Podcast: Will China Take The Lead In AAM?

Having seized the pole position in electric vehicles, Chinese industry is racing ahead in advanced air mobility. SMG Consulting's Sergio Cecutta joins Aviation Week's Joe Anselmo, Graham Warwick and Ben Goldstein to discuss how the market is developing.

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Transcript

Joe Anselmo:    

Welcome to Aviation Week's Check 6 Podcast. I'm Joe Anselmo, Editorial Director and Editor-in-Chief of Aviation Week & Space Technology magazine.

China has spent years trying to catch up to Airbus and Boeing in the passenger aircraft market, and despite recent progress, it still has a long way to go. But the picture is different in the electric vehicle industry, where China has overtaken Tesla and become the global leader, seemingly overnight. It is also a leader in EV battery technology.

So where does China fall in the emerging advanced air mobility market? Is it playing catch-up to Western ventures, or is it poised to seize the lead? Joining us is Sergio Cecutta, the co-founder of SMG Consulting. Sergio leads the firm's advanced air mobility practice. And we have two Aviation Week editors with us. Ben Goldstein is Managing Editor of the Aviation Week Intelligence Network's AAM Report, and Graham Warwick is Aviation Week's Chief Technology Editor and has written extensively about the AAM industry.

 Sergio, what did you think of my set-up? Where do you fall on this question?

Sergio Cecutta:               

Well, Joe, thank you for having us here with you. I think it's a very interesting question. I think many times from the West we tend to underestimate the progress that's been made in China in many industries.

Let me just start with the little bit of level-setting of why the electrical supply chain in China is so advanced. Last year in China there were 5.15 million EVs sold. That's about 17% of the market as opposed to 1.2 million and 7% of the market in the United States. In China there is about 2.7 million public chargers. And just the city of Beijing has more public chargers than the entire United States. And last but not least, because I think it ties really well with our discussion, Geely, one of the companies that owns one of the OEMs that we talk about, like Aerofugia, just launched a car that for one-third to one-fifth of the price of the European competitors offers all of the amenities, including a 45-inch 8K outlet.

We have seen the local industry in advance air mobility starting more from a point of parity with the West as opposed to the rest of aerospace. And we have seen these OEMs accomplish significant feats, basically going all the way to full-scale prototypes with anything between 10 to 50 million. That is something that is very different from what we're doing here in the West.

They have launched this low-altitude economy in five of their provinces, including Guangdong. That is the province that includes the Greater Bay area. And just to give you an idea, the LA metro area that is the largest urban area in the United States, has about 25 million people. The Greater Bay Area is 86 million people.

And last but not least, just going to the CES, you would've seen XPeng’s AeroHT with their flying cars. I think that they are really very advanced and following very fast on the heels of the West with a different regulatory environment that probably might help them catch up or surpass some of the Western players.

Joe Anselmo:            

So how come Sergio, when we talk about AAM ventures, we hear about EHang, but all the rest of the companies we hear about are in the United States or Europe. Are there other Chinese ventures, besides  EHang, that are just poised to rocket to the top?

Sergio Cecutta:   

Excellent point. I think two reasons. Number one, EHang is quoted on the NASDAQ, so it's more of something that we see on the Western press. And the second part is I think a lot of the communication that the Chinese companies in this space do, it's in Chinese on Chinese social media and websites. Because of the language barrier, et cetera, we do not get to see it in real time in the United States.

You mentioned EHang, but if you look Aerofugia, as we talked before, is part of the acquisition of Terrafugia from the US. Changed the name, and it's part of Geely, that is the largest private manufacturer of cars in China in a very advanced group.

And by the way, if you wonder, can I buy a Geely car in the United States? If you walk into a Volvo, Polestar, or Lotus dealership, you're actually buying a Geely because they're all owned by them. You see other companies like AutoFlight, managed by the previous funder of the second-largest drone company in China. You see other companies, startups like for example TCab or Volant that are preparing their vehicles.

