eVTOLs will fly... but the journey is far from over

With latest evolutions in terms of technologies and regulations, eVTOLs flying in the sky is becoming closer and closer to reality, and eVTOL operating conditions are increasingly clear, revealing attractive business models and addressable markets. Thus, a large and diverse number of players has already entered this booming market and created an emerging ecosystem. However, while initial 2017 forecasts projected first eVTOL to be operated in 2022, this date has been pushed year after year. Indeed, some OEMs keeps on communicating delays on their entry into services like Joby which pushed back commercialization from 2024 to 2025 last November. Some have even ceased their activities like KittyHawk did in September 2022. In parallel, players are competing against each other to be first for positioning in the market and raising the much-needed funds as equity access will be restrained in the coming months. Who are the players in this race then and what is the road ahead for first entry into service?

A nascent market attracting several players with ambitious timelines…

The eVTOL ecosystem has already attracted a large variety of players willing to take a share of the prize. If the scale-ups that design these vehicles are the most visible ones, they only represent the tip of the iceberg. Legacy players are also positioning themselves on this new transportation mode.

1)????Newcomers were the first ones to enter the market with disrupting technologies (design, cooling system, propulsion system, aeronautics etc.). Hence, e.g. Lilium registered numerous patents for its aircraft, including the airfoil and the propulsion system. These newcomers mainly positioned on a hybrid model, combining manufacturing eVTOL aircrafts and future eVTOL operations. Among them, we can also cite Volocopter which presented its first multicopter technology prototype in early 2011, as well as Joby which was created in 2009 and performed technical demonstration in 2015 for its tilt-architecture aircraft.

2)????Traditional aerospace OEMs saw an opportunity to enter this adjacent market with the same type of clients (airline companies, helicopter operators etc.) while benefitting from competitive advantages on high maturity on design, development, manufacturing knowledge and capabilities and a strong understanding of regulation authority processes. Indeed, since 2017, Airbus has been developing its multicopter CityAirbus eVTOL and recently announced its new CityAirbus NextGen with a lift and cruise technology. The aircraft OEM Embraer launched a subsidiary named EVE Urban Mobility in 2017 to develop an eVTOL vehicle and a service ecosystem around it. As for Boeing, the plane manufacturer didn’t launch its own initiative but partnered with KittyHawk to create Wisk Aero, a joint venture founded in 2017, focusing on developing unmanned eVTOLs.

3)????Legacy automotive OEMs also rely on competitive advantages on engineering and capabilities for technologies (batteries, electric propulsion etc.) and their knowledge on electric vehicles, while leveraging their understanding of shorter product lifecycle and their expertise about high-rate productive scale. Volkswagen China has entered this market in early 2022 with its Vertical Mobility Program to develop a “flying tiger” eVTOL with a tilt-architecture. The automotive manufacturer followed its competitor Hyundai who had launched Supernal in 2020, a subsidiary that is designing the S-A1 eVTOL aircraft planned for entry into service in 2028. Stellantis on the other hand has invested into Archer Aviation and just announced at CES 2023 it will act as a contract manufacturer for Archer’s Midnight eVTOL aircraft.

4)????Aerospace and automotive suppliers entered the market as well, with know-how on some technologies (batteries, autonomy, electric propulsion) and similar customer base yet to extend to newcomers. Among them, Honeywell partners with Vertical Aerospace, Archer Aviation and Lilium to provide avionics and flight control systems. Electrical systems are also mainly developed by aerospace specialists like Safran or GKN Aerospace to address high constraints in terms of compactness, energy efficiency and required power. On the other hand, battery suppliers are mostly newcomers, as several battery suppliers have emerged to support eVTOL OEMs, resulting in numerous partnerships (e.g., equity investments of Lilium in Zenlabs).?

5)????Legacy operators have already pre-ordered eVTOL vehicles to be ready to operate when aircrafts and infrastructures will be ready. They are mainly airline, jet and helicopter operators like United Airlines which pre-ordered 400 EVE Mobility and 300 Archer aircrafts. The helicopter provider Bristow booked 50 Lilium and 100 EVE Urban Mobility eVTOLs while NetJets targeted 150 Lilium vehicles.

