EVEX - Eve Holding: Boring Isn't Always Good

2023-07-24 14:20:58 ET

Summary

• Eve Holding, Inc. continues to list a large non-binding order book of 2,770 eVTOLs.
• The eVTOL manufacturer continues to make progress towards production, but the timeline still extends into 2026.
• The stock looks fully priced at $10 until Eve progresses more towards certification and production and starts turning the large LOIs into firm orders with pre-payments.

While the eVTOL (electric vertical take-off and landing aircraft) space has been very volatile in the last few months, Eve Holding, Inc. ( EVEX ) hasn't budged much from $10. The company has a large order backlog, but Eve doesn't have a very expansive balance sheet and the prototype production aircraft is behind other competitors. My investment thesis remains Neutral with the former SPAC already trading at the going public price and due to the lack of meaningful progress recently.

Big Backlog

Eve lists 26 eVTOL customers in 12 countries with letters of intent for a massive 2,770 aircraft. The company lists the value of aircraft under LOIs at an incredible $8.3 billion valuation.

The crazy part of the story is that Eve hasn't listed or announced any new orders in 2023. The eVTOL manufacturer only forecasts producing the prototype aircraft in 2024, so any new order wouldn't be for delivery until possibly the end of the decade.

Joby Aviation, Inc. ( JOBY ) recently rolled their full-scale prototype aircraft off their production line with a goal of delivering the aircraft to the U.S. DoD next year. Eve is about a year behind Joby Aviation in the current development plans, but Eve somehow has the larger listed LOI backlog.

The big question is whether these LOIs actually turn into orders. The big step in this area will be when Eve starts collecting pre-delivery payments for these aircraft. The cash flow will show a real level of intent, and the eVTOL manufacturer can utilize the cash to invest in the business without diluting shareholders.

The company is forecasting the quarterly cash burn of $20 million, $80 million annualized, during Q1 jumps up to $130 to $150 million for the year. The quarterly cash burn rate will double during the year as Eve begins building prototypes and hires more people for manufacturing operations.

With the Q1'23 earnings call on May 14, Eve hinted at plans to start announcing key suppliers for the aircraft in an initial step towards building the prototype as follows:

We've said all along this year that the first tranche major supplier. So if you recall that's propellers, electric motors, both the rotor and the pusher, pushers and the battery really the energy solution, we consider them G0. That should be announced at the end of this quarter right behind that, you'll have the flight control computer.

Stein will help me out here, avionics, etcetera, which will follow shortly thereafter So we really expect here within the next 30 to 45 days to nail down most of those and we'll be prepared to announce who they are...

At the Paris Air Show, Eve provided a lot of details on the new eVTOL suppliers . In fact, the company apparently chose a manufacturing spot , not surprisingly close to lead investor Embraer S.A. ( ERJ ). The eVTOL manufacturer just now identifying a production site highlights how the certification and production timeline is still a couple of years out.

Slow Progress

The stock only has a market cap of $2.6 billion, but analysts generally aren't forecasting much in the way of revenues until 2026. The 2025 revenue target is $24 million now, but at least one analyst has a revenue target of $0.

Eve starts running into capital constraints once pushing into 2025 without sales. The company had a cash balance of only $295 million at the end of March and has already predicted spending another $110 to $130 million this year.

The company said the following about access to capital on the Q1'23 earnings call:

With that, we ended the first quarter with around $295 million in cash but when we consider the standby credit line from the Brazilian development bank of almost $100 million that will start to access this year. Our total liquidity exceeds $390 million and it's enough to fund our operations into 2025.

Eve has 11.5 million public warrants exercisable at $11.50 per share. On a stock rally, the company could obtain up to $132 million in additional cash from these warrants.

In addition, warrants to PIPE investors classified as New Warrants have exercise prices of $15.00 on 12.5 million warrants and another 5 million at $11.50. All of these warrants exercised will add another $247 million in cash.

The additional $100 million from the Brazilian development bank helps, but the cash balance is definitely going to get low as 2025 starts. Lilium N.V. ( LILM ) just raised a ton of cash, so Eve won't have problems funding the business. The only question is the cost of capital.

Takeaway

The key investor takeaway is that Eve Holding, Inc. appears too boring in their approach to building out an eVTOL. The company isn't making a lot of noise about development and the stock has been stuck at $10, typical of a lot of SPACs.

Eve Holding, Inc. stock would be far more appealing on a market selloff offering the shares at a lower valuation in the future. The company has plans for launching with partners in 2026 and into 2027, which is far into the future.

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