Key Points
The prospects for electric vertical take-off and landing (eVTOL) companies don’t just depend on future orders or regulatory approvals; they also depend on securing their supply chains and ramping up production to meet expectations. That’s why investors have reason to be positive about Vertical Aerospace (NYSE: EVTL) after it recently signed a long-term agreement with Astronics for power distribution systems for its Valo eVTOL. Is it enough to make the stock a buy?
Vertical Aerospace de-risks its business model
Not all eVTOL companies are made equal. While Joby Aviation is pursuing a vertically integrated model and developing its own technology, Boeing‘s Wisk is also relying on investment and technology from its parent company, and companies like Archer Aviation and Vertical Aerospace are heavily reliant on components from established companies.
In theory, at least, this should accelerate development and make it easier to ramp up production. That’s why every time the U.K.’s Vertical Aerospace signs a long-term supply agreement, it helps de-risk the company’s business model. It already has deals in place with Honeywell (flight control and management systems), Hyundai WIA (landing gear), and other specialist aerospace suppliers, with the recent deal adding low-voltage power distribution systems — a critical part of an eVTOL.
Dilution risk remains
While execution risk has diminished somewhat with the deal, this is still a company burning cash and won’t generate earnings until 2032, according to the Wall Street analyst consensus from S&P Global Market Intelligence. In other words, the $239 million-market cap company will need cash, which means significant dilution for existing investors is on the way.
On the company’s lastearnings callin May, management said it had “short-term liquidity, together with anticipated draws under available facilities, expected to provide at least 12 months’ runway.” However, the good news is that it has access to financing of up to $850 million as part of an agreed-upon financial package with Yorkville Advisors Global.
The bad news is that Vertical Aerospace will have to issue equity to raise cash when it needs it, which means dilution of current shareholders’ claims to its future earnings. The need to raise cash is why Wall Street projects Vertical’s share count will rise from 157 million in 2026 to 373 million in 2032, when Vertical is expected to start generating earnings.
Of course, these share count estimates are subject to the share price, with a lower share price leading to more equity issued and vice versa.
A stock to buy?
This is a high-risk stock that will suit only fully committed and extremely patient eVTOL investors. The company does have 1,500 preorders for its Valo eVTOL, but just how much cash investment it will need and what kind of dilution will happen to shareholders along the way to executing on those orders are open to question.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Astronics, Boeing, and Honeywell Technologies. The Motley Fool has a disclosure policy.
