By 2026, eVTOL air taxi developers Joby Aviation and Archer each expect annual revenue in excess of $2 billion. Doing them one better, Lilium has projected annual revenue of $3.3 billion the same year. And while Joby’s projections end there, Lilium and Archer have peered even further into the future, with Lilium anticipating nearly $6 billion in revenue in 2027, and Archer looking ahead as far as 2030, when it expects to rake in more than $12 billion.
To put that into perspective, the world’s leading helicopter manufacturer, Airbus Helicopters — which has a large certified product line and established support business — had revenue of just under 6.3 billion euros (around $7.4 billion) in 2020. Joby at least has a flying prototype of its full-scale air taxi, but Lilium and Archer are telling investors that they can progress from subscale technology demonstrators to a business that rivals any helicopter maker in less than a decade.
Joby, Archer, and Lilium are all part of a wave of technology startups going public through combinations with special purpose acquisition companies (SPACs). Archer was the first eVTOL developer to join the SPAC craze, announcing in early February its plans to combine with Atlas Crest Investment Corp (NYSE: ACIC) at a post-money valuation of $3.8 billion. Joby followed suit later that month, revealing its proposed merger with Reinvent Technology Partners (NYSE: RTP) for a valuation of $6.6 billion.
More recently, Lilium said it will combine with Qell Acquisition Corp (NASDAQ: QELL) for a valuation of $3.3 billion.
The promise of the emerging urban air mobility (UAM) market — as laid out in the companies’ investor materials and filings with the U.S. Securities and Exchange Commission (SEC) — is that it will grow to become much larger than today’s helicopter industry, thanks to the inherent advantages of cheap, quiet, sustainable eVTOL aircraft.
“The more I learn about the space, the more convinced I am that the technology is real,” said Asad Hussain, a senior analyst at PitchBook, who recently published an analyst note on eVTOL air taxi startups. Just how quickly the UAM market will achieve its potential is up for debate, however, and Hussain’s report makes the case that current timeline expectations are likely inflated due to investors underestimating certification and execution risks.
“There’s a real use case for it and it could be potentially transformative, but at the same time I think there are constraints that exist and will be very difficult to overcome,” he told eVTOL.com. “There’s a lot of complexity and capital costs with certification; a lot of technological, regulatory, and infrastructure-related hurdles that that will need to be solved. And I just think a lot of these factors, where we are today, they’re being underestimated by the market.”
Now, the SEC is warning that SPACs and the companies they combine with may face liability risks for projections they make during the combination process. SPACs have been especially popular in nascent markets like UAM because of the widespread impression that forward-looking statements made during the “de-SPAC transaction” don’t carry the same liability exposure as they would in a conventional initial public offering (IPO). However, in a statement published April 8, John Coates, acting director for the SEC’s Division of Corporate Finance, said that “any simple claim about reduced liability exposure for SPAC participants is overstated at best, and potentially seriously misleading at worst.”
“Participants and their advisors are used — and expect — to prepare and disclose projections in acquisitions, including de-SPACs,” he wrote. “I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions.”
An IPO by any other name
SPACs are publicly listed shell companies with no operations, established for the purpose of identifying promising private companies and taking them public through business combination agreements (or de-SPAC transactions). They’re also commonly known as “blank check” companies because their initial investors don’t know which private company will be selected as an acquisition target. Under U.S. regulations, SPACs have two years to find and identify a target; if they fail to do so, the company is liquidated.
As Coates explained, if a SPAC identifies a target, shareholders typically have a vote on the de-SPAC transaction, and many investors who purchased securities in the first-stage SPAC sell or redeem their shares around the time of the de-SPAC transaction. After the merger, the combined entity continues operating as a public company with the advantages of a stock exchange listing, a broader shareholder base, and a liquid market for its shares.
According to Coates, “some — but far from all — practitioners and commenters have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself.” This is because the Private Securities Litigation Reform Act (PSLRA) affords safe harbor to public companies for their forward-looking projections, provided such projections are accompanied by meaningful cautionary statements.
