While some may liken electric vertical take-off and landing (eVTOL) aircraft to scenarios straight out of futuristic cartoons—a reference I personally find uninspiring—these innovative machines have yet to make their way into our daily lives. In recent months, the excitement around eVTOLs has subsided significantly: investments have dwindled, stock valuations have plummeted, and the earlier deluge of marketing spectacles has waned.
In my January post, I expressed a hope for the Advanced Air Mobility (AAM) market to enter a period of introspection, focusing on advancing vehicle certification programs over the marketing blitz we've seen since many companies went public via SPACs in 2021. This sentiment seemed reflected at this year's Farnborough Airshow, where companies like Supernal dominated with extensive billboards, and major OEMs showcased their latest innovations or entertained guests in grand setups. Notably, Archer Aviation chose to skip the event, a strategic shift from their previous high-profile appearances.
This pivot is reassuring. It marks a significant transformation at the airshow: AAM is shifting from a lofty dream into a palpable reality. However, the sector continues to face substantial challenges. Companies are now intensely focused on execution—possibly out of necessity—as funding dwindles and securing Type Certificates before seeking further financial support becomes crucial. The path to certification and commercialization serves not only as a regulatory milestone but also as a gateway to securing additional investments, essential for scaling up production. After reaching a peak of $7.5 billion in funding in 2021, the subsequent drop to $3.6 billion and then $1.2 billion underscores the pressing need for progress.
Source: SMG Consulting & Aviation Week
Critics might interpret the current market downturn as a precursor to failure, clinging to the saying, "the markets are never wrong." However, markets often overreact—both positively and negatively—and the current high-interest environment may intensify this tendency, particularly for pre-revenue, capital-intensive companies. For those convinced of the AAM sector's potential, this could be a strategic time to invest, despite significant declines in company valuations from their initial SPAC prices.
Source: Yahoo finance, data compiled by author
The industry is likely to see considerable consolidation among the over 200 companies currently exploring eVTOL concepts. A recent report by Roland Berger, utilizing the Gartner Hype Cycle for Advanced Air Mobility, accurately positions us in the "slope of enlightenment" as the industry tackles certification challenges and ramps up manufacturing. This phase is also critical for refining business models, ascertaining whether AAM will remain a niche or expand into a mass market based on economic viability.
Source: Roland Berger
Investor presentations from OEMs often present an overly optimistic view, in stark contrast to more conservative analyst estimates. For instance, Archer Aviation targets $3-4 per passenger seat mile at scale, markedly lower than Roland Berger's more cautious estimate of $7.7 - $16.4 for their airport shuttle scenario. Such discrepancies largely arise from varying assumptions about landing fees and battery costs—elements that could significantly impact the economic framework of AAM. In fairness, Archer Aviation's projections already account for fully autonomous operations at these cost estimates.
Source: Archer Aviation Shareholder Letter
Comparatively, helicopter operator Blade incurs costs of approximately $14 per passenger seat mile on the frequently traversed JFK-Manhattan route in New York City. While eVTOLs are expected to offer lower operating and maintenance costs, the extent of these savings remains to be quantified.
Landing fees are a major variable, with estimates ranging from 10-30 USD as assumed by eVTOL OEMs, up to 200 USD charged by New York Heliports and even 300+ USD projected by some Vertiport operators. Reducing Vertiport landing fees could significantly influence costs, necessitating cooperation among city officials, state representatives, the private sector, and OEMs alongside airline partners to establish a feasible business model. Leveraging existing infrastructure, such as the US's 5,300 FAA-certified airports, and identifying versatile use cases for novel vertiports will be pivotal in maintaining economic viability.
Source: Archer Aviation Shareholder Letter
Battery life and replacement cycles, along with cost per kilowatt-hour, also critically affect eVTOL operations' economic feasibility. These factors are less influenced by OEMs. Unless there's a significant technological breakthrough, we can expect a 6-8% annual improvement in battery efficiency. Moreover, the costs of aerospace-grade batteries will likely be strongly influenced by production volumes, adding another layer of complexity to financial models of eVTOL operations.
Other cost elements like aircraft manufacturing or acquisition costs, charging expenses, pilot salaries, and insurance, while significant, are either more controllable by OEMs or predictably stable.
In conclusion, while the transition from traditional transportation modes like horseback to automobiles might once have seemed as unimaginable as Snoop Dogg's entertaining commentary at the Olympics, the shift to eVTOLs is poised to be just another landmark in our ongoing technological evolution. History shows that humanity often lacks the ability to fully imagine the impact of new technologies before they become pervasive. This oversight is similar to how, centuries ago, the idea of replacing horses with cars would have been dismissed as fantastical. Today's skepticism about eVTOLs may well become tomorrow’s amusement. I remain highly optimistic that eVTOLs will become a part of our transportation options before the decade’s end, though the extent of their adoption is yet to be determined. The future is likely to bring not just commonplace eVTOL usage but also a broader technological revolution, potentially including the widespread adoption of humanoid robots as envisaged by visionaries like Elon Musk and Brett Adcock. As radical as these changes may seem, they signal the dynamic evolution of our technological landscape, where flying in an eVTOL could soon become as routine as catching a flight or booking a ride-sharing service today.
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