Electric air taxis are already coming in for a hard landing

Lilium, a startup that develops electric vertical takeoff and landing vehicles, or eVTOL, announced last week that its principal German subsidiaries will apply for self-administration proceedings, the rough equivalent of the U.S.’s Chapter 11 bankruptcy.

Doubts surrounding the viability of the Munich-based company have long been raised, but executives kept managing to secure rounds of funding. This time, however, the German Green Party, a member of the coalition government, moved to block an expected 100 million euro loan, equivalent to $108 million, to be extended by state-owned bank KfW, which “was a closing condition to already committed private funding," the company said this past week. It has since also failed to secure money from Bavarian officials.

International competitors have been “receiving grants and loans in the U.S., France, China, Brazil, and the U.K.," Lilium added.

Indeed, California’s Joby Aviation, Britain’s Vertical Aerospace and Brazil’s Eve Air Mobility have all received government aid. In Berlin, the narrative that eVTOL vehicles are would-be taxis for the rich seems to have won out against the view that they are a much-needed step toward decarbonizing aviation.

Executives still believe they will find a solution to inject fresh money into the company and emerge from self-administration. The U.S.-traded shares trade at around $0.14. This represents a 99% drop from when Lilium completed its merger with a “blank-check" special-purpose acquisition vehicle on Sept. 15, 2021, and will lead Nasdaq to delist them, the company confirmed in a regulatory filing Tuesday. Still, it may reflect a small chance of a positive outcome.

Unless Lilium can sway a consortium of officials in Germany or elsewhere in Europe, though, it is hard to see what it can do. The top investor is Chinese technology giant Tencent, which already gave Lilium a lifeline in 2023. It holds warrants allowing it to raise its stake to as much as 36% for $0.05 a share, but concerns about Chinese control make it unlikely to want to go much above its current 19%.

Ultimately, the main problem is that markets are far less bullish about this sector than they were during the craze of 2021 and 2022, which channeled money into all sorts of moonshots. All of these eVTOL makers became public companies then, and have since lost most of their market value.

Wall Street analysts’ lofty promises of a $1 trillion market for noiseless Jetsons-style air taxis that would rival Uber cars never held much water. Even if the technology itself lives up to the hype, it seems unlikely that the economics would work for trips under 80 miles, especially since there can hardly be enough helipads to service a dense network. The eVTOL use case is probably much smaller, centered on replacing the current $50 billion helicopter market.

Lilium had another interesting alternative pitch: a regional mobility service that would make flights to nearby cities and rural areas more convenient.

Here is the problem: To make it a reality, Lilium broke away from having a few big rotors on rotating shafts like most of its competitors to embrace a heavier design of 30 small ducted fans placed in the canard and wings that could transport six passengers more than 150 miles. This design prolonged development, in part because more advanced batteries had to be created. There have yet to be test flights with the final Lilium Jet model.

Lilium had a cash outflow of €191 million in the first half of 2024, across both operations and capital investments. Wall Street’s projections have it burning a further €1.2 billion over the next five years, even assuming it met its incredibly ambitious target of starting to deliver jets in late 2026. This would be 12 times the cash that Lilium was expected to have had at the end of 2024 if the capital raise had gone through.

Other eVTOL makers aren’t in a flattering position either: Joby’s projected ratio is 10 times and Eve’s four times. These imply a lot of make-it-or-break-it capital raises before they are truly up and running.

Still, Joby has completed about a hundred piloted test flights, which explains why Toyota gave it another $500 million earlier this month. And Eve is 80% owned by its parent company, plane maker Embraer.

Nevertheless, Lilium’s predicament is a good reminder of why startups selling a hypothetical product in a hypothetical market have long been the domain of private markets and governments. Air taxis still need faith, not rational market calculus, to levitate.

Write to Jon Sindreu at jon.sindreu@wsj.com