Joby Aviation lands $500 million from Toyota as it races to launch flying taxis.
The benchmark S&P 500 is on track to produce a whopping 20% gain by 2024, but companies developing electric vertical takeoff and landing (eVTOL) aircraft have struggled. The shares of the largest and most visible players in this emerging field of aviation technology have an average return of 22.2% negative this year.
This stark contrast between the performance of the broader market and the struggles of eVTOL companies raises questions for investors. Are these innovative aviation technology companies experiencing growing pains, or do they represent a buying opportunity for those with a long-term outlook?
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A company at the forefront of this nascent industry is Joby Aviation (JOBY 5.35%). With its ambitious plans and recent high-profile investments (see below), Joby stands out as a potential leader in the urban air mobility revolution. Below is a closer look at the company’s recent developments and an assessment of whether this eVTOL pioneer could be ready for liftoff.
A front-runner supported by Toyota
Joby Aviation recently secured a game-changing $500 million investment Toyota Motor Corporation (TM 1.75%). This deal brings Toyota’s total investment in Joby to $894 million. Toyota will own more than 20% of Joby after the second tranche is invested in 2025.
The partnership goes beyond financial support. Toyota shares its renowned production expertise with Joby as engineers from both companies work side by side in California. This partnership aims to leverage Toyota’s manufacturing prowess to efficiently scale Joby’s production capabilities.
Joby is making steady progress towards commercialization and recently launched its third aircraft off its pilot production line. It also broke ground on an expanded manufacturing facility in California. The company aims to reach a production capacity of one eVTOL aircraft per month by the end of 2024, a crucial stage in its journey to market.
Global expansion and regulatory milestones
Joby does not limit his ambitions to the United States. The company has taken steps to become a certified air taxi operator in the United Arab Emirates and has signed agreements with the Dubai Road and Transport Authority and various Abu Dhabi government departments. These partnerships pave the way for Joby to establish and scale air taxi services in the UAE, positioning the company for global expansion.
In the United States, the company has already obtained its Part 135 Air Carrier Certificate from the Federal Aviation Administration, which is a crucial step towards commercial operations. As a result, the company operated traditional aircraft for more than two years, refining its planned air taxi operations and gathering valuable operational experience.
Certification progress and financial status
Joby reports that the fourth of five stages in the type certification process is now 37% complete on its part. The company expects progress to accelerate in the rest of 2024. This certification is critical for Joby to start commercial air-taxi services with its eVTOL aircraft.
On the financial front, Joby maintains a strong balance sheet with $825 million in cash and short-term investments by the second quarter of 2024. This substantial cash reserve gives the company a healthy runway to continue its development efforts and of certification.
The potential of the eVTOL market
Morgan Stanley projects the global urban air mobility market to reach $1 trillion by 2040 and $9 trillion by 2050. While this represents a decrease from earlier estimates, it also suggests immense potential for eVTOL technology. The long-term outlook for urban air mobility remains promising, with potential applications ranging from air taxis to cargo transport and emergency services.
However, investors should temper their excitement with patience, according to the investment bank. Regulatory hurdles and certification processes can slow early adoption. In fact, the Morgan Stanley report suggests that widespread commercial introduction may be closer to 2040 than 2030. This timeline reflects the complex challenges of integrating a new form of air transportation into existing urban infrastructure and systems of airspace management.
The road in front of Joby Aviation
While Joby’s stock has underperformed the S&P 500 in 2024 (see chart below), the long-term potential remains substantial. Joby Aviation’s strong partnerships, global expansion efforts and certification progress position it as a leading candidate in the eVTOL space.
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The innovative design of the company’s aircraft, which promises to be fast, quiet and ecological, could revolutionize urban transport. Joby’s eVTOL is designed to carry a pilot and four passengers at speeds of up to 200 miles per hour, with a trip from Dubai International Airport to Palm Jumeirah, Dubai expected to take just 10 minutes, compared with the typical 45 minute car journey.
What is the background? Investors should carefully consider the risks and potential rewards of this emerging technology. The development of eVTOL aircraft may take decades to reach large-volume commercialization, but the eventual impact on urban transportation could be transformational.
As Joby continues to make progress on its certification and production goals, it may offer an intriguing opportunity for investors willing to weather near-term volatility for long-term growth potential in a revolutionary industry. In other words, this small-cap growth stock should appeal to aggressive investors looking for unusual growth opportunities.
George Budwell has positions in Joby Aviation and Toyota Motor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.