Electric Air Taxis Struggle

"Electric air taxis may not need a lot of runway to land, but they still need a lot of cash to take off.

Lilium, a startup that develops electric vertical takeoff and landing vehicles, or eVTOL, announced last week that its principal German subsidiaries will apply for self-administration proceedings, the rough equivalent of the U.S.'s Chapter 11 bankruptcy.

Doubts surrounding the viability of the Munich-based company have long been raised, but executives kept managing to secure rounds of funding.

This time, however, the German Green Party, a member of the coalition government, moved to block an expected 100-million-euro loan, equivalent to $108 million, to be extended by state-owned bank KfW, which "was a closing condition to already committed private funding," the company said this past week. It has since also failed to secure money from Bavarian officials.

International competitors have been "receiving grants and loans in the U.S., France, China, Brazil, and the U.K.," Lilium added.

Indeed, California's Joby Aviation, Britain's Vertical Aerospace and Brazil's Eve Air Mobility all have received government aid.

Executives still believe they will find a solution to inject fresh money into the company and emerge from self-administration. The U.S.-listed shares of Lilium closed Wednesday at around 11 cents each. This represents a 99% drop from when Lilium completed its merger with a "blank-check" special-purpose acquisition vehicle on Sept. 15, 2021, and will lead Nasdaq to delist them, the company confirmed in a regulatory filing Tuesday. Still, it may reflect a small chance of a positive outcome.

Ultimately, the main problem is that markets are far less bullish about this sector than they were during the craze of 2021 and 2022, which channeled money into all sorts of moonshots. All of these eVTOL makers became public companies then, and have since lost most of their market value.

Lilium had a cash outflow of 191 million euros in the first half of 2024, across both operations and capital investments.

Wall Street's projections have it burning a further 1.2 billion euros over the next five years, even assuming it met its incredibly ambitious target of starting to deliver jets in late 2026. This would be 12 times the cash that Lilium was expected to have had at the end of 2024 if the capital raise had gone through.

Other eVTOL makers aren't in a flattering position either: Joby's projected ratio is 10 times and Eve's four times. These imply a lot of make-it-or-break-it capital raises before they are truly up and running. Still, Joby has completed about a hundred piloted test flights, which explains why Toyota gave it another $500 million this month. And Eve is 80% owned by its parent company, plane maker Embraer.

Nevertheless, Lilium's predicament is a good reminder of why startups selling a hypothetical product in a hypothetical market have long been the domain of private markets and governments. Air taxis still need faith, not rational market calculus, to levitate." [1]

1. Electric Air Taxis Struggle. Sindreu, Jon.  Wall Street Journal, Eastern edition; New York, N.Y.. 31 Oct 2024: B.12.