If you could go back in time 25 years, would you be able to convince someone that Amazon.com would eventually be one of the world’s most valuable companies?
Amazon’s success — relentless customer focus, foresight, and execution notwithstanding — was contingent upon a set of trends the company believed would define the future of commerce. In the late 1990s, it was not a foregone conclusion that internet adoption would continue to soar, data costs would plummet, and the world wide web would become the preferred platform for numerous facets of human life.
For investors who did buy into these underlying trends, however, it proved difficult to distinguish between an effective application of the capabilities of the early internet and some of the more outlandish companies of the time. The market awarded nine- and 10-figure valuations to both, indiscriminately, based on projected growth rather than revenues. Microsoft, Amazon, and Apple almost failed. It took the better part of a decade after the crash for these company’s stocks to reach new all-time highs.
A $1,000 investment in Amazon at the company’s initial public offering (IPO) would be worth more than $175,000 today, but an investor at the time would likely have also put money on numerous other IPOs for companies that were de-listed in the years that followed.
Even for those who correctly identified the underlying trends that would shape the future, it was an era of great uncertainty for builders and investors alike.
Echoes of dot-com era speculation
The new air mobility landscape today bears great similarity to the dot-com market before the crash, featuring valuations completely untethered from market fundamentals, real underlying technology trends, and few certainties through which to distinguish fact from company fiction.
We know that the simplicity and reliability of electric aviation will result in greatly reduced overall costs, expanding the market for vertical lift in correlate. This has driven emerging technology investors to identify the electrification of the skies as a mega-trend worth investing in, and subsequently the valuation of eVTOL companies — and even shell companies rumored to be merging with one — has entered the stratosphere.
We don’t know precisely what energy storage density will be sufficient to enable useful range and payload of electric aircraft for various applications, or when batteries with that capability plus high specific power and cycle life will be available at scale at a viable cost. But we know electric vehicles are eating the ground transportation world, to adapt venture capitalist Marc Andreessen’s famous description of software, and they will replicate that success in the skies.
We also don’t know which applications of eVTOLs will prove valuable. In the automotive world, electric cars and trucks are just new types of cars and trucks. There is a built-in market and understanding of consumer behavior that does not exist for most of the imagined functions of air taxis.
Although the eVTOL landscape promises a vast future market — Morgan Stanley’s 2019 report estimating a $1.5 trillion market by 2040 is the most cited of many similar market analyses — consultancies have reached widely varying conclusions regarding the global appetite for short-range urban air taxis, city-to-city transportation, airport shuttle services, and other potential applications of the next generation of vertical lift aircraft. While based on real, quantifiable trends in technologies that promise to enable electric and eventually autonomous flight at scale, these predictions are largely guesswork.
It is almost certain that the emergence of a new option for rapid movement of people and cargo — at an intersection of distance, time, price, and infrastructure flexibility previously unaccounted for — will create markets based on latent demand, but this is infinitely harder to model than demand for a new type of car.
The extent to which people will choose to use eVTOLs instead of existing modes of transit, too, will be dependent on many yet-to-be-defined elements of the service — multi-modal connections, aircraft routing, speed, weather availability, proximity of network nodes to attractive destinations, and so on. In sum, these will determine how clear an advantage this new air mobility can provide and how many routes can offer a time savings or other desirable element that is worth the money and effort.
There will also likely be new technologies that leverage the characteristics of eVTOLs to great effect. The movement of human organs for transplant may be one example. The current availability of organs doesn’t necessitate a move away from helicopters and the establishment of a more permanent network of aircraft, but if United Therapeutics and other biotech players are able to crack the code behind 3D printing viable human organs, then eVTOLs will probably prove an optimal part of their distribution network — hence CEO Martine Rothblatt’s investments in Beta Technology, EHang and other eVTOL startups.
Modeling markets that don’t exist based on technology that isn’t ready cannot be done with a high degree of accuracy, and companies are pursuing radically different markets, some of which will likely turn out to be valid and profitable applications of eVTOLs and others which will not.
Similar to the current state of affairs with ground-based electric vehicle manufacturers, it is simply not possible for every eVTOL company, or even most of them, to deliver meaningful positive returns on their current valuations for the next 15 years as the market actually emerges and scales. There will be winners and losers — and as with Amazon’s stock price at the height of the dot-com bubble, it is quite likely there will be a pullback in valuations that will take years for the winners to recover from.
