Is This The Next Tesla Of The Skies?

It’s long been known that the aviation industry is a major contributor to global carbon emissions. With growing efforts to curb the use of greenhouse gas emitting technologies, it’s no surprise that the focus on sustainable energy usage should make its way from the electric car market and into the aerospace sector too.

While much of the attention has so far been directed on terrestrial electric vehicles – about three-quarters of all transport emissions come from road travel – engineers are now seriously grappling with the issue of creating safe and efficient electric-powered airplanes for public and commercial use.
 
One of the leading companies involved in this endeavor is Lilium, an aerospace firm based in Weßling, Germany, specializing in electric vertical take-off and landing (eVTOL) aircraft. Lilium is headed by CEO and co-founder Daniel Wiegand, who, along with three other PhD students from the Technical University of Munich, created the business in 2015.
 

The Nuts and Bolts of Lilium Electric Aircraft

Lilium began with the intention to create a kind of small, taxi-like plane that would accommodate a limited number of passengers with an equally limited flight range. However, as the project developed, the company embarked on a more ambitious goal of producing a 7-seat and 16-seat eVTOL jet, one that could service entire regions with an extended flight capability of 155 miles.
 
The company differentiates itself from most other rivals with its unique approach to propulsion design. Instead of employing the more conventional propeller system, LILM has settled on using a large number of small wing rotors, which also requires more power than its propeller alternative.
 
The trade-off in this configuration isn’t immediately obvious. The Lilium jet uses the proprietary Ducted Electric Vectored Thrust (DEVT) technology, which is essentially a mini jet embedded into the wings of the plane. There are 36 jets in total: twelve jets on each of the two rear wings, and six jets on each of the two front wings. 
 
To understand this design better, it’s important to recognize that Lilium has delineated certain requirements that its aircraft must conform to, and for which it believes its jet constitutes the best compromise model. These requirements include:
 
  • zero operating emissions, with a low noise profile for use over highly-populated inner city areas;
  • the ability to perform both vertical take-off and landing;
  • highly efficient cruise capabilities; and
  • a large seat capacity for attractive pricing and affordable unit economics.
Lilium recognizes in its own brochure literature that some of these requirements might appear “contradictory”; however, the company claims it is taking “the more difficult” technical path so as to solve these challenges in a less traditional manner.
 

Are There Too Many Headwinds For LILM To Weather?

Lilium was recently the subject of an unfavorable report by short selling outfit Iceberg Research, in which a number of accusations were leveled against the firm and its leaders.
 
The report honed-in on two main issues:
 
  1. LILM’s lack of flight time despite its seven years of operations; and
  2. The likely imminent dilution now that its post-merger 180-day lockup period for a large chunk of the company’s shares was up.
The hit-piece was received badly by investors because of how important the flight time problem was to the company’s future prospects.
 
Iceberg pointed out that LILM had clocked up just 50 total test flights, while one of its key rivals, Joby Aviation, had managed around 1,000. Furthermore, Joby has already demonstrated that its current model is capable of flying 150 miles, whereas Lilium has failed to complete a flight that lasted more than three minutes.
 
This is all so critical to any airplane manufacturer because without the required flight time, no company can have any kind of hope that it will get the proper certification to begin commercial sales. The business is planning on bringing in its first flurry of revenue in 2024 with the sale of its 7-seat Lilium Jet – but with testing so far behind schedule, this seems increasingly optimistic.
 
If that wasn’t bad enough, there’s then the small matter of 177 million Lilium shares about to hit the open market – around 68% of the firm’s outstanding shares – not to mention uncertainties over LILM’s supposed $1 billion deal with Brazilian airline Azul, which may or may not be more of a marketing agreement than it is a genuine contract to buy.
 

Is Lilium The Next Tesla Of The Skies?

Even before the Iceberg Research report dropped, Lilium shares were falling on fears of the upcoming share dilution mentioned earlier. However, the company recovered much of the ground it lost in the interim, and now trades at around the same price it did in mid-February.
 
That said, LILM stock is nowhere near its value when it first went public in September last year. Back then, the company launched at $9.31 per share, but has since plunged to under $4 per share at its lows.
 
One concern many investors will have is whether Lilium has the cash reserves to bankroll itself to the point that it can start generating revenues all of its own. In its latest financial release, the firm reported that it had liquidity of approximately $400 million at the end of 2021.
 
It also stated that its burn rate for the year was $217 million, which gives it more or less 24 months of funding in reserve. The problem, however, is that it’s unlikely to get the approvals from the European Union Aviation Safety Agency (EASA) it needs to begin sales – or even just enter the next stage of development.
 
This will make a capital raise from those extra shares far more appealing for the company, but will dilute shareholder value in the process.
 
On the other hand, at 2.88%, there’s little short interest in the stock, suggesting the market isn’t too pessimistic just yet – and the company recently received an Operational Authorization permit to conduct flight trials at the ATLAS Flight Test Center in Villacarrillo, Spain. 
 
LILM is playing a high-stakes game for dominance in what could be a winner-takes-all prize in a new, disruptive industry. For the risk-averse investor, this stock might not be to your liking. But with the sheer magnitude of what the market could offer, the risk might just be worth taking.
 
To answer is it the next Tesla of the skies? Not yet. Tesla has a proven model that generates profits and a near trillion dollar valuation. It can barely keep up with demand, whereas Lilium is still at the very early stages of confirming its business model is viable.

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