The Flying Car Moment is Now Months Away | LFTC

Key Concepts

• eVTOL (electric Vertical Takeoff and Landing): Aircraft that use electric power for vertical takeoff and landing, offering a quieter and more environmentally friendly alternative to helicopters.
• Value Investing: An investment strategy that involves identifying and purchasing securities that appear to be trading for less than their intrinsic or book value.
• Quality Assets, Compelling Valuations: Value Works' investment tagline, emphasizing the acquisition of high-quality assets at attractive prices.
• Advanced Air Mobility (AAM): The emerging sector focused on new forms of air transportation, including eVTOLs.
• Dubai Air Show: A major international aerospace exhibition.
• Blade: A helicopter service company acquired by Joby, providing existing infrastructure and revenue.
• FAA (Federal Aviation Administration): The U.S. agency responsible for regulating civil aviation.
• EIP (Electric Propulsion Initiative): A program to facilitate the integration of electric aircraft with the FAA.

Summary

Joby Aviation's Prominence at the Dubai Air Show and its Competitive Edge

The discussion begins with an overview of the Dubai Air Show, a significant global aerospace event attended by thousands, including a substantial contingent from the American investment community. Charles Lemonites, founder of Value Works, highlights Joby Aviation as a standout performer at the show. He notes that Joby was the only eVTOL (electric Vertical Takeoff and Landing) original equipment manufacturer (OEM) to conduct live, piloted test flights throughout the week. A specific 17-minute flight from Margam to Al-Maktum International Airport marked the first piloted point-to-point electric air taxi flight in the UAE by an eVTOL.

Lemonites emphasizes that while many companies displayed models and presented compelling narratives, Joby was the only one with a demonstrably flying aircraft, indicating a significant lead in development. This practical demonstration, coupled with Joby's acquisition of Blade, a helicopter service company, sets it apart. Blade provides Joby with existing infrastructure, including helipads in key locations like the Hudson River and East River in New York, and a revenue stream, which other eVTOL companies currently lack. This acquisition positions Joby to seamlessly integrate its eVTOLs once they are ready, replacing existing helicopter services.

Understanding eVTOL Technology and its Advantages

The conversation delves into the technical aspects and advantages of eVTOL technology, particularly Joby's aircraft. Lemonites expresses a dislike for the term "eVTOL," preferring "flying machines," but acknowledges the need for a category name. He clarifies that these are not simply quiet helicopters. Joby's aircraft features a fixed wing, allowing it to glide like an airplane when airborne, which is more fuel-efficient than a helicopter. It utilizes six rotors for vertical takeoff and landing, offering redundancy (it can remain airborne with up to two rotors down) and significantly reduced noise compared to traditional helicopters. The large blades of helicopters are identified as the primary source of their noise, whereas Joby's smaller rotors contribute to its quiet operation.

Furthermore, the electric nature of eVTOLs eliminates pollution, addressing concerns about exhaust fumes impacting buildings, a factor that has led to the decommissioning of many city helipads. The reduced noise is also a critical factor in public acceptance, with Joby having successfully demonstrated its quiet operation to potential protestors in New York.

Joby's Financials and Competitive Landscape

Joby's acquisition of Blade is presented as a significant differentiator, generating an estimated $20-25 million in quarterly revenue, equating to an annual run rate of nearly $100 million. This revenue stream contrasts with other eVTOL companies that are not yet generating revenue.

The competitive landscape includes companies like Archer, Beta (which focuses on electric airplanes with VTOL capabilities), EVE (backed by Embraer), and Wisk (backed by Boeing). While acknowledging that EVE could become a competitor, Lemonites believes they will be behind Joby. Archer's "Midnight" aircraft is noted for its visual appeal and has also achieved flight, but its business model focuses on selling aircraft rather than operating them as a service, although they have a deal with the city of Los Angeles for Olympic transportation. Lemonites expresses skepticism about Archer's ability to have its aircraft flying by the 2028 Olympics, suggesting it will be a close race.