The PSLRA was passed by Congress in 1995 to discourage frivolous securities lawsuits and permit companies to disclose information about their future plans. However, it specifically excludes from the safe harbor certain types of statements, including those made by a penny stock issuer, or in connection with an IPO or an offering of securities by a blank check company.
Because “IPO” is not defined in the legislation, many SPAC proponents have taken it to refer to conventional IPOs but not de-SPAC transactions. “This, such observers assert, is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses,” Coates explained.
But this confidence may not be warranted. Coates warned that a SPAC merger could be interpreted to be an IPO based on the fact that it is the first time that public investors see business and financial information about the acquisition target. “If these facts about economic and information substance drive our understanding of what an ‘IPO’ is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. Such a conclusion should hold regardless of what structure or method it used to do so,” he stated.
Meanwhile, companies are also liable for any material misstatement or omission made in connection with the de-SPAC transaction. “A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the company’s future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework later used by courts to assess the disclosures,” Coates wrote. He added that de-SPAC transactions may also give rise to liability under state law.
“Given this legal landscape, SPAC sponsors and targets should already be hearing from their legal, accounting, and financial advisors that a de-SPAC transaction gives no one a free pass for material misstatements or omissions,” he said.
It’s not clear how the issues raised by Coates will impact the eVTOL companies that have already announced their intentions to combine with SPACs. When contacted by eVTOL.com, Reinvent Technology Partners and Atlas Crest Investment Corp declined to comment. (A spokesperson for Qell Acquisition Corp did not respond to a request for comment.) As of April 14, QELL had yet to submit a form S-4 to the SEC for its combination with Lilium, but S-4 filings by RTP and ACIC contain extensive disclaimers regarding future projections, and lengthy descriptions of risks and due diligence.
However, Coates’ statement may portend future rulemaking to clarify the scope of the safe harbor in the PSLRA. “Congress could not have predicted the wave of SPACs in which we find ourselves,” he wrote. “It may be time to revisit these issues.”
According to Asad Hussain of PitchBook, any rulemaking that dampens investor enthusiasm for SPACs could end up benefitting Joby, Archer, and Lilium, which have already lined up the funding they need to progress through certification and would be insulated from newer entrants raising the same amount of capital.
In general, he told eVTOL.com, smaller players are already running up against the expectations set by these eVTOL frontrunners: “If you’re another company raising a SPAC right now or going to market right now, it’s a really difficult story to go out in front of investors and say, ‘Hey, we think everyone else is wrong, expectations are inflated, but we’re being realistic and you should choose us for these reasons,’ because every investor is going to benchmark you against what’s already been put out there.”
Nevertheless, Hussain thinks a timeline reset may be inevitable if eVTOL companies fail to hit key milestones for certification and commercial operations over the next few years. This would mirror what happened in the autonomous driving sector, which failed to achieve its vision for widespread deployment of self-driving cars by 2020. Yet even with a “reset in expectations” in that sector, Hussain said, “we’re continuing to see this incremental progress in the industry, and I’m more confident than I have ever been that we will see autonomous driving . . . in the next 10 years.”
Extending those lessons to eVTOL developers, he said, “I think the companies that end up succeeding will be those that can commit to that long-term vision, and that can bring investors along with them that share that long-term vision.”
That’s a perspective shared by Scott Drennan, who was previously VP of Innovation at Bell and VP of UAM at Hyundai and now has his own consulting business, Drennan Innovation. Speaking in general terms, he told eVTOL.com that it is “imperative” for original equipment manufacturers and critical sub-system suppliers in the eVTOL space to be “transparent and realistic with the investment community about technology readiness, performance, and programmatic timelines.”
“We shouldn’t be afraid to talk about the longer development time horizons in aviation,” he said. “Sure, we can push ourselves and improve developmental efficiencies — and we always do — but, as with safety, cutting corners for short-term gain will undermine the bright future of this incredible market.”