The Jetsons popularized flying cars on 1960s TV screens. Knight Rider did the same for autonomous cars in the 1980s. Both modes of transport are now getting closer to reality, with dealmakers betting big on their future.
North American startups developing self-driving car technology drew 25 deals worth USD 29.5bn in 2021, a 32.5% increase by value on the year before. Those engineering flying taxis – or electric vertical takeoff and landing (eVTOL) aircraft –attracted USD 6.85bn across three transactions in 2021, a tenfold increase by value on 2020.
The biggest single driver involved mergers with special purpose acquisition companies (SPACs). Since last August, five flying car startups used such a merger to go public: California pair Joby Aviation [NYSE:JOBY] and Archer Aviation [NYSE:ARCHR], Germany’s Lilium [NASDAQ:LILM], the UK’s Vertical Aerospace [NYSE:EVTL], and most recently, on 10 May, Florida-based Eve UAM, [NYSE:EVEX], an Embraer spinoff.
Companies making sensor technologies for autonomous cars have taken the same route. Since September 2020, eight LiDAR companies have gone public via a blank check merger, starting with Velodyne LiDAR [NASDAQ:VLDR] and ending with Cepton [NASDAQ:CPTN] in February. LiDAR devices shoot out lasers and use the reflected light to map a car’s surroundings.
Most chose the SPAC path because it was the cheapest and fastest way of going public. The motivation for these companies – whose capital needs are vast – is easier access to capital. Almost all have since suffered huge drops in share price, in line with the wider tech selloff.
Constrained market
Not only has that selloff constrained the future use of SPACs, it also is resulting in lower valuations in the private market. Plenty of dry venture powder exists, but only top tier startups will pass the higher bar for landing capital, say venture capitalists.
“There’s a decline in valuation and people are going back and rearticulating their investment theses,” says Tariq Bolat, CEO of GPR, a startup developing ground-positioning radar technology for autonomous driving. He wants to raise up to USD 40m in Series B funding by early 2023 and go public in the next three years.
Flights of fancy
Among flying taxi companies, consolidation is expected – not least because it costs USD 2bn to USD 3bn to develop a machine.
Five or six such companies will eventually succeed, Wisk Aero CEO Gary Gysin told the recent TC Sessions: Mobility conference. Wisk landed USD 450m from Boeing in January to help it develop a self-flying eVTOL. It could turn to M&A to add technologies in propulsion, autonomy or higher power, low weight battery cells.
Joby, which plans its first commercial flight in 2024, is using its public company currency to make acquisitions that will help it gain certification from the Federal Aviation Administration, says Bonny Simi, head of air operations. Most recently on 18 May, it acquired aerospace software company Avionyx.
Sensor shakeout
A shakeout also is expected among the world’s 60-70 LiDAR companies. They cannot all sell their hunks of hardware to the 10 or so Tier 1 suppliers that are potential customers, says Cepton CEO Jun Pei. Those who have design wins already – Cepton has one with General Motors starting production next year – will be the consolidators, he says. Those without design wins will struggle to survive – or get snapped up. This means that of the eight publicly listed LiDAR companies, which also include Aeva [NYSE:AEVA], Aeye [NASDAQ:LIDR], Luminar [NASDAQ:LAZR], Ouster [NYSE:OUST] and Quanergy [NYSE:GNGY], only two or three will emerge as survivors.
As Michael Knight put it, “Keep your scanners peeled.”
