Iceberg Research

Lilium ($LILM) - Kicking the can but still going down

June 28, 2023

Please refer to the disclaimer at the bottom of the report.

eVTOL-hopeful Lilium was given a lifeline in early May after key investor Tencent Holdings provided another $100m in funding, in exchange for 184.2 million warrants. Under the terms of the agreement, each warrant comes with the right to buy one Lilium share for $1.00 – against current price of $1.45. Tencent would invest another $75m if Lilium is able to raise an additional $75m of equity, debt, or grants from ‘certain third parties’. The additional $150m is called contingent funding in the press release. 

Tencent has suffered heavy losses with its poor investment in Lilium and is now throwing good money after bad. This cash infusion will not solve any underlying issues as we discuss below.

Issue 1:  Even after Tencent cash infusion, Lilium has a runway of only 8 months

Lilium’s liquidity remains alarmingly tight due to expected cash burn of around €250m for this year. The company has around eight months of cash, based on pro-forma liquidity of ~€170m — after Tencent’s $100m injection — as of end-June. That runway would extend to 15 months with the contingent funding.

Issue 2: The Lilium Jet still can’t fly more than a few minutes

“The skeptics have turned silent,” said Lilium CEO Klaus Rowe in a recent interview with Aviation Week. It’s unclear what Mr Rowe is referring to: does he want critics to underline Lilium’s failures every morning? Their most common criticism of Lilium — but certainly not the only one — is that the configuration of its Jet devours significantly more energy than other designs. As a result, competitors will come up with commercial offers way before Lilium has the chance to start its own operations. And that generously assumes that other problems such as noise are solved. The Lilium Jet has not and still cannot fly for more than a few minutes. Lilium’s 1Q23 update notably fails to address the crucial aspect of test flight duration. As we have highlighted before, competitors like Joby have successfully completed flights over distances of ~250 km. This significant disparity in flight capabilities underscore Lilium’s technological limitations and lack of progress. The culture of bravado remains well and alive at Lilium even after the demotion of its founder Daniel Wiegand. 


Issue 3: Lilium’s associate Ionblox refuses to send Idaho National Laboratory test results to a journalist 

Lilium consistently claims that its associate company Ionblox (previously known as Zenlabs) has developed batteries powerful enough to overcome the energy issue. We highlighted in our first report the dodgy past of Ionblox’s key management and held firmly that the company is making fraudulent claims once again. Lilium has never responded. 

Ionblox’s claims of a revolutionary battery have been made for years without traction. Lilium’s 1Q23 update shows its battery cell technology is based on Ionblox’s silicon anode design, ‘shown in independent tests to offer exceptional energy capacity and power, as well as remarkable cycle life with 88% energy retention after 800 charging cycles with 100% depth of discharge’. 

The wording echoes a statement previously made by Zenlabs — the predecessor of Ionblox — two years ago. In 2021, Ionblox announced that Idaho National Laboratory tests showed over ‘1,000 cycles at C/3 charge rate, and 896 (100%) fast charge (15 minute) cycles’, as shown below. But there has been no commercial breakthrough.

Source: Ionblox press release  

Ionblox’s ‘independent tests’ are supposed to have been carried out by the Idaho National Laboratory (“INL”), Electrek reported this earlier this year. We contacted Electrek journalist Michelle Lewis to ask if she had relied on second-hand claims or had personally seen the INL lab results. Lewis then requested documentation from Ionblox to support their claims. Ionblox refused to send the document. Ionblox should be willing to share test documents if their results were positive and authentic. The secrecy and lack of response is concerning to say the least. 

In our view, misrepresentations over battery performance since the SPAC merger have been fraudulent and could create the basis of a lawsuit/enforcement action against Lilium.


Issue 4: The “pipeline” is a load of hot air 

Lilium’s eVTOL can’t fly more than a few minutes, its battery supplier is highly dubious, and its certification timeline appears more-than-distant. Still, according to the company’s constant PR bombardment, many in the airline industry are scrambling for the Lilium Jet. 

The reality is that Lilium’s pipeline is built on (1) non-binding orders, (2) counterparties who lack the financial means to pay for their orders (3) the fulfilment of numerous conditions before making a purchase that one can hardly use the term “firm order” (see table below).

Let us consider some of the main orders:

Lilium “plans to sell” 220 Jets to Brazilian airline Azul for up to $1bn. The prospective counterparty received shares in exchange for their association with Lilium as what appears as advertising remuneration.

The NetJets order for 150 eVTOLs is  just an MOU.

As for the agreement with Saudi Arabian Airlines (100 eVTOLs), it comes with multiple conditions, which include ‘completing a feasibility assessment, agreeing to commercial terms, and entering into definitive agreements with respect thereto and satisfaction of certain conditions.’. Essentially, this is just a piece of paper.

Shenzhen Eastern General Aviation Co., Ltd (深圳东部通航 or Heli-Eastern) is a helicopter service provider in China. On 19 June 2023, Lilium announced that it had signed an agreement with Heli-Eastern who ‘intends to order 100 Lilium Jets’ according to the press release. Heli-Eastern has a fleet of over 30 helicopters according to a corporate presentation we saw, which suggests the company is small and does not have the balance sheet to take on 100 eVTOLs. 

We could go on as there are many instances of smaller orders with similar issues. 


Conclusion: 

Tencent’s recent investment will not change a thing at Lilium where none of the fundamental problems have been resolved since we published our first report more than a year ago. The stock is down 64%. 

The company continues to burn cash and shareholders should brace themselves for the inevitable prospect of further dilution, as 130 million warrants are immediately exercisable under the Tencent funding agreement. Lilium’s share count was 393 million at the end of last year versus 293 million at the end of 2021. We expect this figure to soar as Lilium continues to burn more cash.

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