And I think the last part that I think it's very important is the fact that some of these companies are getting ready this year already to certify some of their cargo drones. These cargo drones are basically eVTOLs without passengers. That is something that we in the West cannot do because of the regulations and the regulatory environment.

Joe Anselmo:                

Ben Goldstein, is China poised to take the lead in AAM? What does your reporting tell you?

Ben Goldstein:       

Well, there's been some pretty big developments coming out of China recently. The major one was last year in October. EHang had the world's first type-certified eVTOL, the EH216-S. Now, that is a small multi-copter. It's autonomous, which is also a world's first, to be the first certified autonomous passenger-carrying aircraft. But like I said, it's a small two-seater, range-limited multi-copter, so it's fairly limited in its use case. It will mainly be a tourism, a niche sightseeing type thing, although EHang does aspire to develop larger aircraft.

Another exciting company is AutoFlight. I recently talked with their CEO, who told me that he expects their first eVTOL, which is an uncrewed cargo lift-plus-cruise vehicle, to be certified, type-certified, as soon as the end of this month, in March, so imminently. That's going to be the first vehicle, the first step towards a family of passenger-carrying vehicles that are expected to eventually be certified to fly in Europe as well.

And there's a number of other companies that Sergio mentioned. There's AeroHT, which is developing a road-drivable flying car type thing. There's Aerofugia, the Geely unit, and the others. So it's very exciting. There's a lot of developments here. We see in many ways they do have a headstart. Not only have they started type certifying vehicles, they're further along in terms of autonomy, and they have a very supportive government in general, which has included the low-altitude economies in its most recent five-year plan. When the Chinese government, they're very technocratic, and they're able to bring together these stakeholders in a way that doesn't really happen in the West. So it does seem like they are getting pretty far ahead here.

And one other thing I'd mention is in terms of production, EHang already has a factory that is capable of churning out hundreds of aircraft per year. AutoFlight's CEO said that he thinks they can be building up to a thousand per year within two or three years. So they're pretty far along.

Now, are they going to overtake the Western companies? That's a different question. I do think there are some drawbacks that Chinese companies may face. For one thing, they may have a difficulty getting access to Western markets or getting type-certified in the West, just in general. There are some political reasons for that, but also there's kind of a lack of transparency around the CAAC, their process for certifying vehicles, and the exact safety standards the vehicles are being certified to. So I think that might restrict some of their commercial appeal globally, but certainly in China and nearby countries in East Asia and in other markets like Africa, India, the Middle East, I think these companies may do very well.

Joe Anselmo:            

Graham Warwick, you've covered this industry since its inception. You put out an annual ranking of eVTOL leaders. You just released your new ranking in February. Volocopter was number one, but EHang was number two.

Graham Warwick:        

Yes, I think we are in an extremely pivotal moment for this industry as we speak now in this year to 18 months ahead of us. The Chinese have introduced a completely new factor to that pivot. It's like a three-way pivot. You've got the US, Europe, and now China.

I genuinely think that for the near term, for the next five, maybe 10 years, China will look after itself. It's going to, and I'll get to that in a minute, but it will come out onto the global market at some point. You have to then look at what does that mean for the US and Europe? You look at Europe. The European regulator, EASA, has done almost everything right. It's done everything it can to enable this industry. It's got regulations in place. It's been responsive to what the industry wants to achieve, commercial-scale air transport in these vehicles

The problem in Europe is that it only really has at the moment three manufacturers that are at any sort of serious point, and none of them are free and clear. Vertical is in pretty bad financial shape in the UK. Lilium is not much better financially and has a very technically challenging job ahead of it to certify its vehicle. Volocopter is very far along, but I think it faces quite a challenge. It's going to be the first to try and launch air taxi services in cities. And it faces, I think, a pretty challenging process of just getting these services started and generating money. It's hit some issues in Paris with public acceptance. Rome is next. Then it's got some Saudi Arabia and things like that. It has some challenges, and it's privately owned, it's not publicly traded. It needs some more money. We’ve got a supportive regulatory environment, but the industry's not in the best of shape.

