'Get ready for flying cars,' says Morgan Stanley

Business Insider US
(Urban Aeronautics/Cover Media)
  • A widely followed auto analyst at Morgan Stanley told clients that "electrified, autonomous vertical takeoff and landing vehicles," or flying cars, are gaining traction.
  • Adam Jonas wrote that investors ought to consider the future of flying cars - without naming individual companies' stocks that could benefit from such a development.
  • At least four automakers or aerospace companies, including Boeing, have tested autonomous flying cars. The company said last month it had completed its first such test flight.

"If you're bullish on autonomous cars, it's time to start looking at autonomous aircraft - that is, flying cars."

That's what Adam Jonas, an auto analyst at Morgan Stanley better known for his views of landlocked vehicles than flying ones, told clients in a new note, "Get Ready For Flying Cars," examining the likelihood that we could see flying cars before long. While the concept is one Jonas has advised investors on before, he offered a new timeline for how he thinks it could play out.

"This is not a far-fetched idea," Jonas wrote in a note dated February 1. "Military drones have been around for years, and now electrified, autonomous vertical takeoff and landing vehicles (VTOLs) are gaining traction."

Indeed, at least four automakers or aerospace companies, including Boeing and its rival Airbus, have tested autonomous flying cars. Boeing said last month that it had completed its first such test flight.

Jonas pointed to a few factors to bolster his view: drone package delivery is already in active testing, and NASA launched an initiative to encourage urban air mobility's development late last year. Plus, "major aerospace and defense companies are investing in such fields as helicopter ride-hauling services and electric - that means quieter - choppers."

More granularly, Jonas envisions a viable model for the ride-sharing concept of the future and finds the economics quite compelling.

"Think of a 32 km trip with a ride-sharing service home to the suburbs after a night in the city. Averaging 40  km per hour, it takes 48 minutes to get home. At $1.50 (R16.73) per kilometre, the trip cost $30 (R400). At 10 trips per shift (a busy day), this can bring in $300 (R4,000) of revenue for the driver or $75,000 (R1 million) per year-revenue that, with an autonomous vehicle, flows to the company. Now, what if a large drone or autonomous aircraft could make the 32 km trip at 161 kph and $2.50 (R33.45) per kilometre? Assuming you'd be willing to pay up for speed, you'd be home in 12 minutes for $50 (R670). Faster speeds mean more trips, as many as 40 in an eight-hour shift. Thus $2,000 (R26,775) of revenue per shift and more working hours could yield close to $1.5 million (R20 million) of revenue per year per flying car."

The analyst's base case for flying cars of the future is one of advanced technology and obstructive policy. He believes technology will outpace regulations, infrastructure, and budgets. More pointedly, Jonas predicted the autonomous vertical takeoff and landing vehicles and drone adoptions will be "snarled by red tape and a legislative slowdown" - not unlike today's drone ecosystem.

Ultimately, Jonas sees the total global addressable market growing to $1.5 trillion (R20 trillion) by 2040, or 1.2% of projected global gross domestic product. In his timeline below, Jonas outlined what he sees as a viable adoption curve for flying cars:

Morgan Stanley's projected flying cars timeline.

To be sure, the risks facing flying cars are plentiful. Jonas noted hurdles for flying cars are "not just technological," but also include the possibility for regulatory, legal, and behavioural factors.

Still, even his bear case for the future involves flying cars as a sizeable chunk of global gross domestic product. His most negative assessment of flying cars by 2040 is that the total addressable market will be $615 billion (R8.2 trillion) by that year.

"We would describe the current state of technology for electric autonomous aircraft as underdeveloped, but rapidly improving in areas of pilot substitution, safety and efficiency," he wrote.

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