Motley Fool Hidden Gems Investing - Helicopters Are Out, eVTOLs Are In?

Starting point is 00:00:00 Are small aircraft about to take on Uber? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoyum, joined by Lou Whiteman and Rachel Warren. We are going to talk about eVTOL, electric vertical takeoff and landing aircraft, today. But first, we want to get an update on the retail segment. Black Friday, which felt like Black Friday month to me, is now behind us officially. We even had Cyber Monday.

Starting point is 00:00:41 So, Rachel, what did we learn about this critical shopping season? Yeah, I think there were a lot of analysts that were watching what these numbers would tell us about the health of the consumer. And the headline numbers look good, but there's more when you dig beneath the surface. So to start off, U.S. consumers spent a record $11.8 billion online on Black Friday. That was a 9.1% increase from 2024. But what's interesting is that nearly 4 in 10 consumers bought fewer items this year. This suggests, obviously, that they're trimming their shopping lists, prioritizing certain purchases. Now, globally, for Black Friday, which is not just a U.S. phenomenon anymore, Online sales hit a new peak of $79 billion.

Starting point is 00:01:23 What's interesting is that store visits were really a mixed bag. There was some data that showed there was a slight decline in foot traffic. Consumers are taking a bit more of an intentional approach when they're shopping. Really important to note as well, total spending increased year over year. But at the same time, average selling prices for products were up by around 7%. And the number of units per transaction dropped. So, what this indicates is that a lot of the sales growth that we saw on Black Friday was driven by inflation rather than increased purchase volume. And another thing as well

Starting point is 00:01:56 that I think speaks to the health of the consumer, usage of buy now, pay later services was up about 9% year over year on Black Friday. So, we're seeing a time where consumers are looking for more flexible payment options to manage their budgets as wallets are constrained. They seem to be more price sensitive, less impulsive. We saw a lot of use of digital tools and AI to compare prices and find the best value for shoppers. So overall, good numbers. But I think we are seeing a consumer that is spending much more cautiously than in past periods. Lou, I keep looking for signs that the consumer and the economy are getting weaker because I think we get these data points like unemployment is kind of starting to be a problem. Inflation

Starting point is 00:02:36 should be something that impacts the economy, you would think negatively, at least in certain places. But then you get numbers like this, and kind of the headline numbers are pretty solid. Is that the real story? Is the inflation piece that Rachel talked about, is that actually the bigger takeaway here that's kind of masking any sort of weakness that we normally see? I don't think the weakness is masked. I think Rachel did a good job kind of outlining kind of what is going on behind these numbers. Top line is great. And yeah, it was great. $44 billion in sales from Thanksgiving to Cyber Monday. That's great numbers. But it's the volume. It is how much people are buying. Another thing to put on Adobe that tracks all of this, they found an

Starting point is 00:03:17 uptick in discounted consumer staples, that Amazon was putting toilet paper on sale, too, and people were buying that. It's not necessarily that gifts and holiday spending is driving this. It's also worth noting, U.S. spending grew at just half the pace of global spending. As Rachel said, this is a global phenomenon now. U.S. spending was up 2.6%. Globally, it was 5.3%. Travis, who've talked about it before, but this all still looks like, whether it's the K-shaped recovery, K-shaped economy, there are haves and have-nots. And there is a critical mass of consumers that have the means to spend, and they are spending. But that sort of does mask or kind of distract us from the fact that there is pressure on a lot of have-nots, a lot of consumers that are really

Starting point is 00:04:05 struggling right now. And that if, if, if that number grows, that's really bad news. This one is things, two things can be true at once. There can both be robust spending and a lot of people who are feeling the pinch. And I think that's, what's going on here. Lou, how, how has the data changed? Cause one of the things we're looking at year over year numbers to look for signs of health or weakness in the economy, but the shopping patterns we talked to last week on the show about my first email that I got about black Friday, it came on October 31st. That's almost a month in advance it's we're recording this on december 3rd i'm already feeling like if i'm not done shopping now three weeks before christmas that i'm behind the eight ball i i don't think

