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Embraer’s SPAC: Should You Bet on Its Eve Subsidiary?

Brazilian aircraft manufacturer Embraer's stock rose 17% after announcing its subsidiary Eve will go public through a SPAC deal. Here are some key facts and takeaways.

Shares of Sao Paulo-based aircraft developer and manufacturer Embraer  (ERJ) - Get Free Report jumped nearly 20% on December 21 after the announcement that its subsidiary company Eve will go public.

Figure 1: Eve's eVTOL - vertical take-off and landing aircraft that uses electric power.

Figure 1: Eve's eVTOL - vertical take-off and landing aircraft that uses electric power.

Eve is developing an electric flying vehicle. The “air taxi” company will debut on the NYSE through a SPAC (special purpose acquisition company) deal with Zanite Acquisition Corp.  (ZNTE) . Embraer will retain 82% ownership of Eve.

(Read more from Wall Street Memes: Tesla Soars Again: Stock Has “Meme DNA”)

An “Air Taxi” Opportunity

Down here on the ground, the stock market has been buzzing with hype about electric vehicles (EVs). There are huge disruptive trends in technology that will forever change the automotive industry.

But up in the sky, the aerospace industry is also being disrupted by new innovations in electric air travel.

Data suggests that the urban air mobility (UAM) market will grow $17,269.71 million at a compound annual growth rate (CAGR) of 17.81% by 2035.

Currently, the largest names in this market are Pipistrel, Joby Aero  (JOBY) - Get Free Report, Lilium  (LILM) , Airbus SE  (EADSY) - Get Free Report, and Boeing  (BA) - Get Free Report.

Eve's SPAC Opportunity

The company that will be known as “New Eve” after the SPAC merger will be valued at approximately $2.9 billion on equity.

According to an Embraer statement, the SPAC transaction will be used to further develop and commercialize the design and manufacturing of Eve’s eVTOL — which is a vertical take-off and landing aircraft that uses electric power. Eve’s has an order pipeline of approximately $5.2 billion, accounting for 1,735 vehicles from 17 launch customers.

The transaction also includes $237 million of cash from Zanite and $305 million of private investment in public equity. Embraer’s CEO said that he's certain of Eve's growth potential:

“We believe that the urban air mobility market has enormous potential to expand in the coming years based on an efficient, zero-emissions transport proposition, and that with this business combination, Eve is very well positioned to become one of the major players in this segment.”

Is Eve Worth the Bet?

The “New Eve” SPAC deal is expected to close in the second quarter of 2022 and is subject to regulatory and stockholder conditions. So buying ERJ shares is currently the only way to bet on Eve.

Embraer’s current market cap of $3 billion is nearly the same as Eve’s valuation. It's interesting to note how, based on these figures, Embraer seems to be valued primarily on its involvement with this new venture, rather than on its traditional aircraft manufacturing business.

It's extremely hard to determine fair valuation for a disruptive growth stock. That said, it may be worth watching Embraer's stock as the “air taxi” market hype pushes its share skyward in the short term.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)