Joby's Strategic Advantages: Operations and Infrastructure

Lemonites argues that Joby's primary business will be operating its aircraft as a service, not just selling them. This is because eVTOLs are expected to be in short supply for the next five years. If Joby sells 200 aircraft at $5-10 million each, revenue growth would be incremental. However, operating those 200 aircraft and generating revenue from each flight would lead to exponential revenue growth as the fleet expands. This operational model is central to Value Works' investment thesis.

The acquisition of Blade is crucial for Joby's operational strategy. Blade's expertise in managing helipads, handling reservations, and facilitating passenger logistics in New York City provides a blueprint for Joby to replicate in other cities. This logistical and people-moving capability is as vital as the aircraft technology itself.

Market Potential and Investment Thesis for Joby

The potential market for eVTOLs is projected to reach tens of billions of dollars in sales within seven to ten years. Lemonites believes that 2026 will be a transformative year with the anticipated commercial launch of air taxi services, even if initially limited. This will mark the beginning of revenue generation for these vehicles, representing a major turning point.

The investment thesis for Joby at its current $12 billion market cap is based on the idea that it is attractively priced. Lemonites points out that Joby had two-thirds of its share price in cash and had invested that amount in building its product. This means investors were essentially getting the developed product at a significant discount to the investment already made. This strategy aligns with Value Works' approach of finding "quality assets at compelling valuations," even in nascent industries.

Comparison to Tesla and Corporate Partnerships

While comparisons to Tesla are frequent, Lemonites differentiates Joby by highlighting the depth of its organizational structure and committed corporate partners. He acknowledges Elon Musk's foresight regarding electric vehicles but believes Joby's success is not solely dependent on a charismatic CEO.

A significant corporate partner is Toyota, which owns approximately 15% of Joby and serves as a manufacturing partner. Toyota's investment and board representation provide guidance, but Joby will be the primary manufacturer, operating facilities in California and Dayton, Ohio. This contrasts with Archer's plan to outsource manufacturing to Stellantis.

Another key investor is Baillie Gifford, a large Scottish asset manager known for its early and successful investment in Tesla. Baillie Gifford's significant stake in Joby (around 6% or more) is seen as a positive indicator by Lemonites, who, despite being a value investor often looking for short opportunities, respects their investment acumen.

Investment Strategy and Risk Assessment

Lemonites acknowledges that investing in eVTOLs is speculative and that the stock price is likely to experience significant corrections (e.g., 30%) over the next decade. However, he argues that the potential upside from a $12 billion market cap to $50 billion or more justifies the risk. He draws a parallel to his mistake of not owning enough Carvana stock, regretting missing out on significant gains due to a desire for a slightly lower entry price.

For investors considering buying now, Lemonites suggests that waiting for commercial launch in Dubai might mean missing a substantial portion of the upward move. He believes that even if the stock corrects by 30%, it could be from a much higher valuation.

Value Works' Investment Philosophy and Other Holdings

Lemonites explains that Value Works' philosophy is not about buying "lousy businesses cheap" but rather finding "quality assets at compelling valuations." He applies this to Joby by viewing the significant capital already invested in product development as a form of value. He uses Rivian as another example of a company that has made substantial infrastructure investments, and where investors have given up, creating a potential buying opportunity if the underlying business is sound. Instacart is also mentioned as a holding that fits this model.

He clarifies that Value Works does not currently have the same valuation argument for other eVTOL companies like Archer or EVE, nor for Lucid, which he believes might not succeed. He also mentions other holdings like Spirit Aerosystems (being acquired by Boeing at a cheap price) and office property investments (which are currently struggling).

Lemonites emphasizes that investor enthusiasm or pessimism should not be the primary driver of investment decisions. Instead, the focus should be on the intrinsic value of the underlying assets and their potential to increase in value over time. He reiterates that yesterday's price is not a predictor of tomorrow's price.

The conversation concludes with Lemonites directing listeners to valueworkslc.com for more information.