The Market Capitalization Of e-Aviation

By Marc Sellouk, Founder and CEO of Flewber

Markets are driven by speculation; investors buy on rumors and sell on news. This fundamental tenet of financial trading has driven market share, size, and growth from the very beginning. But every once in a while, the markets, driven by those with an overzealous pursuit of the ultimate next big thing, can get over their skis.

The dot-com bubble was one such period. It was a time when fundamental stalwarts of investment, such as debt to equity and price to earnings ratios, were tossed aside by investors like yesterday’s newspaper. The exploding popularity of the internet caused the web sector to expand rapidly in terms of valuation over the course of a few years despite many companies lacking clear paths to profitability. Computers were in more and more homes and low interest rates in the late 1990s made debt financing easier for young, nubile tech companies to acquire, fueling the new industry’s unchecked growth. When the dust finally settled from the dot-com era, many of those young nubile tech companies along with billions in investment dollars were gone, and some of the few that survived went on to become part of the fabric of our everyday lives. But, in between, a bear market was ushered in that lasted nearly two years.

Fast forward to today, and I believe in some ways, one can look at the e-aviation sector with a cautious side eye, born of the same lessons learned from the dot-com bubble. As an example, I’d refer you to an April 2022 article from Business Insider, titled “Meet the top startups of the booming flying car world, an industry predicted to be worth more than $1 trillion by 2040”. The piece, focused on the five newest young and nubile companies of the eVTOL and urban air mobility sectors. In it, the writer cited data from McKinsey & Company, along with Morgan Stanley Equity Research’s bold speculation, that by 2040, this sector could be worth nearly $1.5 trillion. Think about that, five eVTOL companies went public via SPAC deals in 2021, with a combined market capitalization of $10.7 billion, and a globally known and respected equity research firm had already predicted a potential $1.5 trillion total addressable market by 2040. All the while, none of these companies had yet delivered a commercial product or service, and they face significant technical, regulatory, and operational challenges before they can achieve profitability and scale.

While I’m certainly drawing “ultimate next big thing” comparisons, to be sure that I’m not misunderstood, I’m not prognosticating an e-aviation collapse. The eVTOL aircraft market is one of the most promising and innovative sectors in the aviation industry. And, as the founder and CEO of an aviation technology company, I’m also a strong advocate for the emerging urban, regional, and advanced air mobilities sectors and what they can mean for underserved communities as well as the population as a whole. I, along with some analysts, are just raising concerns about the potential overvaluation of the eVTOL market.

Many factors led to the bursting of the dot-com bubble, the first of which is widely believed to be rising interest rates, which in 1999, the Fed raised 3 times. Last month, the Fed raised interest rates for the 10^th time since March 2022, to the highest level in 16 years. This clearly isn’t a foreshadowing of doom for the eVTOL sector but pardon me while I keep a cautious side eye on it.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.