Summary of findings
- German company Lilium is building an electric vertical take-off and landing aircraft (eVTOL) — the Lilium Jet. Its objective is for the Jet to fly up to 155 miles. But none of Lilium’s demonstrators have flown for more than three minutes even after seven years of work. eVTOL industry leader Joby Aviation Inc. has flown 150 miles on its current model.
- Many experts have raised serious doubts about the Jet’s ability to fly 155 miles. This is largely due to its configuration of 36 ducted fans (recently reduced to 30) that devour power during takeoff and landing (hovering), and leaves little power for actual flight.
- Against these criticisms, Lilium argued that battery consumption would be minimized as little time would be spent in hover (take off and landing). One engineer told us that Lilium underestimates the hover time that will be required by aviation regulators.
- Lilium promises its Jet has ready access to battery cells with energy density of 320-330 Wh/kg. One of the sources it relies on to show these batteries are within reach is Zenlabs Energy Inc. Zenlabs is a 34.8% Lilium-owned associated company whose CEO Sujeet Kumar was accused by General Motors of misrepresenting battery performance, while at his previous company Envia Systems.
- CEO Daniel Wiegand had no meaningful professional aerospace experience before starting Lilium in 2015. His alma mater, the Technical University of Munich, criticised the Lilium Jet’s concept. The university wanted no association with Lilium.
- Both Joby and Lilium hope aviation authorities will certify their eVTOLs for commercial flight in 2023. This means both firms must have sufficient test flights for certification credit to hit that target. Joby is closer to the mark with ~1,000 test flights under its belt. Lilium is likely to miss the 2023 target by miles. It has completed less than 50 test flights on its fourth and fifth (current) demonstrators. We believe the design of its Jet further complicates the certification process.
- We estimate that Lilium has about 18 months before its cash runs dry.
- Lilium announced in August 2021 that Brazilian airline Azul ordered 220 jets for $1bn. We believe the deal is more akin to a ‘marketing agreement’: Lilium offered cheap shares to Azul in exchange for the right to market an established company as a partner. Such stock-for-image deals rarely lead to real business.
- Around 177 million Lilium shares (~68% of the company’s total outstanding shares) worth ~$652m will be unlocked for sale today.
Overview of Lilium
Lilium NV was founded in 2015 to develop electric vertical take-off and landing aircraft (eVTOL).
The air-taxi startup has gone through five iterations of its eVTOL — the Lilium Jet — over the last seven years. Its end-goal is to commercialize the Jet in 2024, assuming all aviation regulatory hurdles are cleared, and provide regional air mobility services (ticket sales) and sell aircraft to corporations, cargo companies, and wealthy individuals.
The pitch to investors is for Lilium to transport more passengers with its differentiated technology, and over longer distances [Pg 5 of March 2021 investor presentation] than peers such as Joby Aviation and Archer Aviation. The Jet has an unconventional design with a propulsion system consisting of 36 wing flaps. These flaps serve as lifting and control surfaces and each contains a ducted electric fan — a design that emits less noise according to Lilium.
The Lilium Jet
Lilium is one of many startups in the crowded and competitive electric aviation space (see below). The company went public after its reverse merger with SPAC Qell Acquisition Corp on 14 September 2021. Its market cap was ~$1bn as of 11 March 2022.
Key eVTOL players
Source: PitchBook Analyst Note: The eVTOL Air Taxi Startup Handbook 2Q21
Lilium’s technology choices dramatically shave range
Lilium is aiming for regional travel over longer distances, rather than short intra-city hops. Its target is to go 155 miles on its Jet.
Lilium’s ambitious claims suggest a technological edge. But its eVTOL fails the test of practicality. None of its flight demonstrators have delivered more than three minutes on test flights over the last seven years. eVTOL industry leader Joby has flown further and faster than anyone else. Joby flew over 150 miles on the longest eVTOL test flight to date in July 2021. The company set another record after its plane hit airspeeds of 205 mph during a test flight earlier this year.
