At the Farnborough International Airshow we had the traditional manufacturers present their orders and pre-agreements. These manufacturers include Boeing ( BA ), Airbus ( OTCPK:EADSF ) ( OTCPK:EADSY ), ATR and Embraer ( ERJ) with order announcements for their popular turboprop and single-aisle aircraft. However, disruptive technology is also entering the market space in the form of eVTOLs, which are electric vertical take-off and landing (eVTOL) vehicles that are designed to revolutionize urban air mobility and could provide disruptive technology in other areas as well. One of the eVTOL players who made an announcement at the Farnborough Airshow is Eve (NYSE: EVEX). In this report, I will look at how the breakthrough technology compares to current technology solutions in terms of value and also highlight its applications.
Disruptive technology, but no competition from Boeing or Airbus
The easiest thing to say about eVTOL is that like any Boeing 737 or Airbus A320, eVTOL flies, but that’s all they have in common. eVTOLs are essentially competition to helicopters, providing a product built for urban air mobility, built with a different mindset. Helicopter taxis or shared vehicles exist, but helicopters are relatively complex and this includes acquisition costs as well as operating costs, making helicopters less suitable for mass application and transportation.
eVTOLs are specifically designed for urban air mobility in an effort to reduce congestion in urban areas, but can also provide mobility solutions in underdeveloped areas. To play a truly significant role in solving congestion problems, eVTOLs need to be cheap to run, so unlike helicopters, they are built with new technology to enable cost reductions in acquisition, operation, increased flexibility and reducing environmental footprints. Just for the purpose of comparison, the eVTOL will sell for about $3 million, while the helicopters that Airbus sold at the air show, although different in application areas, sell for $5 to $10 million. This is not to say that all eVTOLs will be instant successes. On the contrary, although the technology and application are promising, most eVTOL manufacturers are unlikely to succeed in the long term, as competition will be fierce and market entry will take time. Time and money that not all companies will have.
Eve: Attractive relative position
One company that has a somewhat attractive position in the eVTOL space is Eve. The company has been separated from Embraer’s innovation division, and this may actually serve the company well. In order to design and manufacture an eVTOL, aerospace engineering experience is a must, but having a wide network coming from Embraer, the knowledge of the equipment manufacturer and the footprint of the Brazilian jet manufacturer will certainly benefit Eve.
It’s also something we saw at the Farnborough International Air Show, where BAE Systems (OTCPK: BAESF ) (OTCPK: BAESY ) and Eve signed a letter of intent for 150 eVTOLs. At the same time, it has shown interest in applying urban air mobility solutions to the defense market, potentially further increasing the market potential of eVTOL. This preliminary agreement was signed between Eve, Embraer and BAE Systems, while a separate memorandum of understanding will enable the development of a defense-focused eVTOL by Embraer and BAE Systems using the Eve vehicle as a base.
At this stage we are seeing eVTOL companies at airshows, so it is also interesting to look at what they are actually offering to airshows in terms of agreements. Our TAF Airshow Order Tracker, which we use to track and visualize order announcements, shows announcements for over 600 aircraft valued at nearly $24 billion. In a separate report we will make divisions to specify this message flow, but for now I want to look at the part that Eve had in this flow. If we look at the preliminary agreements, we counted announcements covering 200 aircraft worth $1.9 billion. 150 of the 200 aircraft or 75% were covered by BAE Systems’ preliminary agreement with Eve for 150 eVTOLs and represented 21% of the value. So obviously in terms of value eVTOLs have a smaller share, but it’s just something that makes sense from a product and application perspective.
With this report, I certainly don’t want to mark Eve or any eVTOL company as a buy. Instead, I want to point out how air mobility is evolving and the changes we see because of it at air shows. We’re no longer looking at orders for small ATR turboprops all the way up to the large Boeing 777-8F freighters that Boeing had announcements about, but there is a separate market with its own dynamics that aims to address a completely different problem. If we succeed, we may see urban air mobility deals become a regular part of the order flow at future air shows. So, I’d say at airshows and beyond, look out for the eVTOL market. This is a market that is not suitable for all investors, but it is definitely worth following.