Joby Aviation: All Things On Track

Overview

Here is a quick background on Joby Aviation (NYSE:JOBY). The business is a pioneer in the electric vertical takeoff and landing [eVTOL] industry. The business plans to produce, own, and operate eVTOL aircrafts for passenger flight. If you compare JOBY to other publicly traded eVTOL companies, you'll find that it's been working on the technology for longer, is more vertically integrated, and has benefited from strategic manufacturing partnerships like its one with Toyota. As the experience and knowledge gap between JOBY and peers widens, I think the first-mover advantage will be substantial. Following certification, I expect a market opportunity greater than the current size of the helicopter market due to the claimed noise and safety benefits compared to helicopters. As new applications are found for JOBY, I believe the market for it will grow to a size that could surprise many industry experts. As such, I remain a buy rating on JOBY. However, I want to emphasize that an investment in JOBY requires one to take an extreme long-term view and have high tolerance for volatility, in my view. This is because the business models are largely untested, and there are risks associated with certification and potential competition. However, the positive outcome of the 4Q22 has further convinced me that JOBY is on the right track, and I have confidence that the company is equipped to execute its plan and succeed despite any obstacles it may encounter.

4Q22 results highlights

From a high level, JOBY's reported adjusted EBITDA was in line with my expectations (did not burn much more) and the company provided encouraging details on its development progress this quarter. In my opinion, JOBY has shown a remarkable capacity to carry out its plans over the course of the past few months. Multiple certifications, flight tests, and commercial agreements with suppliers and launch partners have been announced by the company. JOBY has also recently made an important announcement that it has reached an agreement with the Federal Aviation Administration in the US regarding the Means of Compliance. This indicates that JOBY has successfully demonstrated how it will comply with the certification requirements, which makes me think that JOBY is still leading the way in this field as it moves through the final 3 stages of Type Certification. Consistent with JOBY's revised view, I still anticipate passenger service to begin in 2025. Despite that, the management also noted that JOBY is conducting tests for revenue-generating defense applications with the DOD before Type Certification, and such opportunities are expected to available as JOBY exits 2024. Coming back to the 4Q22 results, adjusted EBITDA loss was in line with my expectations, as the company continued to invest heavily in mission-critical areas like certification and production. So far, I've been impressed by JOBY's performance, and I see plenty of potential for the company to grow in the future. That said, I anticipate a gradual increase in production and commerce, rather than the rapid increase predicted by the company in earlier years.

Compliance on track

Since it has reached an agreement on the vast majority of its Means of Compliance with the FAA, JOBY is the first company in its industry to update the market on its progress through Stages 3-5 of Type Certification. Along with region-specific plans, ongoing system design reviews with the FAA, and other vital components of the development program, the JOBY team is now working on its certification plans, which outline which tests need to be performed for each system to demonstrate compliance. In addition, JOBY has announced that it will conduct wind testing on the propeller in collaboration with NASA's Ames Research Center, which will help the company gain a better understanding of the aircraft's performance in both natural and simulated environments. I believe through this, JOBY will gain a deeper understanding of the training, maintenance, and operational requirements of eVTOL service prior to commercial launch through testing with the Department of Defense.

Manufacturing updates

JOBY's vertically integrated production model seems to be nearing completion. After producing all of the primary structures and components at its low-volume facility, the company has begun final assembly on its first company-conforming aircraft. All parts of the conforming aircraft have been tracked and documented as part of JOBY's internal quality management review, and flight testing is expected to begin in 2023. When it comes time to construct an airplane that satisfies FAA standards, this should provide the team with invaluable information. JOBY is also scouting locations in the US to build its Phase 1 production facility, and I believe there may be opportunities for partners and government subsidies to help defray the cost of this endeavor.

Cash flow management

I'm relieved that management isn't going crazy with spending since JOBY is still in the pre-revenue phase. JOBY's adjusted EBITDA loss for 4Q22 was $78 million, which was lower than the $88 million loss that was anticipated by consensus due to costs associated with certification, initial pilot production, personnel additions, and early contract work. I also feel better knowing that JOBY ended the quarter with $1.1 billion in cash. To fund additional testing and manufacturing in 2023, as well as likely incorporate cost offsets from partners like the US Air Force, JOBY has provided guidance of spend in the range of $360 million to $380 million.

Conclusion

In conclusion, I remain a buy on JOBY. JOBY seems to be on the right track. The recent announcement of an agreement with the FAA regarding Means of Compliance shows that JOBY is leading the way in certification requirements, and I anticipate passenger service to begin in 2025 as planned. JOBY's cash flow management is reasonable, with an adjusted EBITDA loss of $78 million in 4Q22 and $1.1 billion in cash on hand. With ongoing progress in compliance, manufacturing, and testing, I believe JOBY is well-positioned to succeed despite any obstacles it may encounter. While investing in JOBY requires an extreme long-term view and high tolerance for volatility, I have confidence that the company is equipped to execute its plan and achieve its goals.