Manufacturing Ramp And Regulatory Delays Will Undermine Long Term Air Taxi Profitability

Catalysts

About Joby Aviation

Joby Aviation develops electric vertical takeoff and landing aircraft and related technologies for air taxi and defense applications.

What are the underlying business or industry changes driving this perspective?

• The push to ramp manufacturing to a level that management says has never been seen in aviation, including scaling with Toyota and new facilities in Ohio, could strain execution, introduce quality issues and delay deliveries. This would pressure revenue timing and keep net margins under pressure longer than investors expect.
• Heavy reliance on emerging electric air taxi demand in markets like Dubai and early U.S. programs such as eIPP means any slowdown in vertiport build out, local regulatory approvals or customer adoption would leave new capacity underutilized and limit revenue growth, while fixed costs continue to rise and weigh on earnings.
• Ambitious plans for autonomy using Superpilot and NVIDIA’s high compute platform depend on changes to air traffic control systems and regulatory acceptance that may take longer than anticipated. This would defer any operating cost savings from reduced pilot requirements and keep long term net margins below current expectations.
• Expansion into hydrogen powered aircraft and hybrid defense variants adds parallel development and certification paths that increase capital needs and technical complexity. This raises the risk of program slippage and higher long run operating expenses relative to revenue.
• Vertical integration across design, manufacturing, operations, autonomy and alternative propulsion concentrates risk inside the company. Any bottleneck in a single function, such as producing FAA conforming parts or training pilots at scale, could slow commercialization and keep earnings and cash generation below what the current valuation implies.

Assumptions

This narrative explores a more pessimistic perspective on Joby Aviation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Joby Aviation's revenue will grow by 141.5% annually over the next 3 years.
• The bearish analysts are not forecasting that Joby Aviation will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Joby Aviation's profit margin will increase from -4657.2% to the average US Airlines industry of 6.6% in 3 years.
• If Joby Aviation's profit margin were to converge on the industry average, you could expect earnings to reach $20.9 million (and earnings per share of $0.02) by about January 2029, up from $-1.1 billion today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 403.6x on those 2029 earnings, up from -13.3x today. This future PE is greater than the current PE for the US Airlines industry at 9.2x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Joby is close to the FAA Type Inspection Authorization stage with five aircraft in production for testing. If certification progresses smoothly and within the time frames implied on the call, the company could begin commercial operations sooner than you expect, supporting earlier revenue generation and potentially improving earnings prospects.
• The company reported approximately US$978 million in cash and short term investments at quarter end and then added about US$576 million of net equity proceeds in October. This enlarged cash position could give Joby enough runway to fund certification, manufacturing ramp and early operations without near term balance sheet stress, reducing pressure on net margins and earnings.
• Management cites strong early interest through programs like the U.S. eIPP, pre operational work in Dubai, defense opportunities around hybrid and autonomous aircraft and existing Blade routes in New York and Europe. If this stated demand converts into actual flying activity and aircraft orders, that could support higher long term revenue than implied in a bearish view.
• Vertical integration with close support from Toyota, ramp up of FAA conforming parts in Marina and new propeller blade production in Dayton, Ohio may allow Joby to scale output faster and with more cost control than expected. This could help spread fixed costs over more aircraft and support better net margins and earnings over time.
• Defense and autonomy initiatives, including the Superpilot program, the partnership with L3Harris and the planned use of NVIDIA IGX Thor, create additional potential revenue streams in dual use aircraft and software. If these programs gain traction with government customers, they could diversify Joby away from relying solely on air taxi demand and support both revenue and long term earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Joby Aviation is $6.0, which represents up to two standard deviations below the consensus price target of $12.14. This valuation is based on what can be assumed as the expectations of Joby Aviation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $319.0 million, earnings will come to $20.9 million, and it would be trading on a PE ratio of 403.6x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $15.43, the analyst price target of $6.0 is 157.2% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.