Predicting the Future Value of Joby Aviation Shares Over the Next Five Years
Over the past few decades, numerous technological buzzwords have emerged and fallen short of expectations: 3D printing, hyperloops, and the metaverse are just a few examples. Frequently, these innovations fail to live up to their initial hype. However, there's a possibility that electric vertical takeoff and landing (eVTOLs) could buck this trend due to their practical real-world applications.
Companies like Joby Aviation (JOBY -2.51%) are leading the charge in this domain, utilizing advancements in battery-electric vehicle technology for aviation purposes. Let's delve into what the next five years might hold for this company.
What's so special about eVTOLs?
Analysts from Morgan Stanley's automotive and mobility research team have a history of making ambitious predictions about new technologies, and eVTOLs are no exception. In a 2021 report, they projected these aircraft could potentially create a $1 trillion addressable market by 2040, growing to an enormous $9 trillion by 2050 as they replace traditional urban taxis and find applications in fields like cargo delivery, law enforcement, and the military.
Although these figures may sound unrealistic at first glance, eVTOLs possess several advantages over conventional helicopters. They are more environmentally friendly, their electric powertrains are smaller, quieter, and less mechanically complex than their gasoline-powered counterparts. These attributes make eVTOLs potentially easier to mass produce and more suitable for operation in densely populated urban areas.
Does Joby Aviation have the upper hand?
Joby Aviation went public through a merger with a special purpose acquisition company (SPAC) in 2021, raising over $1 billion for the development and testing of its eVTOL program. However, like many SPAC-backed companies, Joby entered the public market at a relatively early stage, as demonstrated by its discouraging third-quarter financial results.
In Q3, Joby generated only $28 million in revenue, while incurring an operational loss of $156.7 million, mostly due to research and development expenses. With $737.8 million in cash reserves, Joby can maintain these losses for at least a year. However, investors should anticipate management to eventually explore alternative sources of capital, such as new share issuances, which may further dilute shareholders' ownership stake in the company, potentially affecting the stock price.
Despite these challenges, Joby is advancing. This month, it received Part 141 approval from the Federal Aviation Administration (FAA) to establish a pilot training academy. Joby's emphasis on pilot training sets it apart from other publicly traded eVTOL start-ups like Archer Aviation.
Unlike Archer, which focuses solely on manufacturing, Joby aims to both manufacture eVTOLs and operate its air taxi service independently.
This business model mandates substantial investments in infrastructure. In November, the company announced the start of construction on a "vertiport" to facilitate air taxi services at Dubai International Airport. Joby plans to construct a network of launch and landing pads, with additional vertiports anticipated in downtown Dubai and other city landmarks like Palm Jumeirah and the Marina.
Where will Joby Aviation stand in the next five years?
The next five years will be particularly demanding for Joby Aviation, as its capital-intensive operations lead to further equity dilution. The company's multifaceted business model introduces additional potential points of failure. Instead of focusing solely on manufacturing, it must take on the added responsibilities of building a taxi service.
Although market optimism may temporarily support Joby's shares, eventually, investors may grapple with the full extent of these challenges. Similar to many SPAC-backed companies, Joby could be considered too precocious for public markets, and may have been more suited as an experimental division of a larger company with ample resources for exploration.
Investing in Joby Aviation could potentially yield high returns if the company successfully implements its eVTOL air taxi service and expands into the predicted $9 trillion market by 2050, as suggested by Morgan Stanley's research. However, financing the company's extensive infrastructure development and operations could be a challenge, possibly requiring additional funding through new share issuances.
In light of Joby Aviation's capital-intensive business model and potential equity dilution, financially savvy investors might want to consider the company's long-term financial prospects and its ability to navigate the complexities of operating both the manufacturing and service sectors of the eVTOL industry.
