Investing to decarbonise air-travel
As investors in Tesla, we have always understood the critical importance of decarbonising the transportation industry, including automobiles and aircraft.
The global aviation sector currently accounts for 2.5% of CO2 emissions, which increases to 3.5% when considering its wider impact on climate change. The sector is already facing mounting pressures, as evidenced by France's recent ban on shorthaul domestic flights due to environmental concerns. We anticipate that further scrutiny will follow. In light of these circumstances, we have actively sought investment opportunities in decarbonisation solutions.
Since 2021, we have closely monitored the eVTOL (electric vertical take-off and landing) industry. These electric planes produce zero emissions, generate less noise compared to traditional aircraft, and possess vertical take-off and landing capabilities akin to helicopters (watch Lilium’s aircraft in flight in the video below). We firmly believe that this industry holds significant potential for positive environmental impact as it revolutionises the airline sector.
Currently, the eVTOL industry resembles the electric automobile industry of a decade ago when awareness was low, and doubts persisted regarding the technology and financial viability. Thanks to Tesla, the electric automobile industry has undergone substantial changes over the past 10 years. We believe that although the eVTOL industry is currently in its infancy, it could follow a similar trajectory to the electric vehicle industry.
While we started looking at the eVTOL industry in 2021, we encountered excessive valuations coupled with the need for substantial capital. However, with the recent decline in equity values of these companies and notable advancements in regulations, technology, and commercialisation, we have begun allocating a small portion of our portfolio to some of the leading players in this niche yet promising industry.
We have recently invested in Joby Aviation and Lilium within this space. Both companies have developed fully electric aircraft, with Joby Aviation anticipated to have the first company-conforming aircraft in the first half of this year. Additionally, both companies are making progress in meeting the necessary testing and regulatory requirements, with an expected commercial launch within the next 2-3 years. However, their strategies differ. Joby Aviation aims to build a global network of aircraft for on-demand usage, similar to how we utilise Uber and other ride-sharing services. Joby Aviation has even partnered with Uber, soon to be integrated within the Uber app. Users will be able to select a route using a combination of an Uber car and Joby aircraft, with the app optimising for traffic conditions to provide a seamless experience. The company expects the cost of these flights to be comparable to an Uber Black, but with significantly reduced travel time compared to a car. We believe that this price point will be affordable for many users, especially when compared to existing short-haul flight options such as helicopters. As the network expands and more people utilise the service, we anticipate the cost of flights to decrease further. Joby Aviation has also established partnerships with traditional airlines, including Delta Airlines and Japan's ANA, as well as with Toyota.
On the other hand, Lilium is targeting the luxury market and aims to capture market share from traditional private jets and helicopters through their innovative design and technology. The company has already secured pre-orders from various regions globally, including Scandinavia, the UK, Brazil, and the Middle East.
Both companies are making substantial investments in fixed assets and Research & Development. It will take several years before they can provide their services at scale profitably, which often causes traditional investors to overlook these opportunities. Nevertheless, they belong to a small group of companies with immense growth potential, impact, and future profitability.
This note has been prepared by ELM Responsible Investments (‘ELMRI’) ABN 70 607 177 711 AFSL 520428, for Australian wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth).
The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of ELMRI and its investment activities; its use is restricted accordingly.
This note is for general informational purposes only and does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of preparation and presenting and all forecasts, assumptions, opinions, data and other information are not warranted as to accuracy or completeness and are subject to change without notice. This is not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other interests to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this note. Any potential investor should consider their own circumstances and seek professional advice.
ELMRI funds, its directors, employees, representatives and associates may have an interest in the named securities.
Past performance is for illustrative purposes only and is not indicative of future performance.