Starting point is 00:04:46 i felt like that 10 or 15 years ago maybe that's me getting older but is that a piece of this that we've sort of shifted all of these holidays forward if you go to a target or a walmart you know there's there seem to be setting christmas and halloween and all these things earlier and earlier every year, does that mask or make the data a little bit harder to read? Or am I just reading into things here? I think you definitely have to factor it in. I don't think I would say you have to be done by now, but certainly the one day event or a few day event has turned into a season, right? You know, I think it goes to December 24th or so. So is the problem like you can't miss the season? I guess maybe that's just the feeling that I get is if I, if I miss

Starting point is 00:05:26 this discount season, I'm going to be in full price season by the 10th of December. So Travis glass half full there though is, is that if you believe that, I mean, I I'm sort of, there were things that I was on the fence about buying and I'm kind of curious what discounts might come in the next few weeks. So, you know, I mean, maybe it's a reason not to, to me and look just to pick on one company, but American Eagle Outfitters, which is not one that I look at a lot. I found it really interesting. They had their comp sales forecast for the fourth quarter as up eight to percent and gross margin down year over year. That to me, I think sums up what we're seeing now as both the pressure and the opportunity. I think we're going to see that a lot. And, you know,

Starting point is 00:06:08 as investors, I think we can weather this. I think it's still, I still think it's worse for Main Street than it is for Wall Street right now. But as far as warning signs or being pleased about what we're seeing, definitely I see reason to worry. Rachel, if you have to have one takeaway from Black Friday season. What is it? I think what we're looking at right now is a time where consumers are really prioritizing the purchases they make. Lou talked about the fact that some of the sales that consumers were taking advantage of were of important non-discretionary items. I think that's something we might continue to see. The flip side is, as you were talking about, this prolonged Black Friday shopping season that goes just beyond Black Friday and Cyber

Starting point is 00:06:50 Monday, that does give retailers with robust business models an opportunity to capitalize on a longer sales runway. So I think it remains to be seen whether that's something that's going to be advantageous in this period of time where consumers are more cautious than ever. Definitely something we'll be tracking over the next couple of months because it seems like we need to get almost the full quarter worth of data to really know what the full story is. When we come back, we're going to talk about the developments in EV tolls. You're listening to Motley Fool money. Welcome back to Motley Fool money. Let's dig into a new market that's gotten a lot of attention this year, but it's still pre-revenue. That's eVTOL's. Lou, first of all,

Starting point is 00:07:28 what is an eVTOL? Give me the baseline of what in the world this is and why we should care. This is the flying car, as we were promised, Travis, but it's not nearly what we thought when we drew it up as kids. I'm not going to pull these out of my driveway and just take off. No time soon, no. So, it is short for electric vertical takeoff and landing aircraft. And they look like small airplanes with wings for stability, and that's really important. But they can do vertical takeoffs and landings like a helicopter. A lot of them have the propellers on their wings that are shiftable. This technology has been around a long time in the military space, and they are kind of coming now to the more commercial space. This has been hot. There were

Starting point is 00:08:11 just quickly counting in the U.S. and Western Europe alone, there were at least a half-dozen companies that went public, all via SPACs, pursuing this goal in the last five years or so. There are Chinese competitors. There are Boeing and Embraer, and some of the big aerospace companies have been involved. There's already been some failures, too, but the leaders are getting near FAA approval, should be flying next year. I have a lot of questions. I have a lot of excitement, But this is real, and this is coming, and we're going to see these in the air before we know it. We've moved, it seems, past the phase of these kind of trade show demonstrations closer to you. You brought up the FAA.

