Last Update 26 Mar 26
Vertical Aerospace: A brief note on why I am sticking with team Vertical!
Having followed the nascent eVTOL industry for a number of years now, and following listening to Vertical Aerospace’s latest results and progress update webcast earlier today, I remain optimistic that Vertical Aerospace is building the team and hopefully soon the aircraft that could one day be a market leader.
While the outcome of their efforts is far from certain at this moment, given the relatively short cash runway available and the need to successfully complete a transition flight with the prototype aircraft, there are aspects that give me hope.
Notably that while previous management expectations of timescales in ‘weeks not months’ have not been achieved, and acknowledged as such on the call by Vertical Chair Dómhnall Slattery, the transition testing continues to progress in tandem with oversight of experts from Britain’s Civil Aviation Authority.
Crucially in the Q&A of today’s webcast when discussing technical aspects that have extended the testing window beyond what was initially anticipated, it would appear that the issues are being resolved methodically, since when mentioning aspects causing delays of days or weeks, they were mentioned in the past tense. The need for optimal weather for testing aside, that gives me hope that team Vertical will achieve a successful transition in time.
When looking at their cash position they expect to use $195m in the next 12 months while having ‘line of sight of $150m to $160m’ including $58m in cash and cash equivalents. That’s not the position I had hoped they would be in right now after the high’s of last year, but all things going well they may be able to muster sufficient cash to see them into 2027.
However I am of the opinion that it is the coming weeks and months that are most crucial to Vertical’s future, as should they complete the transition testing successfully, then I anticipate it will unlock additional sources of funding beyond what is in 'line of sight'. Hopefully it will unlock funding from those with courage in government along with a strategic investor keen to be part of defining the future of 21st century aviation.
In short Vertical’s future continues to seemingly pivot on its ability to successfully pivot its rotors mid-flight!
Once again, I boldly foretell a future possibility for the years ahead. Some reading this may scoff, or may laugh and move on. Those with an enquiring mind, open to rich possibilities for the future of humanity will spare me a few moments and read on. You may one day thank me for it.
Before I proceed, let me paint a picture for you. Imagine a world where you can escape from the tedium of congested roads and polluted streets, while enjoying safe, rapid and efficient movement between locations. A world where you can rise above a city or landscape and gasp in awe at what you see. As I wrote in a previous blog article last year eVTOLs: The Fourth Rapid Mass Transport Revolution? that world rapidly approaches in my opinion.
And after having eagerly followed the electric vertical take-off and landing (eVTOL) market progress for a number of years, and made outstanding returns on prior investments in Archer Aviation and Joby Aviation, as well as writing a well read Frequently Asked Questions (FAQ) on eVTOLs, that is why this week I invested in Vertical Aerospace (NYSE: EVTL).
Vertical Aerospace is developing its VX4 eVTOL aircraft, as well as a hybrid eVTOL (HeVTOL) variant with additional combustion powertrain that offers additional range and payload for applications such as defence and logistics. With pre-orders for 1,500 VX4 eVTOL aircraft with a total pre-order value of $6 billion¹, including for leading companies such as American Airlines and Bristow, one of the world’s largest helicopter operators, it may not be long before Vertical’s aircraft are a familiar sight the world over.
Of the many companies born of the excitement a few years ago for the nascent eVTOL industry, only four pure play listed companies remain in addition to a number of private companies. The listed companies are Archer Aviation, Eve Holding, Joby Aviation and Vertical Aerospace. Of all these companies Archer and Joby are the most well capitalised, a crucial aspect for any aspiring manufacturer given expert opinion that the cost of eVTOL development to certification is around $1 billion over ten years².
Currently Joby Aviation is valued at $15.45 billion, Archer at $7.62 billion, Eve at $1.31 billion and Vertical at $444 million despite none of the companies having a government regulator certified aircraft yet, which is a requirement for commercial use. Let’s put that another way. Right now Vertical’s market capitalisation is trading at a 97% discount to Joby’s, a 94% discount to Archer’s and 66% discount to Eve’s. That is quite some discount!
What is particularly interesting is that despite the wide range in valuations of the firms, the physics involved in eVTOLs leads to broadly similar designs, including the use of many common parts from well known aerospace and battery manufacturers such as Honeywell, Garmin, GKN, Leonardo and Molicel. That said Vertical’s CEO Stuart Simpson claims its VX4 aircraft has a larger airframe than its peer group as ‘we’ve basically got the biggest tube under the wings. They’re pretty tight. We are launching with four business class seats’³.
