Joby Aviation Stock: Business And Share Price Lift-Off Is Approaching (NYSE:JOBY)

Joby Aviation (NYSE:JOBY) will take off as a business next quarter, with its first revenue expected from the delivery of an S4 eVTOL aircraft, which took place last month. The S4 appears to have specifications better than its potential competitors and is likely at least a year ahead in the race for certification. Commercial operations remain on target for 2025, and a demonstration flight in New York has already occurred.

The S4 is not Joby’s only aircraft under development. Joby’s German subsidiary H2FLY is making excellent progress with its hydrogen fuel cell aircraft, and it flew on liquid hydrogen for the first time this quarter. Joby is targeting the commercial launch of a 40 seater 1,400-mile Hydrogen-powered aircraft by 2030.

As commercial operations approach, the previously secretive company is becoming proactive in marketing. As it moves closer to operations, announces certification acceptances, and flies more exhibition flights with its growing fleet of aircraft, I expect to see the share price move significantly higher. The weeks before full commercialization could see the growth turn exponential as it did with EHang (EH). This could be one of the last chances to buy Joby shares while they remain cheap.

Joby Leads the Pack

I first wrote about Joby in April 2022, booking a 100% return on my investment. I have just initiated a second position and expect a similar return.

Joby has always been the frontrunner in getting a heavy eVTOL certified for passenger use. In the last 12 months, it has delivered on multiple fronts. It delivered the first air taxi to the USAF in September. The aircraft was built on the newly constructed pilot assembly, which is already making three more.

Joby announced the site for its first large-scale production facility and expects to open the facility to coincide with the start of flight operations in 2025.

Joby is now leading the race to produce emission-free medium and long-haul aircraft and eVTOL operations.

JOBY will have a first-move competitive advantage to add to the clear technical advantages of its product; they have signed agreements with important partners (not paying for them with warrants like the competition. See my recent article on Archer (ACHR) for a discussion of this).

Joby will likely be the only option for a few years before Boeing (BA) arrives with its automated WISK aircraft. Despite their press releases, I do not think any competitor is on track to deliver before 2029. From then on, this may be a two-horse race, with both horses (Joby and Boeing) being winners and the rest fighting over scraps before the inevitable round of bankruptcies, not unlike the current EV market situation.

Joby eVTOL Aircraft Current Situation

Having spent years flying in virtual press blackouts, Joby now regularly releases press releases and court attention, a sign of its changing emphasis as it moves from design to build to operations.

The picture below shows the first Joby S4.1 delivered to the USAF last month.

Joby has built five eVTOL models: a subscale demonstrator in 2015 (now retired), a full-scale demonstrator in 2017 that crashed in testing, a pre-production prototype from 2019 that is used for flight testing, and a second pre-production prototype delivered to the US Airforce. Joby has three further aircraft currently under construction.

The current S4 eVTOL has best-in-class specifications, this graphic compares it with several competitors. (I have not included the smaller aircraft from EHang and Volocopter as they are much smaller vehicles)

The aircraft delivered to the USAF and the three in production are known as generation 2.1 and are described as company-conforming aircraft.

Previously to these vehicles, Joby helped build the LEAPTech flying wing at Edwards Force Base in 2015. It was a 40-ft carbon composite wing powered by 18 electric motors using Lithium batteries. In 2016, as an extension of the contract, they helped design the NAS X-57 Maxwell Research Aircraft and supplied electric motors to the project. That plane never flew.

Joby appears to have ended the news blackout at H2FLY, its German subsidiary (the FY 2022 report simply said it had acquired an aerospace company). H2FLY is developing hydrogen-powered powertrains for the aviation industry. Having completed test flights using gaseous hydrogen, H2FLY is now beginning tests using liquid hydrogen and announced that the plane named HY4 had conducted its maiden human-crewed flight. The plane will have a range of up to 1,500Km and will as a result, be suitable for long-haul flights. They aim to produce aircraft that fly 1,200 miles with 40 passengers by the decade’s end.

This photo from the Joby Q3 2023 shareholders letter shows the H2FLY aircraft in action.

Certification of the S4

The certification process has proved challenging, but Joby is delivering much faster than the competition and is on schedule to meet its advertised dates. Certification in the US is individual to each company and has five distinct processes.

The first two stages are about agreeing with the FAA on what needs to be proven to satisfy the FAA and gain certification. Culminating in publication on the Federal Register of company-specific “airworthiness criteria.”

The FAA published the Joby Certification Basis in February 2023. Joby is the only company with published criteria, putting it at least eight months ahead of all its competitors.

In the third stage, a manufacturer submits its plan about what tests it will perform to prove each requirement of the airworthiness criteria. In the Q3 earnings call Joby announced that the FAA had accepted 84% of the stage 3 plans. The accepted plans include testing the critical components of the energy storage and power distribution system.

Joby has already focused on carrying out the tests, which is stage 4 of the certification process.

Stage 4 of the plan is crucial; it is when the company performs all of the safety tests that will lead to certification.

Joby gives detailed guidance on their progress against these criteria, and they make excellent progress each quarter.

Manufacturing

Joby has a pilot manufacturing site in Marina, California. They signed the initial lease on this facility in 2018 and have been upgrading it since. Initially, they leased two buildings totaling 70,000 square feet. In 2019, they gained permission to build a 55,000-square-foot structure and to erect the temporary mega tent, a 450 ft x 120 ft climate-controlled fabric-covered building. The 2022 FY report said that the Marina facility for aircraft assembly had been completed and was 130,000 square feet in size and that the powertrain facility at San Carlos was also complete.