Starting point is 00:08:49 I want to get a feel for where we are in that development cycle because it does seem like 2025, we're not turning that corner quite yet to you and I maybe being able to get into one of these. But that's not far away. So where are we from prototype to actual commercial operations? where are we on that curve so that depends on the company but the two leaders in the space and joby and archer would be the two i'd look at they are both on track to win approval in 2026 maybe early 2026 elsewhere in the world they've actually flown passengers so you know it's not just a u.s story uh others are looking at at the end of the decade so they it there's a broad spectrum here but yeah we are going to see these in the air in the united states i think by next summer you may

Starting point is 00:09:35 answered some of this, but I did want to know who the players are that, as investors, we should keep an eye on, and maybe what sort of factors we should be looking at. Is it their capacity? Is it their partnerships? Is it their balance sheet? What are the things that are risk factors or opportunities if you're digging into these stocks? I think partnerships are really important. Joby and Archer are the two I mentioned. They are going to get there first. I don't think it matters who gets there first. I think the fact that they're both going to get there. But look at partners. Joby is working with Toyota on manufacturing. Toyota's pretty good at manufacturing. Delta Airlines is going to be a partner of theirs. Uber, they acquired or swallowed

Starting point is 00:10:15 Uber's fledgling, I would say, hopes to do a helicopter service or an air service, and so they're a partner there. Archer's working with Stellantis. They're working with United Airlines and Southwest. They both have military contracts. They both have international presence. They are the two that are way out in front. Some of these other companies are trying, they have some partners too, and I don't want to be dismissive of them, but I do think there were questions about the addressable market. And I do think there's a lot of hype here too. And so the two that arrive in 2026, I think are going to have a natural advantage over those that are coming years later. Is this going to be the kind of business, and it seems like aircraft do this, where

Starting point is 00:10:54 there's kind of two, maybe three players that are able to survive. So it's like, if you're not in those two, it's going to be really, really tough to catch up? Or is this the kind of business that's small enough and a big enough addressable market that maybe if you're a couple of years behind, it's fine? Or am I overthinking that risk? I don't think it's a duopoly. I think the big difference is that when you're selling a couple hundred million dollar jet, your customers are limited, and so therefore the suppliers are limited. These are smaller and more affordable, more opportunities. I think the way to think about these is everything you would do with a helicopter if a helicopter was safer. Because to be honest, I mean, helicopters just

Starting point is 00:11:34 have stability problems. You can't fly them in weather. There's been a lot of high-profile crashes over the year. The wings on this kind of give you all the benefit of a helicopter plus the stability to do more. That is a big market. But we don't sell that many helicopters. So I think there are limits to this market. That is going to limit the number of players. But no, I don't think it's going to be a duopoly like with the big commercial jets. I think there are more opportunities. Rachel, we did get some news this week that drove Beta's stock higher. What do we need to know about Beta and EVE Air Mobility? Yeah, there's been a lot of interesting kind of deal-making in the EFTAL space. And this particular deal involves two companies,

Starting point is 00:12:12 Beta Technologies and EVE Air Mobility. So Beta, they're a Vermont-based company. They're known for developing and manufacturing all-electric aircraft. That includes vertical takeoff and landing and conventional fixed-wing models. Now, EVE Air Mobility was officially launched as a spinoff from the Brazilian company Embraer in 2020, building on Embraer's aviation expertise. They became public through a SPAC merger a few years ago. Embraer still retains a majority stake. That's a little bit of a background on those two companies. So, stocks of both Beta and Eve rose significantly after this deal was announced. Beta is going to be supplying up to $1 billion worth of electric pusher motors to Eve Air Mobility over the next 10 years. That provides Beta with

Starting point is 00:12:52 a pretty significant new revenue stream. It makes EVE its biggest customer. And it also really secures crucial propulsion system technology for EVE's backlog of almost 3,000 F-TAL aircraft. And I think it also highlights the growing consolidation that we're seeing in this space. There's a lot of players here, like Lou mentioned, both domestically as well as outside of the U.S. And that creates a lot of opportunity. But I do think we're going to continue to see this element of consolidation. EVE, for its part, they do take a more holistic approach to urban air mobility. They're looking to sell their EVTOL aircraft. They also are building out this global support network and what they call their urban air traffic management software that

