Where Will Joby Aviation Stock Be in 10 Years?

The transportation market has been dominated by old forms of transportation -- planes, trains, and automobiles -- for decades. Few new technologies have successfully entered the sector. Uber Technologies innovated on a part of this market with its ride-sharing application, but the transportation vehicles used are still mainly automobiles.

Joby Aviation (NYSE: JOBY) aims to bring a true transportation innovation to market for the first time in decades. It is one of the start-ups building electric vertical takeoff and landing vehicles (eVTOLs) with the aim of powering an air taxi network in the United States and other countries around the world. Combining innovations in battery technology and quiet propeller systems, the company believes it will finally bring flying cars to the masses.

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But does that make the stock a buy? Let's take a look at this early-stage business and see where Joby Aviation stock could land 10 years from now.

Electric air taxi network

It may seem like science fiction, but Joby Aviation has developed a vertical takeoff air taxi that is much quieter than a traditional helicopter. The company hopes to solve a major problem in society -- the billions of hours we collectively sit in traffic every year -- by skipping roads altogether. It aims to do this by operating a taxi network similar to Uber but with eVTOLs. In fact, I bet people will be able to book a Joby ride right on Uber due to the two companies' long-standing partnership.

People won't drive these vehicles themselves but ride with pilots trained by the Federal Aviation Administration (FAA). Once commercialized, people will be able to book a ride on a point-to-point network in cities around the world. At least, that is the goal set out by Joby Aviation. The first routes will be from downtown areas to airports. For example, Joby is setting up a route from downtown Manhattan to JFK Airport in New York City, which will turn an hour-long drive into a 7 minute air taxi ride.

The bet is that there will be high demand for these services given the convenience and speed of the flights, with wealthy people willing to pay a pretty penny for a trip. With only a limited supply in its first few years, it is likely that Joby could charge hundreds of dollars if not much more for its airport point-to-point routes. This could help the company scale up its revenue quickly.

A huge cash burn but strong partners

An existing friction for the commercialization of Joby's air taxi network is certification from the FAA. These types of vehicles have never been used commercially before and therefore come with a lot of risks. If there are eventually hundreds or even thousands of these vehicles operating around the globe, there will need to be strict regulations and procedures to prevent deadly crashes. We tragically saw this with the recent helicopter-airplane collision in Washington D.C.

This presents a long timeline before Joby Aviation can scale up as fast as it wants. It is currently in the process of getting approval from the FAA, which has been a yearslong process. However, it hopes to get full approval for operations sometime this year. With no vehicles in operation, Joby generates close to zero in revenue every year. With high product-development, manufacturing, and overhead costs, Joby Aviation is burning a ton of cash every year. It currently has a free cash flow of negative $432 million.

While this is a major risk, Joby Aviation has rock-solid partners in Uber, Toyota, and Delta that keep infusing cash into the business. Toyota recently committed $500 million to the company in a common stock investment and is working in depth to help it build manufacturing capabilities. As perhaps the best manufacturer of anything in the world, Toyota is a great company to have a relationship with. Uber and Delta can provide demand generation during commercialization and have large balance sheets to make further investments into the business.

It may take large, upfront spending, but Joby Aviation should have no trouble funding its development as long as it maintains a good relationship with its three large commercial partners.

JOBY Free Cash Flow data by YCharts

Where will Joby Aviation stock be in 10 years?

As of this writing, Joby Aviation has a market cap of $6 billion. Through more capital infusions and shareholder dilution, investors should expect shares outstanding to consistently rise over the next 10 years. Factoring this into the equation, Joby's market cap could be around $10 billion at its current share price of $7.83.

Investors should remember that this company is generating zero in revenue, has a huge cash burn, and is working in a still unproven sector. Even if the company performed 1 million annual flights at a cost of $250, that is only $250 million in annual revenue. Compared to a market cap of $10 billion, that is a wildly expensive price-to-sales (P/S) ratio of 40. Its earnings multiple would likely be significantly higher if it generated a profit at all.

With this in mind, I think Joby Aviation stock is wildly overvalued and will likely be either flat or down compared to today's price in 10 years. This makes the stock one to avoid for investors right now.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.