Private and public firms, companies, and government agencies are pouring billions of dollars of investments into the emerging electric vertical takeoff and landing (eVTOL) and broader Urban Air Mobility industry. In 2020, despite the impact of COVID-19, air mobility companies raised a total of $1.3 billion in private investment, an increase of 80 percent from the pre-COVID year of 2019, according to venture capital research and data provider firm Pitchbook.
Avionics International caught up with some of the leading analysts and consulting firms covering investments into the eVTOL market to learn how money continues to flow into this new segment of aviation despite a global pandemic, and what areas of the UAM ecosystem could see expanded investment this year and beyond.
Most experts we talked to agreed that the biggest trend they're watching on the investment side to support assembling and flight testing of eVTOL aircraft, developing electric power, and deploying UAM infrastructure among other things is the entrance of Special Purpose Acquisition Companies (SPACs) into the space.
"Over the past several years, we have seen the investment coming from several sources: (1) The traditional aircraft design and manufacturers, particularly those with experience in rotor-wing aircraft, (2) Large technology company funded initiatives, and (3) Venture capital-backed startups. Recently we have seen more involvement from automotive companies and very recently Special Purpose Acquisition Companies (SPACs) have entered this space. In fact, Archer Aviation Inc. recently announced it was going public with a SPAC called Atlas Crest investment Corp.,” Robin Lineberger, global aerospace and defense leader, Deloitte Consulting LLP told Avionics.
According to an explanation provided by PricewaterhouseCoopers (PWC), the use of the SPAC model has become a new way for experienced management teams and sponsors to take companies public. Most SPACs raise capital through an initial public offering (IPO) for the purpose of acquiring an existing operating company. Subsequently, an operating company can merge with (or be acquired by) the publicly traded SPAC and become a listed company in lieu of executing its own IPO, according to PWC.
The capital-intensive, risk-averse nature of startups that need millions of dollars to develop an all-new type of electric-powered air taxi has sparked interest in UAM companies, starting with those making the actual aircraft.
"I think 2021 is already being marked by the rise in the SPAC vehicle, as an investment vehicle to take mobility companies public. A lot of the SPAC activity seems to be driven by the potential in these companies that are pre-profit or pre-revenue, highly capital intensive, and probably won't generate returns for some time," Asad Hussain, a senior analyst at Pitchbook told Avionics.
"But they have an absolutely hugely addressable potential market and a lot of enthusiasm around the type of technologies they could potentially bring, to really re-shaping the future of transportation. A lot of the enthusiasm we saw in terms of SPAC activity and public equity valuations for companies like Tesla and others in the electric vehicle space for on-road electric vehicles is now being transferred to urban air mobility companies," Hussain said.
Hussain believes that many SPACs and other private investors are poised to take advantage of the demand for public shares in electric vehicle companies. One trend to monitor for the remainder of 2021 will be the segments of UAM that see more funding and investing beyond just vehicles alone.
Pitchbook's latest research notes that the eVTOL companies that have received the largest amounts of investment so far have been those making the actual aircraft. But that could change as more private capital becomes available and investors start to realize the potential value of those other elements such as batteries, infrastructure, and digital services necessary to make passenger-carrying eVTOL operations a reality.
"What I think will be the gold rush is in eVTOLs, the aircraft itself upfront. But a lot of smart investors are now looking at how to invest in the pickaxes of the gold rush. I think private equity is going to increasingly go after the infrastructure, vertiports, and things like that necessary to enable air taxi operations," Hussain said.
Perhaps one of the most obvious pickaxes for eVTOL vehicles could be the in the e that comes before VTOL, with a number of electric battery and hydrogen fuel cell stack suppliers making technological advancements in recent years. Menlo, Park, California-based HyPoint is one example of such a company, as the venture-backed air-cooled hydrogen fuel cell powertrain maker continues to develop a prototype expected to be ready for commercialization by 2023 at a price point of between $100-500 per kilowatt (if mass-produced).