Starting point is 00:13:32 they want to sell. So a lot of interesting things happening there. And of course, they leverage the expertise of their former parent company and majority stakeholder Embraer to develop, produce, and service their aircraft. So pretty interesting business to watch. This was certainly a great development for them. A lot of news, but one of the things that we haven't talked a little bit about yet is how are these companies actually going to make money and when are they going to start bringing that cash in? We'll get to that next. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Before the break, we talked about the eVTOL landscape and some of the players that are starting to fly themselves. I want to know about the business

Starting point is 00:14:07 model, Lou. This is one of those topics that ultimately becomes really important because are they going to be selling aircraft? Are they going to be doing a ride share service? Are you and I going to be buying these eVTOL aircraft? What is the business model that we see at least in front of us? Maybe we don't know what this looks like 20 or 30 years from now, but over the next five years, what are these companies going to be developing that are going to actually drive revenue? Let's start real quick. I think that's a great question, but let's start with a warning first, and then we'll talk about the excitement. Right now, these are all pre-revenue. A lot of of shareholder base and a lot of the excitement is based on the imagination, is based on the

Starting point is 00:14:49 PowerPoint. I think there's two challenges here. One, solve the science problem. And then two, once you do that, solve the business problem. How do you make money here? I do worry here that when they actually turn into companies that are building airplanes, we're going to see that it costs money to make airplanes. And it might shift out some of the investor base over time, kind of going from the hype momentum investors. And so I do think there's going to be a lot of volatility here, but looking at the two, it is interesting, but look at Joby and Archer because they are the two leaders. I think there's vaporware out there guys, but I think, you know, I mean, they are both going to get here. They are very different in how they're set up. Joby

Starting point is 00:15:29 is a vertically integrated manufacturer. I'd mentioned Toyota. Toyota is very good at manufacturing. They are, Joby is going to build their aircraft in-house. Archer is more asset Light. They're working with Stellantis, the parent of Chrysler and Jeep. Stellantis and other partners are going to do a lot of the manufacturing for them. As far as business model, Joby wants to operate its air taxi service in coordination with partners like Delta. They are going to be working with others. There would theoretically be a Joby app that I could go on and I could say, I want to fly from Minneapolis to Chicago. In theory, definitely it would be Joby operating Joby aircraft versus Archer is more of like a traditional aerospace model where they want

Starting point is 00:16:15 to sell the airplanes, whether it's United, Southwest, or whoever. Joby does have range and speed advantages right now. I mean, they all talk about the future and different, I guess, electric alternatives, but Joby is going to get 150 miles right now. Archer only gets 100. Use case, I don't think that's going to matter. As far as how they're going to be used? Imagine Delta or Southwestern United feeding passengers from outer suburbs. Right now, they are flying a gas-guzzling little jet to get from the outer suburbs of Minneapolis to their international flights. If you can replace those with more efficient, smaller aircraft that are electric, that's a big savings. I think you'll see them replace helicopters in

Starting point is 00:17:02 areas like EMS, search, rescue. You're not going to see cargo so much because anytime you're talking battery power, you're talking about weight issues. I do think, you asked, I do think personal flights, Joby is working with Uber. I don't think we're going to have these in our garage, but I do think there's going to be, I mean, right now, if you have the means, you can go from Manhattan out to the Hamptons in a helicopter. Yeah. Joby acquired Blade recently, and that was blades business model is that's the piece that they bought and then the idea i think there would be we sort of have the infrastructure we have the helipads or vertiports as they're calling them and then we can just plug in our new aircraft and yeah fly from manhattan to the airport or

