Where is the value depression of the low-altitude economy?

The application scenarios are blooming in various places, but there are not many paid scenarios that can withstand the scrutiny of the capital market.

A trillion-dollar market - this is a common judgment when talking about the low-altitude economy.

The future is bright, but problems follow one after another: How long will it take for the low-altitude economy to reach maturity? What is the sub-market with the highest ceiling?

Takeaway delivery, tourism sightseeing, security inspection, drone cargo, drone toys... The low-altitude economy already has some application scenarios, but where are the scenarios where users are willing to pay sustainably? What can truly form a barrier?

When rationality returns to the essence of business, can the underlying driving force of this industry move forward steadily? Is it a conceptual bubble or a real opportunity?

To answer these questions, "Finance and Economics" found two professional investors who were among the first to enter the low-altitude economy and saw a different space.

Here is the dialogue between "Finance and Economics" and Rongyi Investment Senior Partner Zhao Ju and Zhencheng Investment Management Partner Li Jianwei.

Investment is like fishing in the vast rivers and seas.

"Finance and Economics": The industry generally has an optimistic expectation for the low-altitude economy, believing that there is a trillion-dollar market scale. What do you think?Zhao Ju: At the current pace of advancement, in ten years, the market could at least reach a scale of tens of billions. A hundred billion or a trillion is just a number; what is certain is that the low-altitude economy is a very large market.

The most commercially valuable aspect of the low-altitude economy is commercial passenger low-altitude flight. Vertical take-off and landing eVTOL (electric Vertical Take-Off and Landing) vehicles make convenient passenger flight possible. eVTOL is expected to become an important part of future urban transportation, greatly enhancing the efficiency of travel in certain scenarios.

Regarding the market size of eVTOL, we can make a rough estimate that is not very rigorous: the domestic market for large passenger buses is about 100,000 units per year, and for luxury brand passenger cars, it's approximately 1.5 to 2 million units. In ten years, the eVTOL market will be used for high-end business commuting within a range of about 200 kilometers, with a global market size estimated to be between 30,000 and 100,000 units. Based on a unit price of 3 to 5 million yuan, the market size for eVTOL is also in the tens of billions.

For the implementation of the low-altitude economy, in addition to the aircraft themselves, there is also a need for a supporting low-altitude airspace management system, which will involve low-altitude communication systems, positioning systems, and monitoring systems. On the technical front, our country already has the corresponding technical capabilities to support these three systems. We have very mature industrial chains for technologies such as 4G, 5G, integrated communication and sensing systems, low-cost low-altitude slow radar, Beidou navigation, satellite communication, and high-precision maps.

What we need to do now is to apply these mature technologies to low-altitude airspace management. Many local governments are already trying to establish such low-altitude airspace management systems, but further exploration is needed to gradually form various standards and specifications, eventually leading to the establishment of a complete low-altitude airspace management system.

These are the markets we believe are the most valuable in the low-altitude economy, but achieving this goal may take five to ten years or even longer. For investment in the primary market, we need to look to the future; we must invest in the main tracks of the future to catch big fish in the big rivers and seas.

Finance and Economics: So, a gradual commercial route is to be adopted?

Zhao Ju: Definitely. Our ultimate goal is to realize the market's imagination - the ability to fly anytime, just like private cars and ride-hailing services today. To reach this scale, it will probably take about 10 to 15 years, with one being the continuous improvement of eVTOL safety, and the other being the perfection of the low-altitude airspace management system and supporting facilities.

The future application scenarios we envision are high-end business travel. For example, from Jing'an Temple to Pudong Airport, if you are in a hurry, you can call a plane, just like calling Didi. You can apply for any route you want, and the helipad is in a fixed area near Jing'an Temple.

From Jing'an Temple to Pudong Airport, during peak traffic times, it takes an hour by taxi, but with eVTOL, it only takes 20 minutes. The estimated cost is three to five times that of a taxi, which is very attractive for high-end business or emergency transportation needs.In the to C market, wealthy individuals or corporations may also directly purchase an aircraft to meet their daily travel or business reception needs. Once passenger-carrying flying vehicles become widespread, their prices will be akin to that of three to five high-end automobiles.

Of course, to reach the ultimate goal, there is still a long way to go, such as enhancing safety, improving the level of automation, perfecting airspace management and airworthiness certification policies, as well as addressing the issues of public awareness and acceptance.

Caijing: From the perspective of the general public, the concept of flying cars seems to become popular every once in a while, but considering the actual implementation, there doesn't seem to be much real change. Does it feel like crying wolf?

Zhao Ju: Looking at the objective laws of development, it is necessary to envision that the realization of such a vision will take 10 to 15 years. What's important is that from the perspective of companies and the industry, significant progress is being made each year.

