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Lilium Stock, LILM, Jumps 50% On Spanish Flight Test News – Corner Turned?

Tim Worstall
Tim Worstall trader
Updated 5 Apr 2022

Trade Lilium Shares Your Capital Is At Risk

Key points:

Lilium (NASDAQ: LILM) (LON: 0AB4) stock is up 50% and more over the past two days as the company announces the start of flight testing in Spain. That flight testing is expanding is, obviously enough, good news for a would be maker of airplanes. But while the Lilium stock price has reacted extremely positively, this might not be enough to overcome worries about the basic strategy of the company. A useful assumption is that given the extreme differences of views among investors that the Lilium share price will remain highly volatile.

Lilium is one of many companies in the would be manufacturers of electric airplanes space. Lilium is reasonable funded – $400 million in cash and equivalents at the last accounts. They have a design, they’ve got prototypes, they have been able to conduct at least minimal flight tests. The intended market is for up to 100 mile or so short hops. The base design is also, as with many others in this space, VTOL. So, proper airfields will not be a requirement, allowing a much larger choice of travel.

Also Read: The Best Travel Stocks To Buy Right Now

So far, so good. Lilium’s announcement of flight testing in Spain (a traditional enough place, the weather there allows many fewer interruptions than further north in Europe) can therefore be seen as a good sign. That jump in the stock price can be seen as it being taken as a good sign too.

The problem with the Lilium stock price is that there’s an extreme difference of opinion over the basic design choices they’ve made. One short-selling report is here. The main limitation for electric ‘planes is the amount of energy a battery can store as against the weight of that battery. There will not be battery powered transatlantic ‘planes any time soon for this reason. So, the design of EVTOL planes concentrates on being energy efficient. The Lilium design deliberately is not energy efficient. It makes an entirely different choice to be efficient in flight perhaps, but not at takeoff or landing.

That’s fine, different design choices should be explored. But there’re substantial numbers of people who think that design choice can never be made to work. The energy required for that take-off and landing by the design chosen is such that there will never be more than a few minutes of flight possible.

Now, that might be true, and it might not be – it’s an engineering question. It’s also something that will be proven, one way or the other, by these flight tests in Spain. If Lilium is able to show 100 mile – or even km – test flights as part of this programme then the design choice isn’t, perhaps, vindicated, but it’s proven not to be wrong, at least.

That is what is really resting on these Spanish test flights for Lilium and so the Lilium stock valuation. If it continues to be true – as alleged at least – that the design choice leaves no energy for actually getting anywhere then the short sellers will have a point. If, on the other hand, flights of that 100km to 100 mile distance are shown to be possible, then they don’t.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.