future because the eVTOL market is projected to develop at a double-digit rate by 2030 in response to rising demand for environmentally friendly transportation options. Security concerns, the necessity for green energy, and the desire for quieter aircraft are just a few of the strong growth factors in the eVTOL market. Currently, the company is in a very stable financial position, as exhibited by its robust balance sheet. This solid financial position, in my view, will sustain the company at these tough economic times as it continues its growth progress centered on eVTOL.
Developments in eVTOL Aircraft: Joby Progress
Leading eVTOL developers had a busy year in 2022, and Joby was no exception; its development is detailed below as the year ended.
January: The FAA has granted Joby’s second pre-production prototype Special Airworthiness Certification and U.S. Air Force Airworthiness Approval.
March: Joby received FAA permission after its initial Systems Review and Compliance Review at the end of 2021. The Compliance Review examined Joby’s software and airborne electronic hardware development and verification. The Systems Review assessed Joby’s aerospace-grade system and equipment development strategy.
May: The FAA has issued a Part 135 Air Carrier Certificate to Joby Aviation, allowing the company to commence on-demand commercial operations with air taxis.
August: Joby added more U.S. work to an existing contract. Defense Department. The United States Armed Forces, including the Marines, Army, Navy, and Air Force, will pilot Joby’s eVTOL and investigate potential applications, such as emergency medical response.
October: Joby completed its Japan Civil Aviation Bureau certification application. The team is pursuing Joby’s FAA-type certification validation application. In October, Delta Air Lines and Joby also signed into long-term cooperation to introduce eVTOL aircraft services. The airline also made an initial $60 million equity investment in Joby, with plans to increase that to $200 million later.
Following this progress, I am convinced that the company is on the right track to achieve its commercialization plan by 2025. Also, the partnership with Delta will significantly boost this company as it comes with many synergies, such as a financial (capital) boost and a broader clientele.
Joby eVTOL Commercialization Plan
Joby Aviation has pushed back to 2025 its goal of putting its first eVTOL plane into commercial passenger service. The business attributes the delay partly to internal issues and rule changes made by the U.S. Federal Aviation Administration [FAA], which affect the certification schedule. Joby originally planned to follow FAA Part 2117A for certification of its first production aircraft, a route that would have avoided the need for operating rule changes.
Special Federal Aviation Regulations refers to these updated or newly created rules [SFARS]. However, the FAA has since informed the parties involved that it would certify the aircraft under Part 2117B, necessitating SFARS. The FAA has stated that it does not anticipate these SFARS to be finalized until late 2024, which will delay the certification of Joby and the beginning of commercial passenger service. Converting prototype designs into certifiable components is also an essential aspect of the certification process. Despite these setbacks, the board believes it is now in a position to be approved, and it plans to market its revolutionary strategy in 2025.
The market For eVTOL
One of the newest developments in aviation is the ability to take off and land vertically using electric propulsion. It’s a creative mini-aircraft with vertical takeoff and omnidirectional flight. In 2021, the size of the global eVTOL market was USD 6,937 million. It is expected to reach USD 30,519 million by 2030, with a CAGR of 18.3% from 2022 to 2030.
Acumen
This double-digit growth will be driven by several factors that I believe will maintain the growth in the long run.
Electric vertical takeoff and landing [eVTOL] aircraft are cutting edge in the aviation industry because of their illustrious features, including silent takeoffs and landings. The demand for fast transportation options to ease gridlock in major cities is growing.
The eVTOL industry is also expanding because of rising interest in environmentally friendly energy sources and silent spacecraft, the growing popularity of eVTOL aircraft for cargo operations, and the rising need for a diverse array of transportation options.
The market’s rise has been spurred by the factors I’ve already outlined, and I believe this trend will be sustained over the long term.
Robust Balance Sheet: Buffer Against Current Macroeconomic Climate
Due to historically high inflation rates, operating costs have skyrocketed, and debt costs have become unsustainable for some businesses in today’s global economy. In light of this, Joby’s balance sheet is strong, and I’m confident it will keep them going until their best years, like 2025, when they start selling eVTOL aircraft to the public. The company is highly deleveraged, with a debt balance of only $1.08M, or 0.042% of its market worth of $2.56B. Almost entirely debt-free, the company is now protected from the crippling effects of debt, especially at a time when debt servicing costs are so high.
In terms of liquidity, the company is very pleasing; they have a current ratio of 38.33X and a cash balance of $1.07B. Its current ratio shows how sufficiently its existing assets have covered its current liabilities. Further, its current cash balance is enough to cover its TTM total operating expenses totaling $368M 2.9X, implying that it can run the company for about three years without generating more cash. This is how stable and secure this company is as it walks towards its successful years when the much-awaited launch is done.
Conclusion
My analysis suggests that the current economic climate may cause this company to produce less than desirable cash flows. The company’s current financial situation is sound enough to see it through until the 2025 eVTOL launch, which has great promise. The earliest success date is projected to be 2025; thus, I advise waiting to invest.
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