?Among all current eVTOL OEMs, about a dozen companies appear to be the most credible with technical demonstrations already performed. Some players have already obtained authorization to operate tests with manned flights such as eHang, Volocopter or Beta. Most of them have already announced ambitious timeline with entry into service between 2024 and 2028 and strong production plans. For instance, EVE announced the production of 75 eVTOLs in 2026 and 1100 in 2030; while Joby targets 30 aircrafts in 2025, 150 in 2026 and 330 in 2030 and Lilium announced a yearly production cadence of 450 eVTOLs without launch date.

Players have yet to demonstrate ability to follow challenging timelines and secure financing

However, being on time for their predicted launch date will be highly challenging for OEMs. Tests are still on a very early phase and on limited distances, without testing payload and battery autonomy. Players haven’t resolved performance trade-offs yet (e.g. range vs. seats or price vs. durability) in the absence of tested data, and only few eVTOL OEMs have already performed manned flights. Promises for entry into service between 2025 and 2028 are mainly for very few exhibition units, while the promises for ramp-up production start would be around 2030. Indeed, Volocopter announcement for the Olympic Games in 2024 will only be flight exhibitions, on 4 to 6 predefined roads without reaching the center of Paris. For now, its tests are limited to 8-minute duration like the one performed in Rome.

These challenges are reinforced by equity constraint for eVTOL players. Share price variation have drastically dropped between -60% and -80% for most eVTOL players over 2022, while players need financing to finish their development phase and start production.?

This equity constraint is due to an increasing global uncertainty and investors becoming wiser about what it takes to be successful in this market, after a rush of enthusiasm last year. In parallel, the economic model is very capital-intensive (each OEM burns around $300M of cash p.a.) while players are only in their development phase, with higher capital needs to be anticipated for future production. Thus, Gary Gysin, chief executive of Boeing-backed Wisk Aero, expects “more 'shakeouts' next years”. He stated that “funding for a lot of these companies is running out. The question is, will they get another raise and continue, or not?". He believes that only four or five OEMs will be left standing ultimately. Due to this equity constraint, players may have to reduce their costs and make cutbacks, while only maintaining crucial functions until their entry in services to optimize future cash burn.

Moreover, not only won’t there be equity for everyone, but it is most likely that the firsts to enter service will be the most successful ones. Less complex technologies like multicopters will likely be the ones to enter the market first due to a reduced regulatory path followed by riskier technologies such as tilt-architecture aircrafts, yet with higher capabilities (autonomy, payload, speed etc.). First-movers for each technology will define ground rules (including regulations) and late-comers will be forced to adapt. In addition, the firsts to enter will have significant brand cache as they "claim the space” and could move quickly up the learning curve to create cost advantage. The first to come may also shape the idea of what should look like an eVTOL in consumers’ mind. Then, what will it take for players in this race to succeed in getting into service for the next 2 to 6 years, as announced?

Developing eVTOL vehicles is only the first step of a long journey

To get into service in the next five years, as targeted, eVTOL players need to firstly finish their development part, with remaining vehicle certification challenges (e.g. airworthiness) and true demonstrated performance: payload, range, speed, noise... In addition, they have to prepare the traditional steps for a market launch i.e. pilot and route certification, traditional R&D and manufacturing challenges (e.g. secure critical raw materials with long lead time, optimize factory location, reduce manufacturing costs), as well as pricing and go-to-market strategy.

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However, players also have specific challenges due to the nascent status of this market, with some identified key success factors (KSF).

Among all these new challenges we have identified Regulation & Certification, Infrastructures and Public Acceptance as the 3 most prominent ones.

A.???Regulation & Certification. Now that technological development is well underway, regulation agencies (FAA, EASA etc.) should create proper environment for eVTOLs to fly. Hence, to certify a new type of operations, players should initiate discussion with public institutions (cities etc.), airport operators, infrastructure providers and aerospace regulators.