For instance, with Yu Feng Future, we invested in the seed round in 2018 and added another round in 2021. With limited resources at the beginning, the team chose to focus on developing the flight control system first. Yu Feng's proprietary flight control system is quite sophisticated, ensuring a strong coupling relationship between the aircraft's configuration and flight control, offering unique advantages in terms of performance, safety, and reliability, which is incomparable to open-source flight control systems.

After verifying all the flight control performance, they then proceeded to develop the aircraft. The research and development investment for eVTOL (electric Vertical Take-Off and Landing) aircraft is substantial. During the physical flight testing process, if any issues arise, the aircraft could crash, and the development would have to start over. Yu Feng has independent flight control development and simulation capabilities, ensuring high safety while keeping costs under control.

If they had started with developing a ton-class eVTOL aircraft from the beginning, they would have faced many difficulties. For example, regarding batteries, in 2018, China's new energy vehicle industry chain was still in its early stages of development, and all batteries and electric motors had to be manufactured in-house, which was costly and performance was not controllable. However, with the rapid development of the new energy vehicle industry chain, it has provided eVTOL with high-energy-density batteries, highly reliable electric motors, electronic control, and autonomous driving technologies. By 2021, Yu Feng felt the timing was right and began to manufacture ton-class eVTOL aircraft.

After the aircraft is built, verification also takes time. The aircraft taking off might only represent 10%-20% of the work completed. There is still a long way to go for the aircraft to fly level, achieve a level flight of 200 kilometers on a single charge, ensure multiple consecutive safe level flights of 200 kilometers, and meet airworthiness standards, among other things.

Three criteria for application scenarios:

Caijing: Large-scale passenger travel is expected to be seen in about ten years. Where are the common industry applications of low-altitude economy at the current stage?Zhao Ju: In addition to multi-rotor drones for personal use and short-distance logistics transportation, I believe that for startups, the most attention should be paid to the application of industrial drones in monitoring, emergency response, firefighting, and other B2B and G2B scenarios.

The price of industrial drones with a payload capacity of 10 to 30 kilograms, depending on the configuration, is usually around 1 to 2 million yuan in China. They can be used for security patrols, maritime anti-smuggling, fire monitoring, etc., and offer a very high cost-performance ratio.

Industrial drones have begun to penetrate the firefighting market. For instance, in forest fire reconnaissance, the current industrial drones from Yu Feng can fly for five hours, quickly reach the fire scene, and observe for an extended period. Yu Feng is also developing an eVTOL with a 700-kilogram payload capacity, which can rapidly reach the fire scene, assess the situation, and drop fire-extinguishing bombs.

"Finance and Economics": The application in the field of smart security is a standard supply-side reform. Currently, in addition to smart security, tourism and sightseeing is another important market.

Zhao Ju: I summarize the low-altitude economy scenarios into three categories:

The first category is the information dimension. Because a higher vantage point provides a broader view, industrial drones can easily obtain information from the ground. They do not carry cargo but only carry equipment such as cameras, used for coastal defense, fishing ban patrols, forest area and oil pipeline inspections, etc., efficiently replacing manual labor.

The second category is the energy dimension. eVTOL quickly transports people or goods from one place to another, taking less time and having lower overall costs. For example, urban air mobility, taking people from Hongqiao Railway Station to Pudong; or applying pesticides, which used to be scattered by people on the ground, now industrial drones carry 20 kilograms of pesticides and scatter them from the air, increasing efficiency exponentially.

The third category is solving emotional issues. Customers are willing to pay for emotional experiences, such as the same scenery, users spend 200 yuan to view from the air. Tourism and sightseeing, skydiving, and other aerial sports are all like this. Unlike the first two, they do not generate actual economic value but provide emotional value to the users, which is also a real payment scenario.

When we make investments, we must look at whether users are willing to pay for the product. If you ask me, when I am in a hurry to catch a plane in the morning, whether I am willing to spend 300 yuan to travel from Pudong to Hongqiao Airport in 20 minutes, I am willing to spend that money. The low-altitude economy can become an economy because it can make the accounts clear.

Looking at the trend ten years later, the market in the energy dimension will definitely be the largest, especially for passenger travel. China has the most densely populated urban clusters in the world, and the congestion caused by a large population commuting in cities requires more efficient commuting methods. eVTOL expands people's short-distance commuting from the two-dimensional ground to the three-dimensional air, which is an industry that will truly create value.Finance and Economics: Local governments' industrial investment funds have also been actively investing in the low-altitude economy recently. How do you view the role of local governments?

Zhao Ju: Whether it is local governments or central documents, the policy support for the low-altitude economy is undoubtedly determined. It can be said that all policy restrictions on the commercialization of Chinese eVTOL are gradually being removed.

The first role of local governments is to formulate regulations. Shenzhen has done a good job in this regard. On January 3rd this year, the first low-altitude economy legislation in the country, the "Shenzhen Special Economic Zone Low-Altitude Economy Industry Promotion Regulations," was released. It stipulates several very important contents, including the creation of an airspace management system and the establishment of infrastructure such as take-off and landing points, which is quite exemplary.