In the US, you could say Joby, Archer are both financially in pretty good shape. The FAA, regulation-wise, is not as far ahead as Europe, but it's trying to get there. It will probably be kind of there about the same time as industry wants it. But I genuinely think that both Joby and Archer face serious challenges scaling their operations. They want to begin operations, airport shuttles in city centers: New York, Los Angeles, Chicago, Miami. They could meet all sorts of challenges trying to scale those operations up and get to a revenue-earning, sustaining revenue-earning position. I don't think we should underestimate what it's going to take to do that in a city center in America with the FAA as the regulator.

You move over to China, and as Ben points out, the central government has made the low-altitude economy part of its national plan. The banks, which are state-controlled, are putting money into the industries. They're putting money behind the manufacturers, these start-ups, quite like serious amounts of money and making credit lines available for these to develop their industries.

The provincial governments are basically, because the central government said this is what we're going to do, they're following suit. Those provincial governments own a lot of the infrastructure providers, the aircraft operators. The general aviation operations are all owned by the provincial governments. And so you're seeing these provinces, like the Greater Bay area, all these sort of things, basically saying, "We are going to put money in place to enable the building of the infrastructure, enable the building of the industry." And they are starting with aerial tourism in China's many, many scenic areas, which is a relatively contained, low-risk place to start with. You're flying over canyons and other things like that, aerial tourism. And cargo in remote areas. China is a wide-open market for aerial tourism, cargo carriage.

In the US, neither of those is a serious market at the moment. They're both tightly constrained. The aerial tourism, there are all sorts of public acceptance issues. There's a lot of people pursuing the cargo market, but it's not moving, it's not opening up. There's still a huge FAA issue with unmanned cargo vehicles, particularly of any scale. That doesn't apply in China.

So you've got this situation where you've got a supportive government, supportive provincial government, money going into infrastructure and airspace access, starting with relatively contained risk, not in city centers but in scenic areas, remote areas. They've got the ability to get up and running in a way that I don't think either Europe or the US has. And it's going to be much harder for Europe and the US to get to scale at the pace at which China will.

But as Ben pointed out, and as Sergio has said time and time again, the issue is how does China get out of China? How does that industry get out of China into the bigger world? And in fact, actually, we can't underestimate XPeng. XPeng is an electric vehicle maker that is going big into eVTOLs, and they are trying to cross over from cars to basically bundle cars and air vehicles as a single product. Their CEO has said he's called for internationalization, harmonization. He wants China to be more harmonized so that they can move out of China into the wider market.

That is, as Ben said, and as Sergio has repeatedly said, that's the big issue. We don't know how these vehicles are being certified. We don't know the safety levels they're doing. We will point out that when they certify AutoFlight's CarryAll, that is the first two-ton class, lift+ cruise eVTOL in the world to be certified, when it's certified. That is exactly the same vehicle, it will ultimately become a passenger vehicle. Nobody's in that position. Nobody's in that position. If they get that certified, that is the basic airframe structure for their passenger vehicle will have been certified long before, well before anybody in the West is.

So the question then becomes when does China manage this internationalization or harmonization so that what it does inside China has relevance outside China. They did this with the C919. It was the first airplane they ever developed that they tried to develop from Day One to FAA standards. It's a long process for China because they do things their own way, and they have to work out how do we fit with the West? But that is the issue. But to be sure, there are going to be large production lines of eVTOL aircraft running in China long before there is in either Europe or the US.

Sergio Cecutta:               

It's a lot of good points. I would want to start with, we were talking about Chinese vehicles in international markets. It's a little bit natural to say, "Okay, when are they going to go to Europe? When are they going to go to the United States?" What we need to contend is that there is a lot of world if you take Europe and the United States out.

One of the things that we're starting to see, if you look at the United States, if you turn back the clock by one or two years, you would say, "Okay, these eVTOLs are going to enter service in XYZ US city." I think the consensus is growing more and more that probably the US eVTOLs will see service first in Dubai. One of the reasons for that is that the TC is just one piece of the pie. The second piece of the pie is entering into service, and the entering into service is a quite complex process that different eVTOL OEMs are pursuing at a different pace.

