“We wanted flying cars, instead we got 140 characters,” said Peter Thiel in 2013.1 Five years later, we have twice as many characters per tweet, but no flying cars.
In our view, a vehicle for both the road and the air will never see the light of day. In fewer than five years, however, personal drones, or what ARK refers to as air taxis, could fly passengers from cities to airports at a price competitive with traditional taxis, if the batteries that power them continue to improve as we expect.
Source: Matti Blume, 2017; Licensed under CC BY-SA 4.0
At least three startups – Volocopter, eHang, and Kitty Hawk – and three established firms – BoeingBA, AirbusEADSY, and Uber – are investing in the development of autonomous passenger drones, essentially mini helicopters like the one pictured above. While limited in range, electric Vertical TakeOff and Landing (eVTOL) drones, will fly over the traffic jams that seem likely to proliferate as autonomous electric vehicles (EVs) begin to dominate urban roads.
eVTOLs save considerable travel time at a reasonable price. The display below compares the cost and time it will take different vehicles to travel from Midtown Manhattan to John F. Kennedy Airport (JFK) in the early 2020s. ARK’s research suggests that air taxis will be able to transport passengers to the airport in just 18 minutes, roughly a quarter the time of a traditional taxi ride, for just $74, a small premium to the $65 it would cost today.2 A traditional helicopter might be faster, 5 minutes, but at $195 far more expensive, while the subway will take more time but cost much less.3
Four years ago, passenger drones couldn’t take off, literally. Highly sensitive to weight, electric powered drones have to carry more energy than they need in order to satisfy Federal Aviation Administration (FAA) requirements. Four years ago, batteries were not powerful enough to support the weight associated with the mandated reserve requirements.
In the last four years, however, battery technology has improved dramatically. Innovations in battery chemistry and manufacturing have boosted the specific energy (watt hours per kilogram) of lithium-ion battery pack systems. Newer generations can deliver more energy per unit of mass, increasing the range of air taxis without the need to recharge. ARK estimates that improved battery technology will enable an air taxi to fly the 12 miles from Manhattan to JFK by 2020,4 as the display below shows.
The Price Advantage vs. Helicopters
Let’s look more closely at why we estimate the cost of a flight from NYC to JFK in an air taxi will be less than half of that in a traditional helicopter. In our model, lower landing fees are key, saving drones $43 per flight relative to helicopters. Heliports in Manhattan charge higher landing fees because of a scarcity of landing spots. Because passenger drones are quieter and more maneuverable, landing and takeoff probably will not require the skills of controllers at traditional heliports.5 With more spots available to locate drone helipads, increased competition likely will drive down landing fees.
Lower operating costs also will be a significant source of estimated savings, roughly $42 per flight. We base this conclusion on two observations. First maintenance costs are 65% lower for electric vehicles than for traditional gas powered vehicles. Air taxis should be no different. Second, electricity is a much cheaper source of energy than aviation fuel. Paling by comparison as a source of savings are the lower upfront capital costs and periodic repair costs associated with drones, while the lower speed of drones and replacement batteries are added costs.
What about the savings associated with the compensation of pilots as autonomous transportation takes off? While we estimate potential savings of $15 per flight, they won’t be realized any time soon in the U.S. The FAA requires pilots to be on board planes and helicopters, a regulatory hurdle that drones will have to overcome. That said, with a pilot, ARK estimates the cost would be $89, still $67 less than a helicopter flight.
Sidebar: Better Batteries Will Power Other Kinds of Electric Vehicles
First there were electric cars, then electric trucks, and soon there should be electric air taxis. In our view, it won’t stop there: continuing improvements in battery technology that will increase energy and power density should enable many other forms of electric transport, some perhaps we cannot imagine now.
We believe most forecasts underestimate future battery demand for two reasons. First, they underestimate the adoption rate of electric vehicles, and second, they overlook the impact of more powerful batteries that will enable different types of vehicles to go electric. The display below shows that a TeslaTSLA Model S has an energy efficiency of 0.27 kWh per mile, and air taxi is four times less efficient, at 1.16 kWh per mile, and a Tesla semi is 6 times less energy efficient.
Improvements in battery technology should provide investment opportunities during the next five to ten years. The wholesale shift from the internal combustion engine to battery technology will have a profound impact on everything.
- https://som.yale.edu/blog/peter-thiel-at-yale-we-wanted-flying-cars-instead-we-got-140-characters ↩
- http://www.nyc.gov/html/tlc/html/passenger/taxicab_rate.shtml#TollInformation ↩
- https://blade.flyblade.com/p/bounce; http://web.mta.info/mta/airtrain.htm ↩
- This includes the 20 minute flight reserve that the FAA requires for instrument rated helicopter flights. ↩
- There will be less risk given that there will be no liquid fueling required. Rather, it will be swapping batteries in and out of drones and into charging racks (or perhaps plugging them in depending upon the optimization between battery swapping and rapid-charging). ↩
The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.