B.???Infrastructures. In addition, infrastructures are about to become the future key bottleneck for eVTOL development in the next years. On this issue, the immediate next step is to secure partnerships with infrastructure providers and eVTOL operators, to design future vertiports. Norms should be implemented in order to develop standardized vertiports, able to work for all types of aircrafts. So far, only general guidelines have been published by regulatory agencies like the FAA and its design guidelines for vertiports in September 2022, without any regulation or standards yet. Boeing and Wisk also released a detailed Concept of Operations for Uncrewed Urban Air Mobility, with their views on eVTOL air traffic and vertiport managements, as well as future fleet operation centers. In parallel, OEMs are partnering with future vertiport providers to shape these new infrastructures, like Volocopter and ADP (Roissy Airport operator) near Paris.

C.???Public Acceptance. When a new change comes into town, it is often quite difficult to gain public acceptance at first. Indeed, obtaining a “social license to operate” is one of the prominent challenges that eVTOLs players are going to face.

On the one hand, general public acceptance will be crucial in order to find customers and not encounter oppositions. To do so, operators should address the three pillars of a social license which are benefit, social contract, and responsibility (see exhibit #2).

• Regarding benefit and positive social trade-off, players should broadly communicate on positive impacts of eVTOLs on urban and regional mobility when competing with other transport modes (lower congestion, safer mode, lower carbon emission etc.). They should also transparently communicate risks and how they are managed. For instance, eVTOL designs have redundant propulsion systems due to several propellers that guarantee safety in case of a propeller breakdown (unlike helicopters). They are also focused on system-level thermal management as propulsion poses challenges for heat as well as securing high voltage cables. Finally, they should be certified by regulation authorities, which require a 10-9 failure condition probability as for traditional commercial planes.
• To establish a social contract, they should address main customer concerns about eVTOLs, which are noise, environmental impact and safety, and stick to eVTOL “green promises” (clean manufacturing processes, battery upcycling etc.).
• Finally, for responsibility, they should manage future liability issues by identifying who will be responsible in case of an accident (operator, OEM etc.) and who are the main interlocutors when eVTOLs fly.

On the other hand, as eVTOLs will operate in urban areas, players will have to obtain local acceptance. For this purpose, they should start with cities with the highest potential acceptance rate (i.e. with high congestion and pollution, high purchasing power etc.) and engage discussion with local citizens to frequently collect feedback.

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The eVTOL market is attracting newcomers as well as numerous legacy players from the automotive and aerospace worlds. However, the eVTOL timeline has probably been overhyped in the short term to attract funds and future customers. Indeed, there is still a long way to go as technology is not ready yet and tests are limited to short range flights without load today, questioning players’ ability to stick to their ambitious plans. Moreover, operating conditions and infrastructure must be further developed for this market to become a reality. To succeed, players should not just focus on developing an efficient aircraft but also on implementing conditions to enable eVTOLs to operate, with an increasingly restrained access to equity. Another success factor is gaining public acceptance by reassuring and showing benefits of this new transportation mode.

Yet, despite these challenges, investments and pre-orders greatly continue to flow in. As a matter of fact, in October, Delta airlines has announced a 200-million investment in Joby’s aircrafts to develop a city-to-airport transportation in US cities. SAUDIA, the national flag carrier of Saudi Arabia, and Lilium have announced mid-October that they are working on a partnership to operate 100 Lilium jets. As there is still a huge demand and a strong need, flying taxis will become a reality in the next decade.

Authors:

• Mika?l Le Mou?llic , BCG, Managing Director & Partner
• Ali Rekik , BCG, Managing Director & Partner
• Markus Weidmann , BCG, Managing Director & Partner
• Vladislav Boutenko , BCG, Managing Director & Senior Partner, BHI Fellow "Future of Cities"
• Rapha?l Giraud , BCG, Project Leader
• Raphael Kirn ,?BCG, Lead Analyst
• Alexandre de La Fresnaye , BCG, Associate