If you want a flying car, just put wheels on a helicopter. The man who said that commands ~70% market share for electric cars in the United States. While the flying electric car might be an unrealistic way forward, what about electric airplanes?
If you take a drone and make it 1,000 times bigger so that it can carry a handful of people, isn’t that just an electric helicopter with a dozen rotors instead of one? Wrong. We’re now calling those vertical takeoff and landing (VTOL) aircraft which also describes a helicopter. And we’re back to square one. See how confusing the nomenclature can get?
What about a VTOL that uses jet engines for propulsion? You may be describing a killing machine called the Hawker Harrier. But what if this VTOL jet was powered by electricity? We’ve now arrived at the value proposition of an aviation company called Lilium.
Is Lilium a Publicly Traded Stock?
Let’s get some housekeeping out of the way first. Lilium has announced their intentions to go public using a special purpose acquisition company (SPAC) called Qell Acquisition Corp. (QELL). Until that ticker changes from QELL to LILM, Lilium is not a publicly traded stock. In September 2020, a meeting will be held to approve the merger. Once the ticker changes to LILM, you’ll know everything is kosher. Until then, there’s always a chance the reverse merger can fall through.
The Urban Air Mobility Thesis
The first time we came across Lilium was when we asked, Is Ehang IPO the Best Bet for Urban Air Mobility? As Chinese firms are getting absolutely rocked, the answer is probably no. The next time we looked at urban air mobility was when we looked at Archer Aviation, a company that is also planning to go public using the SPAC route. The primary difference between Archer Aviation and Lilium is that the former uses lots of spinning blades while the latter uses proper jet engines – 36 of them powered by electricity.
A few years ago we looked at 8 Electric Airplane Startups Trying to Get Off the Ground noting the following:
Large commercial hybrid or all-electric airplanes are probably more than a decade away, but it’s plausible that short-range electric airplanes may be carrying passengers on short hops around the country in just a few more years.Credit: Nanalyze
One company that wasn’t featured in that piece, Lilium, may be making electric urban air mobility a reality in 2024.
Lilium Stock: An Electric Aviation Company
Founded in 2015, Germany’s Lilium has taken in just over $376 million in disclosed funding from investors including fund manager Ballie Gifford and Tencent, both who came in as leads. Once the SPAC merger finalizes next month, Lilium will have an additional $830 in capital which should provide enough runway for them to begin producing aircraft in 2024. The use of the word “aircraft” is appropriate considering their electric vehicle will seat six passengers in an environment that resembles a proper plane.
The plan comes together in 2024 when the company expects to product 90 aircraft which will automagically produce $246 million in the same year – $29 million from transporting people via regional hubs (the air taxi model) and $217 million from selling their electric airplanes to companies such as Germany’s own Lufthansa and Brazilian airline Azul which said they’ll buy 220 aircraft in 2025.
An example of what a regional electric air mobility configuration might look like can be seen below.
The pricing seems hefty but the glossy investor deck assures investors that the economics add up. All they need to do is achieve the regulatory approvals needed and start to manufacture electric jets. Strategic investors – at least once the deal closes – include Honeywell and Palantir who are both investors in the SPAC offering. There are any number of “deals” announced involving companies that plan to purchase aircraft, so we just need to wait three years and see if Lilium can actually deliver said aircraft. Plenty of competitors are also trying to accomplish the same thing, given the estimated total addressable market (TAM) for VTOL aircraft is estimated to be around $500 billion by 2040.
Should You Buy Lilium Stock?
The sample prices for riding in one of Lilium’s aircraft may seem steep until you realize just how much aviation companies charge people for more obscure travel routes such as in Pacific Island countries. There is no doubt plenty of use cases exist for a 6-seater electric aircraft that can travel at speeds of 175 mph across distances of up to 155 miles while not sounding any louder than your average dishwasher. Our questions surround implementation. Batteries need to be swapped out every four months. Each plane requires 4.5 pilots who need to be trained to fly the aircraft. Ground operations crews need to be trained how to maintain the aircraft, not to mention the need for spare parts to be manufactured and shipped to destinations as needed. Being able to produce the aircraft at scale and at an economically viable price point is just the beginning. A whole lot more needs to come together after that for planes to be generating revenue by 2024.
It sure makes life easy when you only invest in companies with meaningful revenues. The path to traction is paved with numerous problems, especially when you’re trying to develop a whole new method of transportation. As the old joke goes, do you know how to get a million dollars? Invest a billion dollars in an airline company.
Lillium has an exceptionally nice glossy SPAC deck which clearly spells out the value proposition and unit economics. A great deal can happen over the next three years, especially if you’re someone who thinks this 10-year bull market is dangerously overheated and something’s got to give. The notion of “getting in on the ground floor” isn’t compelling because there is just too much that can go wrong while we’re waiting for those first planes to start carrying passengers. Popular SPACs are beginning to fall, and some are questioning the model because it rewards everyone except the retail investor who wants to hold for the long term. We’ll check back in a few years and see if Lilium’s 2024 revenue milestone still stands.
Flying taxis are an appealing story for retail investors who are desperately lookin for the next Tesla. On Wall Street, the idea of sustainable mobility is an easy sell to the ESG types. What’s really being sold here is the idea of what the world could look like if Lilium’s electric aircraft can be mass produced at scale and used in a manner that generates profits while reducing carbon emissions. The idea of an electric VTOL sounds great, but until then we’ll just have to stick with gas-powered VTOLs otherwise known as helicopters.