The future of aviation is finally here. At least, that is what Joby Aviation (JOBY 0.22%) and other companies attempting to develop electric vertical takeoff and landing (eVTOL) vehicles believe. Joby wants to disrupt traditional urban transportation by building and deploying a fleet of electric air taxis, and it thinks its currently unnamed vehicle will bring intracity air travel to the masses.
Investors have eaten up this story. Joby's stock has gained 152% over the last 12 months, bringing the company's market cap to $14 billion, even though it is generating no revenue. Should you invest in this eVTOL upstart while its stock price is still below $16? Or is this an overhyped growth story that will come back to bite any shareholder who buys today?
NYSE: JOBY
Key Data Points
Bringing electric air taxis to market
Thanks to innovations in design and major improvements in electric battery efficiency, Joby and other eVTOL companies have been able to develop working electric air taxis. Joby's version has flown many times, although it is still not fully certified by the Federal Aviation Administration (FAA).
Think of an electric air taxi as a hybrid between an electric vehicle, a small plane, and a helicopter. Utilizing a suite of different rotors, Joby's aircraft can take off vertically like a helicopter, then switch configurations in midair to use its propellers to provide forward thrust like a small plane, then switch back again when it's time to land. However, it is much quieter than a helicopter due to its electric motors and its modern propeller designs. That makes the eVTOL more suitable for flying point-to-point across a city or in residential areas.
Joby's aim is to allow passengers to book rides on its electric air taxi network using a model similar to Uber or Lyft. Customers will be able to take point-to-point rides using a network of heliports in large metropolitan areas. This could save people tons of time on travel to places like the airport. For example, one of Joby's flagship planned routes -- from downtown Manhattan to John F. Kennedy International Airport in Queens -- could save travelers an hour or more in transportation time.
Image source: Getty Images.
Growing annual production capacity
It should be reiterated that Joby Aviation is generating zero revenue right now. The company is working to get a network up and running in Dubai and is already performing test flights in that city, with plans to finish the buildout at the beginning of 2026. A timeline for its eVTOL receiving FAA certification in the United States is unclear, but hopefully, that should happen within the next year or so. However, it could end up taking longer if any problems with the vehicle are uncovered.
To prepare for full commercialization of its vehicle and service, Joby is investing to increase its manufacturing capacity. Its California facility can currently produce 24 aircraft a year and will be focused on testing. At its Ohio site, it plans to increase production capacity to 500 aircraft annually, which would make that the workhorse assembly plant for its eVTOL vehicle.
Upfront investments, research costs, and the expenses involved in meeting regulatory standards are adding up. Joby is currently burning through $500 million in free cash flow a year, and that outflow has only gotten larger since it went public. This is why the company has an investment partnership with Toyota and recently raised over $500 million in cash via a common stock offering. With just under $1 billion in cash left on its balance sheet as of the end of last quarter, Joby only has a few years of runway to get its eVTOL manufacturing and air taxi networks scaled up before it will have to raise more funds.
JOBY Free Cash Flow data by YCharts.
Should you buy Joby stock?
Commercializing an eVTOL network could be a huge benefit to society. It would not only provide people with a faster new transport option, but it could help alleviate the traffic in large cities that wastes millions upon millions of hours for people every year. Joby is at the forefront of this innovation, and if it can get FAA certification, one could envision an eventual world with point-to-point eVTOL networks in every major city.
Despite this potential, I think Joby Aviation stock will struggle over the next decade. For one thing, the company is hemorrhaging cash, which will require it to keep raising funds and diluting existing shareholders. Second, manufacturing aircraft is expensive and traditionally comes with low profit margins. Even if Joby produces 500 aircraft a year and sells them at an average price of $5 million, that would amount to $2.5 billion in revenue. At a 10% profit margin, that would give it $250 million in earnings.
Relative to its current market cap of $14 billion, that gives Joby a future price-to-earnings ratio of 56, and that is before factoring in further shareholder dilution. This makes Joby Aviation stock wildly expensive to buy today, even if you are highly optimistic about its growth trajectory. For that reason, investors should avoid adding this stock to their portfolios.
