Joby Aviation stock: brace for turbulence as rare pattern forms

Joby Aviation, the biggest electric vertical take0ff and landing (eVTOL) company by market cap, is under pressure as its stock remains sharply lower than its all-time high. It has dropped by over 20% this year and by over 70% from its all-time high.

Loss-making but with a good balance sheet

Joby Aviation, like other flying car companies like Lilium and Archer Aviation, are spending millions of dollars building and certifying their projects. 

The company’s annual net loss in 2023 stood at over $513 million, a big increase from the $258 million it made a year earlier. This loss-making is understandable since the company is not yet bringing any revenue. Over the years, it has raised $2 billion from investors like Toyota and Uber.

Joby Aviation has continued to lose substantial sums of money and this trend will continue in the foreseeable future. Its net loss in the second quarter stood at over $123 million as its use of cash dropped to $99 million. 

On the positive side, Joby Aviation has one of the best balance sheets in the industry as it ended the quarter with over $825 million in cash and short-term investments. For a loss-making company, having this balance sheet is a good thing because of the amount of money it makes in interest. In the last quarter, it made $21 million in interest and other income.

The challenge, however, is that the Federal Reserve is on a path to cut interest rates, which will reduce the interest it makes by holding cash. 

Additionally, the company has applied for a Department of Energy (DoE) loan, which could help it continue without raising cash. The DoE, under Joe Biden, has extended loans to several companies like Qcells ($1.45 billion) and Plug Power, which received $1.6 billion. 

The US may see a benefit for loaning the funds to Joby Aviation because it is working on technology that will help the country reduce its carbon emissions. Just recently, the Federal Aviation Administration (FAA) granted the company $1 million.

Having a strong balance sheet has helped Joby Aviation investors avoid the painful dilution that investors in other eVTOL companies have gone through. Its outstanding shares have risen from 604.33 million to 713 million. In contrast, Archer Aviation’s shares have soared from over 157 million to over 298 million.

Still, without the DoE loan, there are chances that Joby Aviation will need to raise cash either in 2025 or 2026.

Commercialization process in progress

The Joby Aviation stock price has also retreated even as the company has continued to invest in R&D. In addition to its eVTOL, the company has also started work on its hydrogen aircraft, which has a range of 561 miles. 

It has also continued working on the FAA and has reached 37% of its fourth stage. It has also applied for certification in other countries like Australia and Dubai. 

Most importantly, the company has signed an MoU with Mukamalah, a company owned by Saudi Aramco. Mukamalah will be a big buyer of Joby Aviation aircraft, which is notable since it is the biggest operator of the world’s largest fleet of corporate aircraft. 

Therefore, if all goes well, Joby Aviation hopes to start fully commercialization of its aircraft in 2025 or 2026. 

Still, the company faces substantial risks ahead. First, as we have seen in the electric vehicle (EV) industry, companies like Rivian and Lucid Group spend many years before turning a profit after starting deliveries. Therefore, this means that Joby too will continue burning cash for a while, leading to potential dilution.

Second, there is the issue of competition as the eVTOL industry matures. Some of the most notable competitors will be companies like Volocopter, Lilium, Archer Aviation, Ehang, and Vertical Aerospace. 

This competition will likely affect the company’s margins as we have seen in the EV industry. On the positive side, the industry has high barriers to entry, especially because of the lengthy certification process. McKinsey believes that, if the industry thrives, it will be dominated by about five big companies. 

Third, it is unclear whether its hydrogen aircraft will do well, as we have seen with Nikola, the struggling hydrogen truck company.

Joby Aviation stock price analysis

The other risk to remember is that the stock has formed the rare head and shoulders pattern on the weekly chart. In most cases, this pattern leads to a strong bearish breakout. Its stock was trading at the neckline of this pattern.

Also, it has remained below the 50-week Exponential Moving Average (EMA). It has also formed a small bearish flag chart pattern. Therefore, the stock will likely have a bearish breakout in the coming weeks. If this happens, it will drop to the psychological level of $4.

The post Joby Aviation stock: brace for turbulence as rare pattern forms appeared first on Invezz