Embraer S.A. (ERJ) has received regulatory approval to establish a joint venture with Japan’s Nidec Corporation called Nidec Aerospace LLC. The purpose of the joint venture is to collaborate in the production of electronic propulsion systems for the aerospace industry, supporting the growth of sustainable aviation.
The Joint Venture in Detail
Nidec Aerospace plans to invest over $77.7 million and expects to begin mass production in 2026. As part of the partnership agreement, Nidec will hold a majority stake of 51% in the joint venture, while Embraer will own the remaining 49%.
The collaboration leverages Embraer’s expertise in controllers and Nidec’s technological knowledge and resources related to electric motors. Eve Air Mobility, a manufacturer of electric vertical take-off and landing (eVTOL) aircraft, will be the inaugural customer for the joint venture.
Embraer’s Growth Potential
Increasing concerns about climate change and air quality have fueled the demand for cleaner transportation options. Electric and hybrid-electric eVTOLs have emerged as cleaner alternatives to traditional combustion engine vehicles, driving significant investment in the Urban Air Mobility (UAM) market.
According to a report by Markets and Markets, the UAM market is projected to grow at a compound annual growth rate (CAGR) of 33.5% from 2023 to 2030. Embraer’s partnership with Nidec Corporation to manufacture electronic propulsion systems positions the company to benefit from this growing trend towards sustainable and cleaner transportation solutions.
Embraer stands to substantially increase its revenue generation once the product becomes commercially available, capitalizing on the favorable market dynamics.
Peer Companies Benefitting from UAM
In addition to Embraer, other aircraft manufacturers are entering the UAM market and are well-positioned to benefit from the rising demand:
- Airbus (EADSY): Airbus’ CityAirbus NextGen, an all-electric, four-seat eVTOL multicopter concept, offers zero-emission flight operations for various applications in major cities. The company has a long-term earnings growth rate of 12.4%, and the Zacks Consensus Estimate for 2023 sales predicts a growth rate of 17.8%.
- Boeing (BA): Boeing’s subsidiary, Aurora Flight Sciences, is part of Boeing NeXt, an organization leading the introduction of next-generation air vehicles for mobility purposes. Its passenger air vehicle (PAV) is a multirotor aircraft designed for on-demand mobility. Boeing has a long-term earnings growth rate of 4%, and its stock has risen 40.9% in the past year.
- Textron (TXT): Textron’s business segment, Bell, is developing Bell Nexus, an eVTOL aircraft. With a hybrid platform, Nexus 4EX offers extended reach for remote locations. Textron has a long-term earnings growth rate of 11.7%, and its stock has risen 20.5% in the past year.
Embraer’s Stock Performance
Over the past year, Embraer’s stock has rallied 30.9%, outperforming the industry’s decline of 5.7%.
Embraer currently holds a Zacks Rank #3 (Hold).
Disclaimer: The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.