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German electric air taxi developer Lilium is reportedly pursuing additional funding from public markets through a reverse merger with a special purpose acquisition company, or SPAC, numerous sources with knowledge of ongoing discussions tell eVTOL.com.
It’s a potential move the rest of the nascent industry is watching closely as numerous companies consider their future sources of capital and possible exits for investors. With its novel aircraft design, dubious progress toward certification and a significantly larger workforce than any of its competitors, Lilium is seen as a high-risk candidate to introduce public markets to the promise of efficient, complex eVTOL aircraft.
To date, almost all funding for electric air taxi development has come from private markets, mostly consisting of strategic investors — venture arms of technology companies like Intel, Toyota, Tencent and JetBlue — and venture capital firms, as well as high-net-worth individuals like Google co-founder Larry Page. With interest rates low and great appetite from private investors in long-horizon, transformational technologies, companies like Joby Aviation and Lilium have been able to raise $820 million and $375 million respectively to fund their aircraft development programs without going public.
Most investors, aircraft developers and analysts expect that to change. As companies near certification, a milestone that signals most of their technical and regulatory risk is behind them, the capital needed to tackle manufacturing challenges and bring their product to market could be exponentially greater than the nine-figure investments raised so far — and likely more than private investors alone can provide. Taking a company public also allows venture capitalists to recycle their investment, realizing returns on their bet and pouring capital into other aerospace startups.
But running a public company requires regular quarterly reporting and brings increased scrutiny. Tesla CEO Elon Musk famously tried to take the company off the public market in 2018, deriding the pressure to produce short-term profits versus focusing on long-term goals, as well as the intense pressure the company faced from short-sellers.
Earlier this week, helicopter booking platform Blade Urban Air Mobility announced it intends to combine with a SPAC, raising hundreds of millions in new capital and boosting the company’s pre-money valuation from $150 million in December 2017 to $450 million. If approved by the SPAC’s investors in the first half of next year, Blade will trade on the Nasdaq and begin rapidly expanding its infrastructure investments in preparation for the introduction of eVTOL aircraft, which the company believes will take place in 2025 and double its revenue in the following two years.
That type of revenue projection is generally not allowed in an initial public offering (IPO). Through SPAC deals, also referred to as reverse IPOs, companies can discuss future revenue estimations with investors, a crucial difference for high-growth or even pre-revenue technology companies. SPAC transactions also importantly allow startups to receive earlier certainty of capital raised and a definitive valuation through a private investment in public equity (PIPE) commitment.
While historically considered somewhat sketchy, in recent years SPAC deals have become an acceptable and common method of taking companies public, particularly in the electric vehicle space. With the public market’s currently insatiable appetite for EVs and adjacent technology, driven in part by the massive success of Tesla stock, companies including Nikola, Hyliion, and Virgin Galactic Holdings have gone public through SPAC transactions totaling over $60 billion this year alone.
But these deals haven’t been without controversy. Nikola, a hydrogen-electric truck developer, has dominated headlines for alleged fraud surrounding false assertions about its technology. Following a research report released in September by short-selling firm Hindenburg Research, founder and chairman Trevor Milton resigned, the company’s MoU with General Motors to cooperate on multiple lines of trucks was scaled down dramatically and the company’s stock plummeted from a high of $93.99 per share in June to less than $17 at the time of this writing.
Nikola is an extreme example of alleged fraud at a multi-billion dollar public company and not necessarily a result of the SPAC route to market. Many other SPAC transactions have performed well thus far, including Hyliion (NYSE: HYLN), Virgin Galactic (NYSE: SPCE), and Velodyne Lidar (NASDAQ:VLDR).
“The recent SPAC movement started with electric vehicles, and then expanded to some lidar, autonomy companies, and now you’re seeing mobility service companies like Bird rumored to be pursuing SPACs, so to see it translate to this even more emerging urban air mobility space seems logical to me,” Asad Hussain, senior mobility analyst at Pitchbook, told eVTOL.com. “The reasons why a company in the space would see this as an attractive option are similar to why they would be an attractive option for an electric car company. These businesses are highly capital intensive, but at the same time they serve really large potential addressable markets and there’s a lot of buzz around the future of transportation.”
It is smart for a company to capitalize on that level of investor exuberance, Hussain added, and makes sense for EV companies ramping up over 12-24 months, “but if you’re looking at these moonshot bets that are going to take three to five years or maybe even longer, there is more risk with that level of public scrutiny.”
