SPAC Frenzy Hits Flying Car Startups
Air mobility companies touch unicorn status but how real and viable are their prospects?
We are now well and truly in deep SPAC.
The ongoing trend of publicly-traded shell companies, known as special purpose acquisition companies or SPACs, acquiring or merging with startups had already hit the frothiest part of mobility — electric vehicles, self-driving AI, connected data. (You can check out my recent post on this trend).
Now the frenzy is making its way to more esoteric areas of transportation, such as flying cars. Joby Aviation, one of the leading companies in air mobility, is merging with Reinvent Technology Partners (NYSE:RTP) through a SPAC deal valued at $6.6 billion. The transaction is expected close by the end of this year.
More SPAC deals are on the way. Bloomberg recently reported that German air taxi company Lilium is planning a public offering with Qell Acquisition Corp (NASDAQ:QELL). Palo Alto-based Archer Aviation, among the newer air mobility startups, also announced its intent to go the SPAC way with Atlas Crest Investment Corp (NYSE:ACIC).
Air mobility companies — also known as urban air mobility (UAM) as most of them are targeting short-range trips in and around cities — are also gaining traction through more traditional investment vehicles. Archer bagged $1 billion from United Airlines for making short-haul taxis. Similarly, another Germany-based company Volocopter raised almost $240 million through a Series D round, on the premise that its services will go live in two years.
A bumpy ride so far
Vertical takeoff and landing (VTOL) — the technical term for this new frontier of mini-sized air mobility — vehicle companies have been around for a few years. Lilium was founded in 2015. Volocopter got its start in 2011. Joby goes even further back — to 2009. There are some newcomers such as Vertical Aerospace but the majority of serious contenders have been around a few years.
For many of them, it has been a bumpy ride with interest and activity coming in ebbs and flows. The first major investment wave came in the middle of the last decade when the first proofs of concept began to hit the market.
Naturally, aviation companies made the first big moves. Boeing began investing into UAM through a partnership with Porsche. Airbus entered the market through its Voom unit.
Then automakers and tech companies started to pour money into them. Toyota has been backing Joby. Stellantis (the parent company of the recently merged Chrysler-Peugeot) has invested in Archer.
But there have been issues over the years. Ehang, a Chinese VTOL startup, has faced lawsuits from investors. A Lilium prototype was damaged in a fire last year. Regulatory challenges and lack of commercial viability have also deterred many from entering this space.
For a time, it even seemed like things were going backwards. Uber abruptly exited the business in 2020, selling its Elevate air mobility unit to Archer. Both Boeing and Airbus reportedly paused its developments last year, although that may have had more to do with the impact of COVID-19 on these companies than a lack of faith in the future of flying cars.
Approaching takeoff
Now the prospects look better than ever. The SPAC deals will transform Joby, Lilium and Archer into unicorns. More automakers (Daimler, GM to name a few) are planning to throw their weight behind flying cars.
Some of the new-fangled excitement stems from real-world traction, and the current investor fascination with everything electric. Volocopter claims that it can begin operating an all-electric air taxi service within two years, with expected collaborations with cities.
“We are actually expecting to certify our VoloCity in around two years and start commercial air taxi operations right after. Paris and Singapore are in pole position [as the first cities], where Paris wants to have electric air taxis established for the 2024 Olympics. With our VoloDrone we expect first commercial flights even earlier than with our VoloCity.” — Volocopter CEO Florian Reuter, TechCrunch
Lilium is working with the City of Orlando to build a hub of electrified flying taxis, with the goal of launching the service in 2025. Joby Aviation has an actual order of 200 VTOLs from United Airlines.
Many of the aircraft models are also entering the certification phase from regulators. Joby has agreed to Federal Aviation Administration (FAA) requirements for its electric S-4 model. Volocopter is pretty close to getting approvals from European Union officials for its Volocity model.
A tricky business
While things may have loosened up a bit, aviation is a tricky and complex business. “Close to regulatory certification” and “regulatory agreements” do not imply a done deal. Companies will have to go through several iterations of their models before they make the cut. Some may never make it.
A critical factor behind mass deployment in and around cities will be sound levels. Imagine a buzzing drone that you may have seen around parks. Now scale that up and add tens or hundreds of them to the mix, and you can get a sense of noise they might bring to urban environments. Will taxpayers — most of whom will never actually get to be inside these flying cars for a long time — allow city officials to approve these services?
Then there’s the issue of business viability. Helicopter services for the rich and the famous have been around for ages, but how many of them are actually used? A private, or lightly shared, flying taxi may be a better, sexier option for jet-setters but affordability will remain a problem for the masses. How long will it take to hit the scale you need to make money? For investors, it will be a wait much, much longer than Tesla’s profitability.
Mixed outlook
There are some short-term upsides though. As I mentioned, these startups have enough in their pipeline to stoke optimisim. All three SPACs above peaked in February. They have tapered off since but there will be spikes on the way, even if there are faint whiffs of commercial viability.
But two to three years out, things may not look that great. The fundamentals buoying these startups are still unknown as none of them make any money. Many of them will likely sputter out, or at least face significant challenges, as they try to get to operational stages.
But if Silicon Valley can pour billions of dollars into private space travel, they will surely continue to prop up VTOLs. That boundless optimisim may just lead these startups to liftoff.