The large-scale production site will be in Dayton, Ohio. The facility will have an initial capacity of 500 aircraft. It will be 580,000 square feet (the Robinson Helicopter factory in California is 600,000 square feet and has produced 893 helicopters in a year). The site Joby has acquired has the potential to expand to 2 million square feet, so its maximum capacity could well be around 3,000 units. Joby received $325 million in aid as an incentive to build this facility, which is close to the largest Toyota Motor Corporation (TM) manufacturing site in the US. Toyota is a long-term partner of Joby and provides support and guidance for the manufacturing process.

The Marina facility can probably produce mid-double-digit aircraft each year, which is more than enough to satisfy the DoD in the short term and to start initial commercial operations.

Joby currently has three aircraft under construction at its pilot facility. One is in final assembly and will be delivered to the USAF in early 2024. The others will be used (Q3 2023) to progress certification.

Partnerships

Delta Air Lines (DAL) bought 11 million shares at just over $5.43 each in October 2022; Delta received almost 13 million warrants allowing Delta to purchase stock in two tranches at exercise prices of $10 and $12, respectively, subject to value cap adjustments. The warrants are free-standing investments and do not relate to any ongoing business relationship. This differs from the Archer warrants (I covered this issue in my recent article). Delta owns 1.6% of Joby’s stock.

Toyota is the largest corporate investor in Joby, owning around 11% of the company. Toyota had an MOU before Joby went public and still has the right to nominate a board member.

In the Q3 10-Q (Page 20) Joby announced that it had purchased $1.4 million of parts and materials from Toyota in 2023 and had an embedded finance lease to purchase $3.6 million of subassembly components. A parts-supply agreement exists between Toyota and Joby covering their supplier-customer relationship.

In the Q3 earnings call, Toyota was mentioned five times, mostly thanking Toyota for its help in identifying and implementing workflow refinements and designing the Marina production facility. A build time reduction of 30% was mentioned in the earnings call as a result of Toyota’s involvement.

Joby and Toyota are true partners with long-term agreements to manufacture, supply, and develop aircraft components.

The Business Model

Now that the first plane has been delivered to the USAF and the second one will join it in 2024, we expect to see Joby begin booking revenue. That revenue will be dependent on flight hours, so it is difficult to assess what size that revenue might be

Joby does not intend to sell their aircraft. In contrast to their competitors, Joby wants to be an aircraft operator. They have no order book and agreements with Delta, ANA, Jetblue, Nippon, and SK Telecom to operate jointly.

Joby has spoken about customer sets; the first is the DoD, where certification is not required, just military airworthiness. The second is through FAA certification and commercial operations launch in the US; the third is international opportunities.

The DoD is the first market, with one aircraft supplied and the second in final assembly for delivery Q1 2024. The next market will be through the FAA, launching commercial services with partners like Delta. The last market will require further certification from the relevant country authorities and need partners to work with.

US Commercial Operations

New York would appear to be the launch site for commercial operations. Joby and Delta recently flew a demonstration flight in New York, and the Mayor said he would be electrifying the heliport to accommodate eVTOLs. I expect a commercial Joby air taxi service to run in New York in 2025 before any competitor is certified.

On the international front, Joby has partners in Japan (ANA) and South Korea (SK Telecom) and has engaged with regulators in those countries. In the Q3 earnings, they also said they had been involved with the Chinese authority. Once approved by the FAA the approval by subsequent authorities will be much quicker as they will use the certification work done by the FAA as a starting point. Some countries will accept FAA approval as sufficient, some require re-submission of the data, and others require additional tests. It is a new market, and the exact requirements remain unknown.

The aircraft from the Marina production line will be sent to each customer set as needed to develop the market.

Finances

Joby raised significant finance when it came to market and has managed that cash pile well. They currently have $1.4 billion in short-term assets and more than $1 billion in equity with zero debt.

Joby booked a net profit of $2 million last quarter, which reflected a revaluation gain from some derivative liabilities and $14 million of interest received but not profit from operations. Joby has guided to a net spending of $370 million this year. This shows a quarter-on-quarter growth, with cash used in Q3 of $89 million higher than last year and Q2. The growth is staffing (now 1,600) and capex relating to certification activity.

Joby expects to invest $500 million at the Ohio manufacturing site and add as many as 2,000 employees when the site is at full capacity. Joby has been invited to apply for a DoE Title 17 loan to support the growth of the manufacturing site. I expect to see the Ohio site grow slowly and not come online until the capacity of the pilot line is exceeded. The pilot line will be a test bed for the design of Ohio, and I do not expect Joby to rush this stage of its development.

In short, Joby has enough money to make it to commercial operations, and shareholders should not expect significant dilution in the short to medium term.

Conclusion

Joby has delivered its first eVTOL aircraft, its pilot production line is operational, and it is currently building three more aircraft. The large-scale production facility has been identified and will benefit from significant grant funding.

The eVTOL S4 appears superior to its competition and is many months and probably years closer to being certified for commercial use in the US.

Joby has partnered with airlines and potential US, Japan, and South Korea operators.

The H2FLY subsidiary is making excellent progress on developing a hydrogen-powered 40-seat medium-long haul aircraft that will be in service within a decade.

Joby shares have pulled back a little since their highs earlier this year. I think it is an excellent time to buy this stock, and I suspect they may never be this cheap again.

Editor’s Note: This article was submitted as part of Seeking Alpha’s Top 2024 Long/Short Pick investment competition, which runs through December 31. With cash prizes, this competition — open to all contributors — is one you don’t want to miss. If you are interested in becoming a contributor and taking part in the competition, click here to find out more and submit your article today!”