Joby Aviation (JOBY 2.60%) has been showcasing its impressive air taxis recently, highlighted by a flight in New York City last month, which was a milestone for the electric vertical take-off and landing (eVTOL) industry. The company's air taxis look to be the real deal, which is why Joby's stock commands a relatively high valuation of nearly $9 billion today.
The company's CEO recently discussed his long-term vision for Joby and the potential it may possess in transforming travel in big cities. And there's one comment in particular that stood out to me, that's both intriguing and possibly troubling: he envisions Joby's air taxis being competitive with ground transportation.
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Why trying to be too competitive may be bad for business
Pricing products and services low can be a great way to gain significant market share, but it can also result in lean margins and limited profitability. That's why I was taken aback by comments from Joby's CEO JoeBen Bevirt in a recent interview, in which he said the company aims "to be competitive with ground transportation over time."
It's an ambitious goal, but there are a couple of issues I see with this.
The first is that Joby's business is a capital-intensive one, which is going to make it difficult for it to generate a profit as it scales. The best-case scenario might be small profit margins, but with an aggressive price point, it may take much longer for the business to achieve profitability, assuming it can at all.
The second issue is that, as an air taxi with the ability to literally fly over traffic, commuters would likely pay a premium for such a service, given the time it would save them. Without charging a premium for the service, the company could be leaving money on the table. It is possible that Bevirt is factoring in the time savings into his calculations and expectations, but it's something investors should consider nonetheless.
NYSE: JOBY
Key Data Points
Joby's stock has tremendous potential, but it also comes with risks
Shares of Joby are down more than 30% this year, and yet, its valuation remains fairly high for the business, given that it hasn't obtained certification for its air taxis yet. This is a long-term investment that comes with many risks and unknowns. If air taxis are indeed flying all over the place in the next five to 10 years, and Joby's a big part of that, its stock could easily soar in value. But if that isn't the case, or if it struggles with significant losses and cash burn, the story may turn out far differently for shareholders.
If you have a high tolerance for risk, Joby's stock could be a worthy investment to consider. But if you don't, then you may want to consider taking a wait-and-see approach with the eVTOL stock instead.