Alex Ivanenko, founder and CEO of HyPoint, told Avionics that their December 2020 win of the National Aeronautics and Space Administration (NASA) iTech Initiative Cycle is already helping to connect them with access to both investors and aerospace engineering experts.
"We are speaking with a number of investors, including many who specifically invest in NASA-related technologies. As you might expect, the NASA win helped to accelerate these conversations and has made the overall fundraising process easier. We are fortunate that there has been significant interest in our company and vision from investors across the board," Ivanenko said.
But what type of return on investment do these private investors want and when do they expect it to come? Those are questions that the investment community seems to still be trying to find solid answers on in terms of what the first eVTOL passenger-carrying operations will look like or if there's a market for air cargo, air medical or other special civilian mission sets where they could also be implemented for cheaper operating costs when compared to traditional fixed and rotary-wing aircraft.
In January, Deloitte's "Advanced Air Mobility" report jointly published with the Aerospace Industries Association (AIA) projected that all of the work required to build these new aircraft, deploy the infrastructure to enable their operation, and provide their services and maintenance could create more than 280,000 jobs in the U.S. alone by 2035. Several other reports have levied similar highly positive outlooks for UAM, despite the near-term uncertainty and impact of the COVID-19 global pandemic.
New York-based management consulting firm McKinsey and Co., as an example, published a study in June 2020 noting that the UAM market presents a global opportunity that "will be on the order of hundreds of billions of dollars a year." Robin Riedel, a partner based in McKinsey and Co.'s San Francisco office explained in an emailed statement where those billions are projected to come from and what they would pay for as well.
"Our market size estimates are based on a range of data and information, including analysis of cell-phone movements to understand how people move today, transportation company reports and statistics, government reports on transportation (e.g. from the U.S. Bureau of Transportation Statistics), tracking data of aircraft today, and extensive surveys of travelers and how they think about a novel mode of air transportation. We combine that data of the market with a view on the timing of unlocks for the industry, including air traffic management, public acceptance, technology development, and certification," Riedel said. "The opportunity of $300-500 billion refers to passenger transportation only, across a range up to ~500 miles. This would be the revenue to air mobility operators, which will then in part, of course, move upstream to pay for vehicles, vertiports, and so on."
A report published by Frost & Sullivan, "Looking Forward (And Upward) to Urban Aero Mobility," surveyed nearly 5,000 respondents drawn from a representative sample of 12 smart cities with the potential to launch UAM operations within the next 5-10 years. The survey helped the global consulting firm understand the willingness of potential electric air taxi passenger's willingness to get onboard, how much they're prepared to pay, and what changes the UAM supply chain may need to make economically in order to make this a reality.
Interestingly, barring the segment of respondents aged 50 years or older, potential customers in other age groups seem positively inclined towards air taxi use. This is an important finding since it implies that there will already be widespread consumer acceptance by the time air taxis become a reality.
Aman Pannu, Vice President of the aerospace and defense division of Frost & Sullivan, told Avionics the results of their survey also showed that there are some specific elements of the emerging eVTOL supply chain that could use more investment to help make the future ambitions of many UAM companies a reality.
"The introduction of technologies enabling shorter development cycles - such as digital twins; modular platforms- supported by defining and introducing industry standards at the system level- to allow easy sustainment and minimal downtime, higher automation in production and sustainment (especially between flight checks and turnaround) are some of the areas that will need an investment of time and money to enable operationally and commercially viable operations. From our survey- the biggest barrier to fielding this capability is battery technologies," Pannu said.
Beyond battery development though, Pannu said there is another element of the ecosystem where he expects to see more private investments pouring in this year as well.
"Infrastructure. There is and has been a lot of coverage and investment at the vehicle end. However, until recently there were limited collaboration observed in this domain," Pannu said. "The recent consortiums announced in Paris and the UK are good steps in the right direction- however, they need substantial investments to prepare the existing ecosystem before the regulators give a green light to full operational rollout of this capability in the cities."