Starting point is 00:17:45 they're doing the same thing in i forget which one one of them has a partnership in abu dhabi the other one dubai right that would but that would be sort of the idea there too and again we can't emphasize this enough i don't want to get you know the helicopter lobby coming in coming at us hard, but these helicopters are inherently unsafe. Helicopters exist because they solve problems, but they, I mean, unsafe might be too hard, but helicopters have a rough history relative to fixed wing aircraft. If you can have the best of both worlds where that you don't need a runway, you can take off vertically, but you have the stability in flight that opens a lot of doors and kind of that is the market. It's not, you know, in our driveways flying to

Starting point is 00:18:25 the grocery store to get over traffic that maybe in time that'll come. But if you think of it that way, I think that's the way you can look at the, at least the initial opportunity. Rachel, where are you seeing opportunities? One of the names that keeps coming up is Uber. You don't think of Uber as an aircraft company, but it does seem like as some of these technologies that we we've talked about autonomous vehicles a number of times on the show and Uber and Lyft end up playing a role in that. Is that an interesting place for, even for something like EV tolls. You don't necessarily have to take a risk on these zero revenue companies. You can just ride the wave of ride sharing. Is that the right way to think about it?

Starting point is 00:19:02 I mean, I think that's possible. And I think also just given the fact that these companies like the Archers and Joby's are partnering with so many solid quality publicly traded businesses, it gives us as investors a lot of different ways to gain exposure to this space. And I do think it's really fascinating to see all the different models that companies are exploring, which Lou outlined really well, you know, you've got this kind of traditional idea where some of these VTOL developers could act as sort of the original equipment manufacturer, right? And they could sell their aircraft to various customers, airlines, charter companies, and so forth. There could be this blended approach where maybe they sell aircraft but retain an ownership

Starting point is 00:19:39 stake. Obviously, you've got companies that are looking at operating their own fleet of VTOLs as public air taxi services. That's where the Ubers and Lyfts of the world could come in, you know, similar to how modern helicopter services operate. The big issue here, as Lou noted as well, I mean, this is a model which is currently very unprofitable, and companies are trying to figure out how exactly they're going to generate revenue in a sustainable way. It's very expensive to operate these models. Many of these developers are banking on future profitability. They're hoping that they can enact aggressive cost reduction as production scales up. And I will say, I think that one of the more profitable areas that we might see for companies is going

Starting point is 00:20:18 to be in cargo delivery, government defense contracts, beyond passenger air taxis. As exciting as it is to think of more and more consumers ordering their passenger air taxi to get from point A to point B, I don't necessarily see that being adopted as quickly as some of the more industrial use cases. But I think we're really very much at the beginning of where this market could go. One final thing I'll note, what's really, really key for adoption here is also having the regulatory guardrails in place. And we've seen some movement where that's concerned, even in the U.S. specifically. So earlier this year, the FAA, they finalized new rules for the first new civil aircraft category since the 1940s. This is for powered lift aircraft.

Starting point is 00:20:58 And that provides a clear regulatory path for pilot training and certification for F-TAL aircraft. They've established an EFTAL integration pilot program to accelerate the deployment of these aircrafts. There's a lot of exciting things happening behind the scenes that are going to really lay the groundwork for this infrastructure to build out over time. As you look at this space, Lou, which stocks are you excited about? My money is with Joby. That's part of a small, diversified portfolio because there's a lot of risk here. But I think Joby has the best model, and I like the management team a lot. So I still don't know what these are going to become. But I think it's interesting. So Joby's my horse. Rachel, if you have to pick a top stock in EV

Starting point is 00:21:39 tolls, what is it? I'm going to say Archer just to be contrarian to Lou, but I also really like the business. I really think Uber keeps coming up. So if I get to put one in here, I think Uber just, there's these new technologies, they got to reach customers somehow. And it seems like Uber will play a role. Maybe it's not a huge role. Maybe it's not something that drives, you know, a hundred billion dollars in value to them. But if they end up being that point of demand, that seems to be a good position for them to begin. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance

Starting point is 00:22:16 content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, Dan Boyd behind the glass, and the entire Motley Fool team. I'm Travis Hoyum. Thanks for listening. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - Helicopters Are Out, eVTOLs Are In?

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