Raymond James to launch coverage on five major eVTOL OEMs
Raymond James is launching coverage on five eVTOL OEMs as it says the fruition of the fledgling technology is now a matter of when not if. The financial services firm cited advances in enabling technologies including batteries and said the sector has “the potential to materially change where and how we live and work”.
Raymond James is initiating coverage on Archer (ACHR), Eve (EVEX), Vertical Aerospace (EVTL), Joby Aviation (JOBY) and Lilium (LILM).
Some demand cases estimate the total addressable market to be greater than $1t, according to Raymond James. It puts the market value of the passenger market alone at a more conservative $330bn in the medium term with potential for expansion from additional use cases. However, there are still significant hurdles and uncertainties that need to be dealt with beyond the vehicle technology, including certification, infrastructure, airspace management, and pilot supply, said the firm.
“Admittedly, it is unusual to have public companies at this stage of the sector’s life cycle, and is a function of the exuberance in the SPAC market that created an opportunity to raise significant capital in a short period as opposed to the distraction of going through several rounds of financing,” said report author, Savanthi Syth, CFA, managing director, Equity Research, Global Airlines and Advanced Air Mobility at Raymond James.
The sector is being evaluated on several factors, most important is sufficient liquidity, then path to certification, intellectual property (IP), and speed to market; as well as a traditional enterprise value to EBITDA valuation on Raymond James’ 2030 forecast discounted back at a 12-15% rate.
“While we are generally constructive on the group, ACHR stands out as particularly compelling on a relative basis, while we would look for further progress on the remaining four stocks. In turn, we are initiating with an Outperform rating and $8 target price on ACHR, and a Market Perform rating on EVEX, EVTL, JOBY, and LILM,” said Syth.
Syth predicts all five companies will need additional capital, “so the key is if current liquidity and cash burn trends are at levels to sustain through certification to minimise dilution”, she said.
Joby, followed by Archer are best positioned from this perspective, with EVE, Lilium, and Vertical at the greatest risk of dilution from future capital raises, according to Syth. However, she notes that dilutive shares (in the event of profitability) are greatest as a percentage of basic shares at Archer. “While we see greater risk of potential selling pressure due to low floats and lock-up expirations from the shareholder structure at EVE and Vertical.”
The path to certification is improved by the use of traditional features or reliance on readily available technology, the approach of the regulatory authority, and a first move advantage in crowded markets such as the US and Europe, said the report.
Due to EVE’s use of an eVTOL with more traditional lift + cruise features, Syth expects it to have the lowest barriers to certification and entry. Archer’s vectored thrust vehicle should also have relatively lower barriers compared to other vectored thrust vehicles due to its reliance on readily available technology.
“Overall, we believe companies seeking EASA (EU) approval are better positioned due to already embarking on well-established and more stringent standards with Vertical having an advantage and early lead with EASA certification, in our opinion. Additionally, we believe EVE has a competitive advantage due to an established relationship with ANAC (Brazil) via Embraer and it being the first (and only) one in line with ANAC compared to more crowded queues at both the FAA and EASA, albeit ANAC’s certification standards and process still uncertain at this time,” said Syth.
The report identifies IP as a likely valuation backstop, including the ability to license technology to third parties that will increase the attractiveness to strategic partners. For example, maintaining IP of battery pack design and implementation into the eVTOL itself is a common strategy among all five eVTOL developers, despite the batteries being sourced.
“Joby stands out as being the most vertically integrated manufacturer, in addition to integrated eVTOL service provider, and, in turn, the highest value of intellectual property, while Lilium ranks second in the number of patents filed, albeit still pending — 70% of its patents are related to energy and propulsion,” said Syth.
Speed to market should not only help generate cash flow faster, but also provide first mover advantages in terms of access to resources, said the report. Beyond certification, the ability to scale up production and having the infrastructure for sales and support are also important.
Syth said: “We view auto partnerships of Stellantis and Toyota with Archer and Joby, respectively, and Embraer’s deep investment in EVE as competitive advantages in this respect. Lilium’s strategic partnership with NetJets provides it a unique partner that is well-established in the premium customer segment, which can provide both sales and network support to Lilium.”
The reports also noted Joby’s vertical integration strategy,that relies solely on in-house operations, will drive greater risk and reward, the former particularly related to the delay in cash flow generation due to the lack of pre-delivery deposits.