Lilium soars high on regional air mobility potential
Munich, Germany-based Lilium is largely considered a front-runner in the nascent industry. With its sleek, five-seat electric aircraft design and promised 186-mile (300-kilometer) range to enable regional air mobility services by 2025, Lilium has attracted more capital than any company apart from Joby Aviation — the majority of it from an internal funding round announced in March. Many entrepreneurs in the nascent electric air taxi industry tell eVTOL.com they consider fundraising in the crowded space to be their greatest challenge.
Lilium has put its war chest to use, moving rapidly to build out the ecosystem around its aircraft. In November, the company partnered with Tavistock Development Group to break ground on a vertiport in the suburbs outside Orlando, Florida, as the first part of a regional transportation network throughout the state. More recently, Lilium partnered with Lufthansa Aviation Training (LAT) to develop a training a pilot training program for its jet, which is radically different from existing fixed- and rotary-wing aircraft flying today.
Both announcements represent a less capital-intensive approach to ecosystem development, with Tavistock putting up the $25 million to develop the Orlando vertiport; per the agreement, Lilium will repay the investment over time through landing fees and other similar payments. Similarly, the pilot training partnership represents a significant investment of resources by Lufthansa’s pilot training division, according to Dr. Remo Gerber, chief operating officer at Lilium. LAT could not immediately be reached for comment.
However, Lilium is also developing in-house the fleet management and ride-hailing software to support its on-demand air taxi vision, Gerber confirmed to eVTOL.com, and most of its personnel are highly skilled engineering talent. The company’s ambitions for certification, production and operation of its complex and novel aircraft — which numerous leaders in the eVTOL industry doubt will be possible by 2025 — will almost certainly require more capital than the company will be able to raise from existing investors, likely conscious of risk exposure associated with individual companies in their portfolio.
“We don’t comment on the specifics of our future funding plans,” Gerber told eVTOL.com, when asked whether the company is pursuing a SPAC transaction. “We are currently in a strong financial position having raised $375 million to date, most of that this past year. Our significant co-investments by suppliers and partners also play a part in our position.”
With over 600 employees in total, more than any other eVTOL developer at present, Lilium’s strategy and associated burn rate may be mismatched with where its aircraft is at in the certification process. Joby Aviation, almost certainly the second-largest aircraft developer, has 425 employees according to LinkedIn and is believed to be much closer to certifying its aircraft. Other leading eVTOL companies tell eVTOL.com they have fewer than 250 employees.
Doubts persist over Lilium’s aircraft design
Lilium is a polarizing company in the eVTOL space, with many outspoken in their dislike of the company’s aircraft design, which employs 36 small electric ducted fans embedded in the wing and forward canard. Mark Moore, for many years the chief evangelist of electric air taxis at Uber Elevate — recently handed off to Joby Aviation — concluded in 2019 that the aircraft’s disc-loading, a measure of power consumption in hover, is far too high.
In January 2020, an article published by German aerospace magazine Aerokurier titled “Hoffnungsträger Oder Hochstapler?” — “Hope Bearer or Imposter?” — an anonymous aerospace engineer concluded it was impossible for the Lilium jet to reach its desired flight time and range. The author calculated that, using current battery technology of 240 watt-hours per kilogram, the jet would only be able to sustain a hover for 67.7 seconds. Allowing only 60 seconds of hover time without reserve — parameters that regulators will almost certainly not approve — the engineer found the jet would be able to fly for less than four minutes, or 11 miles (18 km).
“Either Lilium has found solutions for technical problems no one else knows, or Lilium’s promises can’t be kept,” wrote four engineering professors in agreement with the anonymous engineer. “Lilium is using brilliant PR to create an illusory world to attract investors.”
A Lilium spokesperson shot down the critics, stating that the anonymous critic was wrong in many of his weight estimates, and had miscalculated the hover efficiency of the jet’s ducted fans. “Lilium is a highly innovative company that has achieved significant innovations in the performance to weight ratio of many components, as well as significant innovation at the aircraft configuration level, which together make this level of performance possible,” the company’s spokesperson told Aerokurier, though providing no evidence to the contrary.
Lilium’s existing investors, with more behind-the-scenes access to the rather secretive company, were not swayed by the Aerokurier article. Two months later, the company closed its $240 million funding round led by Tencent, including LGT Capital Partners, Freigeist Capital and Atomico — all existing investors in the company — later adding $35 million from Baillie Gifford, an early investor in Tesla and funder of numerous electric vehicle and battery companies.
In February, Lilium’s first full-scale technology demonstrator was substantially damaged in a fire during ground maintenance activities — an unfortunate but somewhat common occurrence for electric aircraft developers.
