LILMW - Lilium N.V: Leading In The Electric Aircraft Revolution

2023-08-14 16:15:21 ET

Summary

• Lilium reported Q2 2023 EPS of -$0.090, beating estimates by $0.06, despite no profit or revenue.
• The company began wind tunnel testing on a complete 1-to-2.5 scale Lilium jet model to validate flight physics and aerodynamics.
• Lilium raised $192 million in funding, fully financing its eVTOL program until 2025 and supporting the commercial launch of the Lilium jet.

Transportation Company Lilium N.V ( LILM ) reported Q2 2023 EPS of -$0.090 beating consensus estimates by $0.06. Despite registering no profit or revenue for the quarter, the stock has gained over 180% (QoQ) and is trading 64% below the 52-week high of $3.17.

Thesis

Lilium is on course to validate its flight physics and aerodynamics performance predictions after it began the wind tunnel testing on a complete 1-to-2.5 scale Lilium jet model. The German-based manufacturer announced that the testing involved “working engines and flap actuators” at the Wind Tunnels facility in Marknesse, Netherlands also co-owned by Germany. The company was also able to raise $192 million as working capital for its electrical vertical take-off and landing (eVTOL) program meaning that it is fully financed until 2025. In my view, this capital injection is a strong upside that will support the commercial launch of the Lilium jet.

Lilium previously subjected sections of its eVTOL aircraft to wind tunnel testing back in 2021 and 2022. The announcement of the complete 1-to-2.5 scale (40% size) Lilium jet model presents an important milestone in the aircraft development process. This testing will help the company get comprehensive data to validate aerodynamic information and obtain flight performance mechanisms including hovering and cruise information.

New Funding

Despite not making any revenues, I believe that the new funding for LILM will see the company through to its first airworthiness certification in Europe. The successful occurrence of this situation will allow the company to reinvent itself. As of Q1 2023, Lilium’s adjusted cash expenditure stood at €125 million. This spending was in tandem with its H1 2023 budget plan of the same amount. The company’s liquidity by the end of the first quarter of 2023 (and before the added funding) was €143 million.

So far, Lilium has raised a total of $292 million in 2023 alone with about $100 million being raised in early May 2023. Investors seem to have great confidence in this company since it was able to raise $119 million in 2022 and about $240 million before the close of 2020. In total, Lilium has raised about $1.2 billion in investor funding since its inception. The company executives have hit the ground running as it only went public in September 2021 through a SPAC. It is expected that this new funding will enable Lilium to develop the first manned flight of its 7-seater aircraft by Q2 2024. After this, we expect LILM to begin receiving orders and payments to aid in the manufacturing of the aircraft.

It has been a long time coming for Lilium since it began pursuing the Type certification of its 7-seater Lilium jet in 2021. According to me, this was a remarkable feat considering the company was founded in 2015 and by 2017, had already applied for a European Aviation Safety Agency- EASA Design Organization Approval (DOA). This approval is necessary for companies designing new aircraft. All along, Lilium’s founding principle has been aligning its engineering/ operations to global safety criteria and certification procedures.

Contractual agreements

Lilium entered an agreement with Heli-Eastern back in June 2023 with the latter set to purchase 100 Lilium jets. This agreement also includes the joint development of eVTOL services across China and Hong Kong. While speaking during this launch, Lilium’s CEO stated

We are excited about Lilium’s expansion into China with such well-established local partners like Heli-Eastern. We see significant potential for Lilium’s eVTOL network in the Greater Bay Area, both to reach this important premium market, as well as to offer the sustainable, time-saving benefits of the Lilium Jet to as many people as possible.”

Lilium put its price tag on the jets within the range of $2.5 million to $10 million based on interior furnishings and other details. I believe the sale of about 100 LILM jets to Heli-Eastern will mean about $700 million in revenue on average. Further, the expansion into China will be a significant step for Lilium’s dominance in the urban air mobility market. I am looking at the development of sales and vertiport infrastructure as a result of the 100 eVTOLs premium sale.

Tencent Holdings is also another Chinese technology company that I believe will also be partnering with Lilium shortly. In May 2023, Lilium announced that Tencent had agreed to invest $100 million with an additional $75 million if Lilium would raise the same amount from other investors. The injection of $75 million from Early Bird meant that Lilium secured the $150 million from Tencent bringing on board a company with a market cap of $406.32 billion.

A new era of air taxis

On June 12, 2023, the Federal Aviation Administration (FAA) issued a Special airworthiness certificate to Alef Aeronautics authorizing it to operate in the US airspace. This electric vehicle can fly, move on roads and park like a regular car. While the company has not yet gone public, it expects to make its first delivery (for Model A) before the end of 2025 for $300,000.

Another start-up company, Volocopter has developed a two-seater electric aircraft, dubbed VoloCity that also operates as an eVTOL jet. Like Lilium, Volocopter hopes to get the EASA authorization by Q2 2024. There is also Joby Aviation which has so far raised $2.1 billion in investor funding most prominent being Toyota's $400 million investment in 2020. On June 28, 2023, Joby a nnounced that it received a Special Airworthiness Certificate for its first aircraft allowing the commencement of flight testing. Joby aims to deliver the eVTOL aircraft to the US Edwards Airforce base in 2024 in a deal worth $131 million. This deal will see the delivery of the first eVTOL aircraft to a customer.

Risks involved

The regulatory environment remains a critical step toward the authorization of Lilium's operations. LILM like other eVTOL is yet to be issued with a type certificate. This certificate is required for approval of an aircraft's design and its components. Failure to acquire this certificate will delay the company's commercialization process.

The application of both hovering and cruising or using winged flight will necessitate greater power consumption for the eVTOL. Lilium will also have to address the challenge of vertical take-off and landing which have been discussed in this article.

There is also the challenge of weight or carrying capacity. In my view, Lilium's eVTOL may not travel far due to its usage of less dense battery power as compared to jet fuel. Additionally, since the composite aircraft materials are light (to reduce weight) the aircraft will need to carry lighter payloads while consuming more power to remain airborne. I expect to get more details on the design specifications after the testing is complete to understand the aerodynamic dataset.

Lilium’s stock faces the threat of delisting as it is trading within the $1 range. The share price fell below the $1 threshold between March 2023 and May 2023 raising concerns over its stability. I expect the share price to hit new highs upon successful aircraft development of its eVTOL.

Valuation and market size

Lilium’s price-to-book (TTM) ratio stands at 2.06 against the industry average of 2.61. With the percentage difference at -21.03% it shows that the stock may be slightly undervalued. The forward price-to-book ratio also stands at 2.72 against the industry average of 2.57.

The eVTOL market size stood at $1.1 billion in 2020. It is projected to reach $23.4 billion by 2030 growing at a CAGR of 52%.

Bottom Line

I believe Lilium's share price return will begin rising steadily upon the successful completion of its wind-tunnel testing, overall aircraft development, and issuance of a type certificate. I would recommend a hold rating of the stock given the price is stabilizing above the $1.10 trend line.

It will also be vital to see what physics and aerodynamics dataset Lilium provides after the wind tunnel testing. This data continues to pose the greatest challenge towards the eVTOL’s viability. Still, Lilium has millions in funding, more than 7 years in product development with important test flights along the way to cement its position in commercializing its electric aircraft.

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