How much further can the Lilium Jet go if it has not flown for more than a few minutes? We spoke to two experts — an aerospace specialist and former Lilium employee — to get a sense of the problems with Lilium’s aircraft. The main problem lies with its power hungry design — the ducted electric vectored thrust. The design of the Lilium Jet is peculiar when compared to most eVTOL peers, which use regular propellers that spin in the open air. The Jet has 36 fan-like engines on its wing flaps. Each fan spins within an enclosure (or duct) and the moveable flaps tilt up during the hover phase (vertical takeoff and landing) then shift forward for horizontal flight (cruising).
Joby S4 vs the Lilium Jet
Source: eVTOL.news and Transport Up
The fans consume more electricity in hover than a propeller aircraft of similar weight. This is explained by the Jet’s disc load — defined as the ratio of aircraft weight to area of rotors used during lift — which is 10x higher than open propeller eVTOLs. Higher disc loads raise power requirements and lower efficiency, and in turn, means less batteries and range for actual flight. It also requires batteries with high power even at a low state of charge when the aircraft lands.
The Lilium Jet’s disc load relative to other configurations
Source: Lilium blog
We could not find any other company in the industry trying to build a 7-seater and at 3,175kg, Lilium’s Jet is 1.5x heavier than Joby’s 2,180kg S4. Carrying that much more weight requires powerful batteries.
Batteries have been a source of controversy for Lilium. German aviation magazine Aerokurier published doubts about Lilium’s 5-seat prototype and battery performance in 2020. Four engineers concluded the 5-seater could not fulfill CEO Daniel Wiegand’s repeated promise that the plane could fly 186 miles at 186 mph and still have reserve power to spare. One of the engineers told Aerokurier that just 60 seconds of hovering would have shaved off more than half of the company’s range target at the time.
Lilium quotes battery performance numbers of an associated company whose CEO was accused of misrepresentation by GM
Lilium published a white paper and a blog post in March and April 2021 respectively, to defend itself against these criticisms. Its two arguments were:
- A short hovering period minimizes the handicap caused by the Jet’s battery consumption during takeoff and landing.
- Lilium has ready access to batteries with energy densities of more than 300 Wh/kg at the cell level.
This silenced the critics but our research invalidates Lilium’s arguments:
- Lilium underestimates hover time that regulators will require
CTO Alastair McIntosh claims the Lilium Jet would hover for a very short time i.e., less than 60 seconds, of which takeoff would require 10-25 seconds and landing another 20 seconds.
The aerospace specialist we spoke to said McIntosh assumes perfect conditions during takeoff and landing. He does not account for buffer time aviation regulators would require for bad weather conditions, hindrances such as drones and birds, and altitude needs i.e., vertiports will be surrounded by buildings of different heights. According to the specialist, regulators would require at least 2.5 minutes of hovering to account for these risks and doing so would drain the Jet’s batteries and slash up to 66% of its 155-mile target. He added that the transition from hover to flight should not be too quick as the ride would be bumpy and uncomfortable for passengers.
- Lilium quotes battery performance numbers of an associated company whose management was accused of misrepresentation of its battery performance
Lilium has shown confidence in its battery technology on many occasions. McIntosh himself wrote: “A common, and reasonable, concern that is often raised is whether current battery technology can support Lilium’s architecture and its energy needs. The answer is simple: Yes.” The company’s investor presentation also shows battery technology has been “secured exclusively”, but no further details have been given on the source.
Source: Lilium investor presentation
As per its white paper, the Jet can fly ~160 miles, with 320 Wh/kg battery cells, and 60 seconds of hover time. There are issues with Lilium’s assumptions. Lilium does not consider security reserves in its calculations. And its stated density of 320-330 Wh/kg is far above existing battery technology. Electric vehicle maker Tesla, viewed as a leader in battery range, has commercialized batteries with energy densities of 260 Wh/kg at cell level. eVTOL competitor, Vertical Aerospace, said commercially available battery cells are currently ~270 Wh/kg at best.