“Our second demonstrator was not damaged in the fire and we will continue our flight test campaign with this aircraft once we have fully understood the cause of this incident,” a Lilium spokesperson said at the time.
Lilium has made no announcements concerning its root cause analysis of the fire, which may still be ongoing. The company has not flown a demonstrator aircraft since then, Gerber confirmed to eVTOL.com, stating that its next prototype — intended to be much closer to the final certification and serial production aircraft — is currently under development.
But moving ahead without finishing the testing intended to be associated with the company’s technology demonstrator is very risky. The aircraft flew at high speeds, but as Lilium acknowledged in a December 2019 blog post, it never demonstrated a full transition to wing-borne flight, a key milestone and demonstration of technical capability that the first phase of the test campaign did not reach.
When pressed on its progress by eVTOL.com, Gerber first said that footage available on the company’s website showed the aircraft transitioning to wing-borne flight, referring to a video that shows the jet’s wing and canard begin to tilt before cutting away. A Lilium spokesperson then clarified that the video Gerber was referring to “is not public yet and is not something that can be shared at this time.”
Lilium isn’t alone in its secrecy. Numerous eVTOL developers, including Joby Aviation, have shown very little footage of their aircraft in flight and decline to discuss much of their proprietary technology due to the competitive nature of the industry. But more experienced professionals in the eVTOL industry voice doubts about the company’s design and progress, publicly and privately, than any other highly-funded aircraft developer.
Competitors, investors nervous about a Lilium SPAC
Flush with cash and top aerospace talent, Lilium may indeed have engineered solutions to concerns raised by outsiders, which are naturally based on numerous assumptions and little direct information.
But the company’s aircraft design program — the linchpin of Lilium’s rapidly-growing ecosystem for futuristic regional air mobility — appears to still contain significant technical risk and, if substantial redesign is needed, could delay the company’s commercial operations by several years. And unlike many of its competitors, Lilium to date has not pursued other applications of its aircraft, such as cargo delivery, that are likely to see regulatory approval before its use for passenger transport.
“We’re laser-focused on the passenger application, although that does not preclude us from pursuing other use cases for our aircraft,” Gerber told eVTOL.com.
That focus could prove beneficial for Lilium in the long run; its award-winning design, constructed specifically for passengers, will likely be more appealing to wealthy clientele likely to make up the early customer base for air taxis than something that is easily adapted to carry boxes.
In the meantime, however, many investors see the lack of diverse applications — such as Volocopter’s VoloDrone and Beta Technology’s focus on organ transport — as yet another risk factor for what may be the first electric air taxi developer to debut on a public market.
With few avenues today for late-stage private companies to raise massive amounts of capital from private markets, a SPAC deal and associated PIPE investment may be a likely next step for electric air taxi developers.
“We think SPACs are a great financing option for our industry,” Rene Griemens, CFO of Volocopter, told eVTOL.com. “The urban air mobility and eVTOL space have new mobility business models, which reflect our vision for mobility in the future, and the bulk of the growth is still a couple of years away. SPAC transactions allow you to educate investors in a private setting and allow you to make future oriented statements, which are important for future oriented industries like eVTOL or electric vehicles.
“That said, it is paramount that you can back this vision up with hard facts on how advanced your product is and a clear pathway to certification,” Griemens added.
Kirsten Bartok Touw, managing partner of AirFinance, also cited SPACs as a way for strategic, institutional, family offices and retail investors to gain exposure to earlier stage high growth companies, and for traditional venture capital funds to recycle their investment into new early-stage companies.
“No doubt there is a risk, and these technology companies need to be relatively far along in their technological development and at the point of commercialization,” Bartok Touw told eVTOL.com. “They also need to be ready to be a public entity, with its extensive reporting requirements and the need for measurable progress. But as a financial innovation, it’s positive to have a public capital raising vehicle that allows those early stage companies with transformational technologies to tell their story to potential investors — especially for capital intensive companies in a highly regulated industry.”
With public market appetite for electric vehicles as high as it is, numerous eVTOL developers are considering a SPAC deal and many, including Volocopter, have had specific conversations with SPAC sponsors, sources familiar with ongoing discussions tell eVTOL.com.
It isn’t clear how far along Lilium is in the SPAC process, but those in the industry that doubt Lilium’s design, progress or strategic approach are highly concerned about the prospect of the company going public. If Lilium performs poorly on the public market, it could be a black eye on the entire industry’s ability to raise funds. It could also attract additional public scrutiny — or even the attention of short-sellers like Hindenburg Research — to a nascent industry with numerous challenges ahead.
Editor’s note: This article was updated to correct an earlier valuation of Blade Urban Air Mobility.