Lilium: Call Option On Flying Taxis (NASDAQ:LILM)

The flying taxi market has obtained some very notable orders from the airline sector, yet most of the stocks haven’t rallied this year. Lilium N.V. (NASDAQ:LILM) is a notable laggard with the stock trading at a price more like a stock option with a binary outcome. My investment thesis still remains Neutral on this stock due to the limited order book and lower profile than competitors in the space.

Lining Up Small Orders

Lilium is one of the few public eVTOL manufacturers that hasn’t announced a recent order or investment from a major international airline. The company has announced several smaller deals, but nothing with the 100+ aircraft volumes of competitors, along with investments and deposits.

The European company probably has a disadvantage competing for U.S. airline orders against American companies listed on the U.S. stock exchanges. The company has made the following small deals in the last quarter:

• Sept. 29 – GlobeAir intends to purchase 12 jets for the French Riviera and Italy.
• July 20 – Helity Copter Airlines intends to purchase 5 jets to provide business charter flights in Southern Spain.
• July 19 – AAP Aviation Group intends to purchase 40 jets for service in Scandinavia.
• July 18 – ASL Group intends to purchase 6 jets for Belgium.
• July 17 – Bristow Group (VTOL) intends to purchase 50 jets for Florida.

These deals aren’t a lot individually, but they do add up to over 100 future jet orders. A diverse pre-order book leaves the company less at risk to a large airline completely cancelling one massive order. Remember, the domestic airlines don’t have the balance sheets for aggressive investments in a new business.

Besides, Lilium already has a couple of large deals with NetJets and Azul (AZUL). In total, the eVTOL manufacturer has nearly 500 pre-orders lined up to convert into actual orders with deposits in the next year.

The amount isn’t as impressive as a few competitors, but the devil is in the details on these orders. Lilium plans to start lining up firm orders with sizable deposits next year. A lot of the pre-order details will start mattering towards the last part of 2023 and into 2024 when eVTOL aircraft start obtaining certifications and begin production.

Similar to Joby Aviation (JOBY), Lilium plans to build an internal Urban Air Mobility network with an initial focus on Florida and Germany. The company only forecasted having 1,000 jets in operation by 2027, so the 2022 order book is plenty large enough for Lilium to meet goals for 5 years from now.

Other competitors are definitely building up much more impressive order books. Investors will want to watch the developments in the sector with both Vertical Aerospace (EVTL) and Eve Holding (EVEX) having order books in the $6+ billion range.

In addition, the company is unique in planning to offer a configurable larger jet with plans to eventually build a 16-seater to go along with the original 7-seater while other manufacturers are focusing on 2 to 4 seaters. Lilium is focusing more on regional transportation versus the commuter market of other flying taxi services.

Call Option

The stock has fallen to only $1.60 now after going public via a SPAC deal at $10. The company has seen the liquidity level fall to €229 million with plans to spend ~€250 million in 2022 alone with a current quarterly cash spending level of €63 million. Lilium has a $75 million credit line with Tumin Stone Capital to fund operations into 2023 where “hopefully” some deposits for jet orders will start providing more cash for funding development.

When asked about the cash position on the Q2’22 earnings call, CFO Geoff Richardson had this to say about the position of Lilium:

I think the shift to Premium and focusing on sales also leads to deposits. And I think with deposits and cash flows, it does open up specialized lending opportunities. So we do anticipate that to be part of the mix going forward, Alex. Obviously, the markets are quite volatile today, but we’ve been fortunate to have built the book with the kind of long strategics and we’re very confident between the PDPs between future potential adapt and with equity opportunities, including the ELOC that we’ll be able to extend the cash runway.

The company didn’t provide a solid answer on whether deposits will provide a huge cash bridge to fund operations until aircraft sales occur. The lack of capital to fund operations and the stock down below $2 isn’t an ideal scenario for shareholders.

Lilium is basically a call option here. Lilium has a minimal stock valuation down to around $500 million now, which isn’t very much for a company planning billions in fast-growing revenues by 2025.

Takeaway

The key investor takeaway is that the flying taxi businesses of the future have a ton of appeal. The problem with Lilium is a lack of capital to fund operations without additional capital transactions.

Once the cash position is solved, the stock could become a huge buy with Lilium beaten down and the company in front of a major opportunity in the future $1 trillion urban air mobility sector.