In other words, the energy density of battery cells required by Lilium, designed to sustain repeated charges and discharges, are currently not available commercially. To prove the battery technology is available, Lilium’s white paper quotes Zenlabs Energy Inc — a 34.8%-owned associated company [Pg 17] — that reported battery cells in the lab with 315 Wh/kg energy densities while achieving 1,000 charge-discharge cycles. Zenlabs Energy CEO Sujeet Kumar was CTO at now-defunct Envia Systems from 2007 to 2017. Both Kumar and Envia were accused of misrepresenting Envia’s battery technology to investors and a customer (General Motors) in 2013. The automaker cancelled its contract with Envia on the grounds it was “predicated on a number of statements and representations made by Envia and Envia’s representatives that, in retrospect and in light of more recent statements by Envia, appear to have been inaccurate and misleading.” The battery sent to GM had actually been purchased from a Japanese supplier and not produced internally.
Zenlab CEO Sujeet Kumar’s LinkedIn profile
Even if we ignore Kumar’s past, Zenlabs’ purported 315 Wh/kg is a nominal figure based solely on laboratory testing at the cell level. The WSJ showed that laboratory breakthroughs rarely manifest in the real world.
McIntosh wrote last year that Lilium “will soon publish an additional blog article, which is fully focused around our battery design and we can’t wait to show more.’ We were unable to find the article on Lilium’s website.
We believe that Lilium voluntarily misrepresented its access to batteries to raise SPAC money, despite not having the battery technology. In fact, Lilium’s mysterious battery cell supplier may be Zenlabs, although Lilium does not clarify the source of its battery technology.
This gives rise to two problems. Lilium is likely to lag Joby and other companies that use readily available battery cells, which gives them a head start for development, certification, and commercialisation, while Lilium continues to patiently wait for the battery it requires. We also expect Lilium to run out of cash in 18 months as we show below. This means shareholders face dilution when Lilium taps the equity markets. The reality of its batteries and the limitations they create on the Jet’s development will soon become obvious.
The Lilium Jet was rejected by CEO Daniel Wiegand’s alma mater
At the centre of this story is CEO Daniel Wiegand. Along with three others, the aerospace engineering grad started the company fresh from the Technical University of Munich in 2015, without any meaningful industry experience. Lilium was followed with interest by Wiegand’s alma mater at the start. But things turned sour after his team approached the university’s Department of Aviation Systems.
Professor Mirko Hornung, the department’s head, thought Lilium’s idea just could not work. He told Aerokurier that the university offered Lilium help with their concept but the company refused. “They only wanted the TU Munich label as a reference to further polish their image, presumably, to attract investors. We vetoed the idea and insisted there should be no connection between Lilium and the department. We don’t want to have anything to do with such dubious things.”
Lilium lags far behind Joby and will not meet its certification timeline
Above all, progress with aviation authorities is all that matters because you can get the money, build a fantastic aircraft, but if you don’t have progress on certification, it doesn’t matter.
The novelty of eVTOLs and plans for them to fly over congested urban areas means the bar for certification would be high. Yet for all its technical issues, Lilium still expects full certification from aviation authorities in 2023, the same year as Joby which shows far more promise.
Joby has conducted more than 1,000 test flights and boasts the longest eVTOL test flight to date. It recently announced the start of conformity testing with the Federal Aviation Administration, which means Joby has a conforming prototype of its aircraft. This is a key milestone in the certification process as the only tests, including measures such as ‘flight hours’, that are valid in the context of certification are those conducted using a conforming aircraft.
Lilium only has a demonstrator and it isn’t clear when a conforming prototype will be ready. It probably won’t be soon. The company has completed about 45 unmanned flights on its last (20 flights) and current (~25 flights) demonstrators, both 5-seaters, and the duration of each flight was no longer than three minutes. Lilium has performed zero tests for the 7-seat Jet it plans to commercialise.
Our consulting specialist underlined that design simplicity is essential to facilitate the certification process. But Lilium’s plane adds complexity as its ducted fans are responsible for both propulsion and navigation. Ella Atkins, an aerospace engineering professor from the University of Michigan, shares this view, “Each of the motors will induce vibrations in the wings, and the fans may not all spin with the same efficiencies as wear and tear set in. It will be complicated to write software to reliably control all that.”
