aerogondo
Joby Aviation (NYSE:JOBY) is in a fascinating new industry of all-electric air taxis meant as a replacement, at a higher cost, than traditional taxi and shuttle services in highly condensed areas to save commuters from traffic.
There’s most certainly a strong market for this industry but I see enough limitations to warrant caution for the time being as costs surge in an environment where rising rates may make it hard for companies like Joby to raise money effectively as the cost to develop these aircrafts remains high.
Let’s dive into the different factors:
#1: Managing Liquidity
The company’s main short term issue is remaining in the good graces of the finance gods. Although the market sees some of these electric air taxi companies as big future money makers, it’s hard to see how they’ll be able to remain so focused on driving R&D (research and development) expenses with the amount of cash they currently have. There are 2 options the company has:
Raising capital at high interest rates is option 1. As interest rates climb with the federal reserve raising interest rates in effort to stem inflation, it’s hard to see the company’s long term success not being hindered by them taking on long term debt with high interest rates in order to maintain their operations.
Equity offerings are the other option with the obvious issue being that the company will be diluting existing shareholders for quite a while in order to fund their operations, which are growing.
The reason for this is that the company has been burning through a fair bit of cash trying to gear up for their eventual launch, expected currently to take place sometime in 2024. The company is burning through about $70 million a quarter and that amount is expected to only increase as they get closer to the launch. This gives them about 2 more years of liquidity if they divest all of their short term investments, which is unlikely, and will likely have just enough cash to launch their first air taxis sometime throughout 2024.
This brings us the second issue – how are they actually going to make money?
#2: Making Revenues
Before even getting in to how they are going to generate any meaningful cash flows, the discussion must be how they intend to bring any money into the door at all. The company is facing fierce competitive pressures from giants like Boeing (BA), Airbus (OTCPK:EADSF), Uber (UBER) and a slew of private companies, some of whom have orders in place from airlines like United Airlines (UAL).
This means that the company, which intends on operating its own air taxis in various California airports for starters, is going to have to compete with big and small companies on pricing and reach when it comes to the operations of air taxi in airport and various ports and cities across the country.
Given some of these factors, as well as pricing which I’ll discuss in a minute, means that the amount of revenue they will generate will be quite small for the first few years of their operations. Analysts currently expect the company to report just $11.5 million in the company’s first year of operations. Here’s how that’s expected to grow in the following years:
| 2022 | 2023 | 2024 | 2025 | 2026 | |
| Sales | $0 | $0 | $11.6M | $190M | $523M |
| Growth | N/A | N/A | N/A | +1,547% | +175.2% |
As clear by the numbers, the company is projected to report huge jumps in revenues on the backs of a perceived rapid expansion and deployment of new air taxis in new airports across the United States to potentially reach just under $1 billion in sales by the end of 2027.
I don’t think that’s realistic. The global air taxi market is projected to reach just over $2.32 billion by 2027, according to leading market research firms, which indicated that Joby will be generating nearly half of the revenues in the industry, which is extremely unlikely. It’s more likely that they’ll be making around $250 million in revenues in that time period, which can be up towards $500 million if the industry outperforms, but I doubt $1 billion will happen.
#3: Making Profits
The second part of this is how will they generate enough net income off of that $250 million to $500 million in projected revenues given the low price tag they touted in their earlier investors presentation of $3 per mile cost for customers.
Here are their current EPS projections:
| 2022 | 2023 | 2024 | 2025 | 2026 | |
| EPS | $(0.52) | $(0.62) | $(0.63) | $(0.63) | $(0.47) |
| Growth | +30.4% | -19.5% | -1.58% | -0.37% | +25.9% |
(Source: Seeking Alpha Earnings Estimate Aggregator)
The math here for profitability projections is quite simple to me: If they charge $3 per mile on average, making a projected $375 million in revenues, that means they flew customers about 125M miles. Assuming they make about $1 per mile in gross profits with the cost of electricity and maintenance, that means they will generate around $125 million in gross profits in 2027.
The company’s operating expenses totaled more than $338 million this year.
All of these factors only matter if the company overcomes what I see as the third most likely hinderance to their operational success.
#4: Capacity Issues
Sure, airports and ports are large places, but so are the air taxis. Most air taxis have a capacity of 5 to 10 people, so if we take an actual look at the surroundings of the airport, we see that in the average on anywhere around the world, there just isn’t room for dozens of these air taxis operating between them major cities. The problem here is twofold:
The first is airport capacity and security, which will thousands of planes flying around and limited space for air taxis to land, it’s unclear how many round trip flights any of these companies will be able to operate.
The second is city capacity and security. Several big cities like New York have already put limitations around helicopters flying in and out of major parts of the city because of a fatal accident and noise pollution. I don’t see electric air taxis like Joby, which blades are external, facing any less of a scrutiny.
To think that the company can generate 125M miles of flights between airports and big cities each year is overestimating, in my opinion, the allowance the company will get from these airports and cities, accounting for competition.
There’s also little to believe that Joby will be able to offer better pricing for their services than companies like Uber or Boeing will be able to, so it’s hard to see the figures the company is talking about coming to fruition.
Bottom Line Is, It’s Too Early
The company without a doubt has potential behind it as various air taxi and autonomous ‘flying cars’ are expected to be part of a $1 trillion industry by 2040, according to a Morgan Stanley (MS) report. This means that they only have to get a fraction of 1% of this industry to potentially generate millions in profits each year. But it doesn’t mean they will and I still believe it’s way too early to tell for a company with so many hurdles ahead of it.
I remain neutral on the company’s short-term and slightly bearish on its long-term prospects until we get more information.
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