So if you look at Dubai, we're convinced that Dubai will be the first market in the world. They will see US, European, and Chinese eVTOLs compete at the same time. I think it's going to also see what is the actual difference in operating cost and the acquisition cost and the reliability of these different aircraft.

From the point of view of certification, from what we know, and as Graham had mentioned, it's a little opaque. And again, I attribute this a lot to the language barrier because it's not, even with the modern AI tools for translation, it's not the easiest thing. But right now what we know is the CAAC is looking at 10 to the minus five for cargo and 10 to the minus seven for passengers.

To give an idea, I think the US is looking, consensus is about 10 to the minus eight for passengers. Europe, we know it's 10 to the minus nine. And Europe and the US, especially with the last airworthiness criteria for Joby, are converging a little bit. So it's a different playing field as well.

Now, to the point that Graham was making about production. Production is a big deal. If you remember the times of when the richest man in the world, or actually the second richest or third, depends on the day, Elon Musk, was sleeping on the factory floor in Fremont to make sure that the Tesla came out. This production hell is two things. It's when companies are challenged a lot by their supply chain. And the second part is also company spend goes up in order of magnitude.

In China, we know that the whole country has been built as the factory floor of the world, and they have evolved up the supply chain. Let's not forget that, for example, one of the things we always worry, and one of the kudos we give to any OEM that is working with an automotive player, is this access to battery supply. In China, that is not a problem. CATL, that by the way licensed a lot of technology from Japan and the US in the 1990s and early 2000s, now produces one third of the batteries of the planet. And they're launching an aerospace battery.

So as Graham was mentioning, as far as large-scale composites - motors, inverters, batteries - that is not a big deal. There is an enormous supply chain already in place that can pivot. And let's not forget that the entire electrical supply chain in China has an enormous overcapacity. That is one of the reason why electric cars from China are being exported all over the world, because they're just making too many cars for the market.

If that overcapacity points towards the aerospace industry, then you see not just a level playing field with the West, but actually better foundations for the future. And again, it's not going to be, are you going to fly on a Chinese eVTOL in Los Angeles or New York? But what about Dubai? What about Abu Dhabi? What about other cities in the world, of which there's a lot of them?

Joe Anselmo:             

Graham, we are running short on time, but I did want to ask you, what do you think when you release the eVTOL leader rankings early in 2025? Are there going to be more Chinese names on this list?

Graham Warwick:   

 Oh, yeah. We rely heavily on Sergio and his AAM reality index. He applies quite a detailed analysis to it. I've watched the other Chinese manufacturers move up scale. Aerofugia has come in, AutoFlight's come in. Behind them, we have TCab, we have Volant, we have the Vertaxi . We have one unnamed Chinese division of a European car maker that has just tied up with the owner of Diamond Aircraft to make eVTOLs. We think it's Volkswagen. It may not be Volkswagen China. But there is this queue of companies that have got to full-scale prototypes with a few tens of millions, who have the same supply chain that they can draw on. They have similar vehicles, they have supportive provincial and central governments. I think in the next few months, we will see all these other names start to move up, and some of the names that we think of, Vertical, some of the other ones, will move down because China's a better place to be an eVTOL developer today than certainly Europe, and maybe even the US.

Joe Anselmo:     

Well, guys, thank you for a thoughtful conversation. This is certainly a topic we're going to stay on top of, particularly Ben with the AAM Report. If anyone's interested in subscribing to Ben's excellent AAM Report, you can call 212-600-3718. That's 212- 600-3718, Country Code 1, US.

That is a wrap for this week's Check 6 podcast. Thank you to Sergio, Ben, and Graham for joining us. Thanks to our podcast editor, Guy Ferneyhough, who's usually in London, but this week is here in Washington for Aviation Week's annual Laureate Awards.

To our listeners, thank you for your time, and join us again next week for another Check 6.