While Lilium received CRI-A01 certification from the European Union Aviation Safety Agency (EASA) last year, the company has not explained that the CRI-A01 means little to nothing at all. It merely sets the rules the plane must meet for certification and marks the beginning of a long and complex process (see Exhibit 1) that is likely to stretch beyond 2024.
Lilium moved to reduce the number of engines on its Jet to 30, as announced on 27 February 2022. It was supposed to have 36 engines. We believe this is a tacit admission of the Jet’s flaws and a direct contradiction of CTO McIntosh’s claim that issues with disc load can be resolved by spending less time on takeoff and landing.
Investors have similar concerns. Just before Lilium’s 4Q21 earnings call, retail shareholders submitted a total of ~50 questions for management, crowdsourced through investor communication platform Say Technologies; most showing concern around flight tests and certification (see screenshot below).
Almost the whole call, however, was spent on prepared remarks and answering friendly sell-side questions. Management spent just two minutes answering retail investor questions. But only the most uninteresting one was answered.
Some unanswered questions
Cash burn gives Lilium 18 more months under conservative assumptions
Lilium has about 18 months before its cash runs dry, based on the average of cash spent ($65m) in the last two quarters — $56.5m in 3Q21 and $72.7m in 4Q21 — and liquidity of $400m at the end of 2021.
This estimate is generous. Cash burn is likely to accelerate as Lilium may increase its headcount by another 10%, from 900-1,000 at present. We also noted that Lilium initially told investors in August 2021 (see below) that the SPAC cash was enough to ‘commercially launch our 7-seater Lilium Jet’.
Source: Lilium’s August prospectus
Lilium has since changed its stance, as shown in an October 2021 prospectus, which states the cash will only progress ‘…part of the certification, production and commercialisation…’. This implies further capital raises are not too far away, but financing risk will be high as the market starts to scrutinise Lilium’s progress against more advanced peers.
Source: Lilium’s October prospectus
Airline partner lends reputation in exchange for cheap shares
Lilium announced in August last year a strategic alliance with Azul S.A. that could see the Brazilian airline buy 220 Jets for $1bn. None of the orders, however, are firm as only a non-binding term sheet has been signed. Further progress would be contingent on the completion of development, certification, and other performance milestones.
Lilium, more likely than not, offered its shares as payment for the right to market an established company as a partner. Azul received warrants to buy 8 million of Lilium’s class A shares at an exercise price of €0.12 per share. The first 1.8 million were granted on October 22 and vested on October 31. The remaining 6.2 million will be issued after ‘definitive agreements’ have been signed.
We do not expect Azul to hold its Lilium shares for long as such ‘marketing agreements’ rarely translate to real business.
A Sponsor eager to make a buck “no matter which company wins”
The case of Lilium raises questions on the quality of due diligence conducted by sponsor Qell Partners LLC prior to the merger. Bloomberg reported in December 2020 that Qell’s CEO Barry Engle was ‘looking to acquire a company that will profit off the rapid changes happening in transportation no matter which company wins the EV or even self-driving game’.
“If this is a gold rush, you can stake your claim and hope you get lucky and find a nugget,” Engle said.
Lilium faces $652m overhang as share lock-up ends on 14 March 2022
We estimate around 177 million Lilium shares (~68% of the company’s total outstanding shares) worth ~$652m will be unlocked for sale today.
Note 1: Grey rows represent key investors who also provided PIPE financing. Without details on how many PIPE shares are held by LGT and Light Rock, we have assumed all their shares are freely tradeable before 14 March 2022.
The eVTOL market is already saturated with over 200 companies — including aerospace incumbents such as Airbus — looking to commercialise their aircraft. Lilium is racing to be among the first. But its glorified drone has not flown for more than three minutes in test flights even after seven years of development.
We expect Lilium to miss its certification timeline and lag advanced peers. Even when the battery it needs finally arrives, competitors would have proven airworthy eVTOL before then and will seek to further improve their range with the latest batteries.
