In the first of two parts of this assessment, I looked at the oddly inflated market caps of electric vertical take-off and landing air taxis (eVTOLs). I explored a bunch of the challenges in the space, including the decline of the traditional rotorcraft market, the challenges of tilt rotors and the serious challenge of maintenance. In the second part, I explore more of the holes in the business cases, the obvious alternatives, and ask why so much money is going in such an odd direction.
I spent most of 2012 working and living in São Paulo, Brazil. I bring this up because it had the unusual distinction of having more privately-owned helicopters than any other city in the world. There are multiple reasons for that. First, it’s a sprawling, only somewhat planned city of 22 million in the metropolitan area. Second, the traffic is horrendous. One of the perquisites I would have received if I had stayed was a corporate car, something still endemic in the area. Third, it’s the richest city in Latin America and has the majority of the head offices and branch headquarters of global firms, including the one I worked for at the time, a few minutes walk uphill from Parque Ibirapuera. Fourth, the economic choice to peg the real to the US dollar in 1994 led to a massive influx of US helicopters into the country and São Paulo. Fifth, most of the country’s wealthiest people had homes in and around the city. Sixth, it had a massive problem for a couple of decades of kidnappings of rich people and express kidnappings.
What’s an express kidnapping? Stop your car at a light, have a gun pointed at you, be taken on a tour of every cash machine until your cards stop working, and then be left on the side of the road in a bad part of town stripped of valuables and your cellphone. Several of my co-workers had been victims of the latter, and my boss was driving an armored BMW due to her traumatic experience.
You can see why there were lots of helicopters flying over the city’s buildings. They love the things. Many buildings have heliports on the roof. It’s very different than almost any other city in the world in that regard. But how many were there under this perfect storm of conditions that would make rich people fly far above the hoi polloi?
That’s it. 750 privately-owned helicopters. 22 million people, 750 helicopters.
Uber tried to turn that into a thing in 2016, with a São Paulo Ubercopter service. It failed. Uber tried again in Manhattan, just before COVID-19. Apparently it is still operating. From exactly one heliport with a single route to JFK airport. And the heliport is at water level in southern Manhattan well away from buildings, close to the Staten Island Ferry terminal. $200-$225 per person for the eight-minute ride, which saves about an hour of driving one way.
A big part of the cost models for these urban air taxis are in the landing pads. The only suitable locations are the tops of multistory parking garages, which seems to be giving some garage operators hope. I’ve been on the top level of a bunch of parking garages in the past few years, as they are typically the place that car share services such as Car2Go get permission to have pickup and drop-off locations. They won’t be cheap, most have wires and other obstructions making them challenging, the number of suitable locations is low, and actually useful and high-value car-share services are competing for them.
Getting approval to fly over cities isn’t trivial, by the way. Among other things, you have to be 1,000 feet above the highest point or building within 2,000 feet. In flat sprawling cities, rise over 1,000 feet before shifting to horizontal flight. In steeper cities like Vancouver or Hong Kong, or skyscraper-laden cities, likely 2,000 feet. That’s a lot of energy-sucking vertical before you get to the energy-lighter horizontal. That’s why most heliports are located at airports or on the water, as with Vancouver and Victoria’s downtown heliports. Take off pointed at the water, stay over the water, stay away from populated areas for the duration of the flight. Not exactly urban taxi material.
So, no certified aircraft, a dubious at best business model, relatively few landing pads, deep challenges with flying over most cities, some very odd choices like Ehang’s customer cuisinart, and the question arises: what are investors thinking?
Cathie Wood of Ark Invest, which received headlines recently as it sold a very large number of Tesla stocks just before it went through the roof, is one of the people thinking that there’s a market there. They’ve created the ARKX space exploration ETF, which oddly has $40 million of its $540 million in the urban taxi plays Joby, Archer, and Blade. The fund also has positions in military drone and weapon platform firms, and of course nothing in the major player, SpaceX, because it’s privately held. It’s definitely not an ESG-friendly ETF, despite having electric aviation. Basically, it’s hard to make a space-oriented fund because there are so few space firms, and the best of them is private.