I also prefer how Vertical’s VX4’s pilot is separated from the passengers unlike the Joby S4 design currently. Given what has happened in the past with aircraft hijackings this separation seems like it should be mandatory in my opinion. With safety in mind it is also extremely reassuring that Vertical are looking for their aircraft to be certified to the commercial airline safety standard of one failure in a billion hours of use.
Vertical’s hybrid eVTOL announced this year⁴, and having been in development for approaching two years, further expands the business opportunity beyond consumer ‘Air Taxi’ services (a market forecast by Morgan Stanley as potentially worth $1 trillion by 2040⁵) into the defence and logistics markets. Its hybrid offering takes the anticipated range ‘from 100 miles to 1,000 miles and the payload from 600kg to 1,200 kg’⁶. It is worth noting that the VX4’s anticipated base payload of 600kg as far as I am aware is notably better than the 453kg payloads anticipated for the Joby S4 and Archer Midnight. Eve has not confirmed payload data as far as I know.
The opportunity in defence is particularly significant in my opinion, thanks to the New World (dis)Order I wrote about in March this year. Largely thanks to the new US administration, NATO spending on defence is increasing and rapidly so over the coming years. With Vertical as the only listed sovereign British / European based pure play eVTOL manufacturer currently it may have a significant advantage over the others in my opinion should its VX4 aircraft be certified by Britain’s Civil Aviation Authority (CAA) and the European Union Aviation Safety Agency (EASA) in 2028 as expected⁷. Incidentally CAA / EASA certification should be valid for commercial operations in the US and other worldwide markets I understand.
So what’s holding EVTL’s share price back currently? Capital and capital with a capital C! They’re going to need to raise substantial additional capital to take them beyond about the middle of next year. It is worth noting at this point that Stuart Simpson, Vertical’s CEO, has stated that he is certain certification will occur in 2028 and ‘that is when we will be putting aircraft in the hands of customers’. He also stated he expects to achieve cash breakeven at the outset or 2030 at the latest⁷. Clearly that is conditional on raising further capital.
My estimation based on all that I have read and heard, about Vertical and the eVTOL industry in general, is that somewhere between $300m and $400m additional capital will be required minimum. That is why I am considering a two stage approach to investing in Vertical Aerospace.
This week I purchased 12,000 shares for my better half and I. That is stage one. As outlined in my Double Bubbler New Investment News email, to followers of my blog, before buying the shares this week, I hope to see the share price rise to over $7.00 by the end of the year following a successful first transition flight for the VX4 aircraft.
Stage two. Will probably come after a capital raise by Vertical, a dilution as it is also known as. Yes I said the D word! Quite why so many investors fear dilution I do not know, as when carried out by a company for the purposes of raising capital to accelerate progress and commercialisation I am generally favourable. Just look how well capitalised Archer and Joby are now with share prices currently higher than at the point of dilution.
Despite this, humans will be humans (no further comment!), so I expect the dilution announcement will cause the share price to fall, in fact I hope it does, as I will then consider increasing our shareholding depending upon how much capital will be raised and where it takes Vertical in terms of certification by 2028 and breakeven.
To close this opinion piece… Vertical Aerospace is a company I will potentially hold for the years ahead given their apparent trajectory as well as potential for one day being valued at a significant multiple to its current value. 13x sounds incredulous, I know, but even that is currently far less than Archer Aviation and about $10 billion less than Joby Aviation!
May fortune favour the brave!
Double Bubbler
¹ https://vertical-aerospace.com/order-book/
² https://www.reddit.com/r/Vertical_Aerospace/comments/1ok2jyf/flying_taxis_are_here/ (18:50 onwards)
³ https://www.reddit.com/r/Vertical_Aerospace/comments/1ok2jyf/flying_taxis_are_here/ (36:00 onwards)
⁵ https://www.bloomberg.com/features/2024-flying-cars-trillion-dollar-future/
⁶ https://youtu.be/5hTj0hzDCGg (23:38 onwards)
⁷ https://youtu.be/5hTj0hzDCGg (27:28 onwards)
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The user Double_Bubbler has a position in NYSE:EVTL. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