Against this backdrop and with a cash runway of 18 months, Lilium will have no choice but to forcibly dilute shareholders through additional fundraisings, while its commercialisation effort lags peers.
Unlike Tesla, Lilium won’t have the advantage of being a first mover in a new market. Tesla developed a technological edge years before other automakers started to pay attention to the EV market. Lilium has shown right out of the gate that it picked the wrong technology; a view shared by sources we spoke to as well as experts quoted in the German press.
We are short Lilium.
Our research and reports express our opinions, which we have based upon generally available public information, field research, inferences and deductions through our due diligence and analytical process. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. We strive for accuracy and completeness to support our opinions, and we have a good faith belief in everything we write, however, all such information is presented “as is,” without warranty of any kind – whether express or implied. Iceberg Research (“Iceberg”) makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. You agree that the use of Iceberg’s research is at your own risk. In no event will Iceberg be liable for any direct or indirect trading losses caused by any information available on this report. Think critically about our opinions and do your own research and analysis before making any investment decisions. You should seek the advice of a security professional regarding your stock transactions.
You should assume that as of the publication date of our reports and research, Iceberg may have a short position in the securities (and/or options, swaps, and other derivatives related to the stock) covered herein, and therefore may stand to realize gains in the event that the price of the covered securities declines. We may continue transacting in the securities of the company covered in this report, and we may buy, sell, cover or otherwise change the form or substance of our position in the issuer regardless of our initial views set out herein.
This is not an offer to sell or a solicitation of an offer to buy any security, nor shall Iceberg offer, sell or buy any security to or from any person through this site or reports on this site. Iceberg is not registered as an investment advisor in any jurisdiction. You agree to do your own research and due diligence before making any investment decision with respect to securities discussed herein. You represent to Iceberg that you have sufficient investment sophistication to critically assess the information, analysis and opinions in this report.
We are entitled to our opinions and to the right to express such opinions in a public forum. We believe that the publication of our opinions about public companies that we research is in the public interest. This report and all statements contained herein are the opinion of Iceberg and are not statements of fact. You can publicly access any piece of evidence cited in this report or that we relied on to write this report. All expressions of opinion are subject to change without notice, and Iceberg does not undertake to update or supplement any reports or any of the information, analysis and opinion contained in them.
You agree that use of Iceberg’s research is at your own risk. In no event will you hold Iceberg or any affiliated party liable for any direct or indirect trading losses caused by any information on this site. You further agree to do your own research and due diligence before making any investment decision with respect to securities covered herein. You represent to Iceberg that you have sufficient investment sophistication to critically assess the information, analysis and opinion on Iceberg’s site and in this report. You further agree that you will not communicate the contents of this report to any other person unless that person has agreed to be bound by these same terms of service.
By downloading, opening and/or reading this report you knowingly and independently agree: (i) to abide by the terms of service of our website, which are hereby fully incorporated herein, (ii) that any dispute arising from your use of this report or viewing the material herein shall be governed by the laws of the State of New York, United States, without regard to any conflict of law provisions; (iii) to submit to the personal and exclusive jurisdiction of the superior courts located within the State of New York and waive your right to any other jurisdiction or applicable law; and (iv) that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of this website or the material herein must be filed within one (1) year after such claim or cause of action arose or be forever barred. The failure of Iceberg to exercise or enforce any right or provision of this disclaimer shall not constitute a waiver of this right or provision. If any provision of this disclaimer is found by a court of competent jurisdiction to be invalid, the parties nevertheless agree that the court should endeavor to give effect to the parties’ intentions as reflected in the provision and rule that the other provisions of this disclaimer remain in full force and effect, in particular as to this governing law and jurisdiction provision.
Joby also seems to be working on hydrogen powertrains, since they bought the one and only company which has proven so far hydrogen-based flying is possible (H2FLY).
[…] March 14, the short seller Iceberg Research published a damning report on Lilium, calling the German developer of electric vertical take-off and landing aircraft “the […]