Ark’s thinking, apparently, is that eVTOL opens up completely new business models. Except that it doesn’t really.
My belief is that Silicon Valley billionaires and centimillionaires are people who fly in executive helicopters regularly, and possibly their firm owns one for the CEO’s pleasure, convenience, and ego. Due to the familiarity effect, their system 1 thinking makes them believe that there’s a huge market for them, and so they are easily convinced to invest and overvalue these things.
While they are possibly better than helicopters, being among other things a lot quieter and without the downside of massive cabin vibrations, as well as having much lower fuel costs, they are still going to be very expensive aircraft to buy and operate. The target market is mostly the top 0.1%, and as the Silicon Valley types are firmly ensconced in that class, they think a lot more people in the world are.
Not a good bet.
Recently I was speaking with Josef Mouris, co-founder of Electron Aviation. The company is building a conventional take-off and landing 4-passenger aircraft. He’d reached out after my discussions with Heart Aerospace co-founder and CEO Anders Forslund regarding their plans to build a 19-passenger electric regional plane (part 1, part 2).
Both of them made exactly the same point, which is that there are an awful lot of small, regional airports in most of the developed world, convenient to cities. Heart Aerospace’s 19-passenger plane will only need a 750-meter runway, while Electron’s 4-passenger plane is down at the 400-meter runway length. Mouris tells me that there are over 2,800 airports that Electron’s plane will be able to use in Europe alone. His primary business model is an Uber-like service that works from tiny airports near to cities, and transports business people and families several hundred kilometers in a fraction of the time for a bit more than the price of airline tickets, with cars delivering them to and from the airstrip. So, end-to-end, much faster, low-carbon, zero crowding transportation enabled by an app. That’s actually a sensible business model that avoids expensive urban landing pads, avoids lots of energy loss on vertical take-off and landing, and has a much, much simpler and cheaper aircraft to build and maintain.
Over at Heart Aerospace, Forslund has signed agreements from three different airlines to buy his planes when he gets them certified. He has 200 preorders from Mesa, a low-cost subsidiary of United, for planes that will cost $8-9 million. Mesa loves them because it can dust off its old business model and routes. They used to fly regional routes with small planes and turboprops, but turbofans and hub-and-spoke model economics forced them to abandon them.
This appears to be something a lot of the eVTOL investors are missing, which is that some of the most innovative business models are old ones revitalized by new technology.
Heart Aerospace raised $35 million in its second funding round. Electron has just opened its funding round after privately developing its 2-seater demonstration unit. Mouris is a pilot who flew Dash-8s and the other commuter regional turboprops, and knows the business well. Both are building conventional take-off and landing electric planes that are easy and quick to certify, and will be much cheaper to operate.
Joby, by comparison, has pulled down $1.6 billion in funding over 7 rounds. Lilium has managed $826 million. Archer is at $913 million. Ehang’s customer cuisinart is at $92 million. This is definitely a space, like hydrogen aviation plays such as ZeroAvia and Wright Electric, where investors are making what are obviously poor decisions, and backing the wrong players.
The last point I’ll make is that fixed wing passenger transportation is a massive global warming problem, roughly 3.5% of total warming between direct CO2 emissions, nitrous oxide emissions, black carbon emissions, and contrails. 99.99999% of all passenger miles are in fixed wing planes. As a result, electrifying that segment actually is a strong and valuable action that is defensible to Boards, and one that will pay substantial dividends in the coming decades. Civilian rotorcraft are a rounding error on a rounding error in terms of global warming. If you want to make an actual difference, don’t look to sexy eVTOLs, and don’t kid yourself that you are being virtuous.
My recommendation to investors is to not be taken in by the sexy eVTOL plays, think about how people actually travel, and how many of them. Some of the eVTOLs will end up in billionaire’s stables, along with their other rarely used toys such as Bugattis, but they can afford to be frivolous.
Featured image of Electron’s 4-passenger plane courtesy of Electron Aviation.