Market conditions are also ripe for fraudulent actors or gross misrepresentation of technical viability. Few investors, retail or otherwise, are knowledgeable enough to distinguish between the capability and certifiability of EHang’s EH216 multicopter and Joby Aviation’s five-seat tiltrotor. The secrecy of these companies and many others in the space makes due diligence all the more difficult.
Once regulators begin to award type certificates to eVTOL aircraft — and make decisions surrounding airspace structure and energy reserves that will affect all actors — the gap between hype and reality will close meaningfully.
The existence of these regulatory hurdles is a key difference between the eVTOL market and the early internet. Amazon and its early contemporaries in the dot-com boom didn’t need any comparable approval to launch an internet service. Type certification will prove to be a natural differentiator between companies who have a chance to test their market thesis and those who don’t, beginning to lower uncertainty in the market.
It will not, however, answer the question of whether the market wants the product at the price point that is achievable.
With Uber stepping back from the eVTOL space, there is less certainty around the “killer app” for eVTOLs. This could be a positive development for the sector as companies and investors feel free to explore a wider variety of aircraft designs and potential markets.
With so much uncertainty around aircraft development programs, Blade Urban Air Mobility, a helicopter booking platform selling charter and by-the-seat services that plans to debut on public markets via merger with an acquisition company, presents itself to investors as an “index play” — no matter which eVTOLs are successful, the company will leverage them through its Uber-esque asset-light model to greatly expand service and revenues. For the next five years, Blade is likely to invest in its brand, exclusive infrastructure, and route expansion to prepare for the introduction of electric aircraft.
Blade’s approach, too, contains risk. It is not clear whether Blade has the technology stack necessary to provide seamless multi-modal experiences to customers and ensure the high occupancy and utilization rates necessary to make the economics of ride-sharing profitable. This may be an area where the company either invests significantly, makes an acquisition, or decides to partner with a ground-based transportation network company (TNC) such as Uber.
It’s also not clear whether aircraft developers such as Joby Aviation will allow Blade’s operators to use their aircraft. Joby is currently pursuing a full-stack approach to the market, as are numerous other eVTOL developers.. Buoyed by the acquisition of Uber Elevate’s simulation toolset and about 20 to 30 of its employees — including Eric Allison as head of product — the startup appears unwilling to cede control of the customer-facing service at the moment.
Blade may also face competition from airlines, with eVTOL developer Archer’s recent blank-check merger announcement and conditional $1 billion aircraft sale to United Airlines.
A cloudy crystal ball
Two things are true.
- The underlying technology behind eVTOLs will reduce barriers to vertical lift. If the improvement in cost, reliability, and noise delivered by these aircraft is great enough, they will create sizable new markets.
- With so many uncertainties, no approach to aircraft development or market identification is guaranteed, though companies with a more rigorous and evidence-based thesis behind their methodology are likely a better bet (as is usually the case).
In the next few years, as development programs prove out the capabilities of their aircraft and perhaps receive type certificates, some uncertainty surrounding the eVTOL market will fade. Players who do not have viable aircraft will fail to move forward. Regulatory decisions, along with initial public reactions to eVTOLs and proposed infrastructure expansion in urban areas, will provide additional clarity around the larger market and specific approaches.
But the further out into the future one tries to peer, the cloudier the crystal ball becomes. Scaled eVTOL services are likely at least a decade away; that is plenty of time for unknowns to emerge and the world to shift, radically changing the problems these startups believe their aircraft will solve.
Most analysis to date of the potential market for eVTOLs has not considered other technological advancements happening throughout the transportation sector. If networked electric robo-taxis can move passengers — freed from driving and able to do as they wish — around cities for a fraction of a dollar per passenger mile, people might be less likely to pay a premium for aerial time savings, resulting in smaller markets for eVTOLs.
What if remote work, additive manufacturing, AR/VR and other trends upset the fundamental economic advantage of cities and the endless march toward greater urbanization… ends? This could mean congestion is no longer a problem in need of solving. It could also mean that eVTOLs with greater range, allowing easy movement from cities to distant exurbs, will find a larger market than previously thought.
As is often the case, the winners in the eVTOL industry will take the long view, combining effective market visualization and stellar execution with luck and timing. Any company seeking profitability in the next three years has already forfeited the race.
There is one more certainty. With the amount of money being poured into the eVTOL sector, we will get answers to many of these questions — more than can be said of many novel aircraft development programs over the last century, or of eVTOLs writ large just a few years ago.