The airspace management system is a huge project. How planes communicate, what standards they fly by, and how communication is encrypted are currently undefined and need to be uniformly defined. Shenzhen has already begun institutional innovation, building a low-altitude flight service platform to provide units or individuals with low-altitude flight services such as flight declaration, flight intelligence, and flight alerts.

Transportation infrastructure is also the case. It is unrealistic for all construction to be undertaken by enterprises. The government should play a role in overall planning and management. The Shenzhen government has clearly proposed that the government coordinates the planning, construction, and operation management of the city's low-altitude flight infrastructure, while also supporting social capital to participate in the construction and operation of low-altitude flight infrastructure in accordance with the law.

The second role of the government is multi-party coordination. The government needs to coordinate two aspects, the first of which is the coordination between various internal departments. Since there is currently no department directly responsible for the management of the low-altitude economy, the government needs to establish a joint management institution to coordinate various fields and provide one-stop services for enterprises.

The second is external coordination. Airspace management, aircraft access, flight control, safety management, etc., all involve national authority. To effectively solve the problems faced by the development of the low-altitude economy industry, local governments need to obtain authorization and support from relevant national departments on the one hand, and on the other hand, it is also necessary to clarify the industrial development coordination mechanism and collaborative management mechanism within the scope of local authority.

The third role of the government is to directly accelerate industrial development at the application level. For example, the government takes the lead in emergency rescue, strengthening the application of low-altitude flight in emergency handling, medical rescue, fire rescue, and other fields; in urban management services, promoting the application in fields such as land resource survey, engineering surveying, agriculture and forestry protection, environmental monitoring, police activities, traffic guidance, and meteorological monitoring.

If the government does a good job in the first two matters, creating a good policy environment for industry development, then the matters at the application level are not the most urgent. Otherwise, it is easy for enterprises to leave after receiving subsidies for a few years, leaving nothing behind.

Real investment must talk about the rate of return, and the higher the investment efficiency, the more money is invested in places that need more support. We investors are to discover value lows, give money to the places that need it most, and create the greatest value.In the eVTOL (electric Vertical Take-Off and Landing) sector, China has a very solid foundation of talent and industry, as well as a vast market demand and a proactive policy environment. The future of the global eVTOL industry is definitely in China.

Cargo Market is Not "Sexy," but the Future is Vast

"Finance and Economics": Currently, the market's attention to flying cars is very high, but your interest has shifted to cargo drones, investing in Beluga Airline. Why is that?

Li Jianwei: Compared to flying cars that focus on urban air traffic, the unmanned cargo aircraft market is much larger. After all, the number of flight routes in cities is limited, and it is hard to imagine the air becoming as busy as ground traffic. However, cargo aircraft are different; they are an indispensable part of daily transportation. Replacing manned with unmanned operation can reduce the cost per ton-kilometer by 60%, leading to a better economic model and significant development potential.

We believe that cargo drones have the potential to become the next hot spot in low-altitude economy. In this field, we have invested in Beluga Airline, which is developing the world's largest cargo drone. Beluga's main model, the W5000, has a takeoff weight of 10.8 tons, a payload of 5 tons, and a maximum range of 2,600 kilometers.

"Finance and Economics": What do you think the market size of the drone cargo aircraft can reach in the future?

Li Jianwei: In my opinion, it is possible to have a global fleet of several thousand units. As an important part of the logistics system, cargo aircraft are in high demand, both for civilian and military use.

In some special regions, such as Xinjiang and the South China Sea islands, unmanned cargo aircraft can play a huge role. Originally, supplies to Xinjiang might have relied on trains, which are relatively slow. With unmanned cargo aircraft capable of carrying 5 tons of cargo, front-line deployment becomes very fast.

Let's also compare unmanned cargo aircraft with manned ones. The cost of a single mission for a manned cargo aircraft is quite high, including fuel consumption, maintenance, and so on. There are more than 20 subsystems to maintain crew survival. In contrast, unmanned cargo aircraft, not needing to consider crew survival, reduce the subsystems to 13, as long as the air link and communication are not issues, they can continue to fly, significantly increasing their mission attendance rate and operational efficiency.

This large cargo drone market may not seem as "sexy," but in reality, it has extremely high certainty and potential.Currently, the cargo air transport market primarily relies on freighters converted from passenger aircraft, but this model has limitations in terms of efficiency and cost. On the technological front, the application of multi-rotor aircraft in the cargo sector may face certain constraints due to relatively low technological barriers and intense market competition.

In the future, the trend will be towards the unmanned, automated, and intelligent large fixed-wing cargo aircraft. By closely integrating with general aviation airports, these aircraft will achieve efficient and safe point-to-point flights, bringing revolutionary changes to the logistics industry. At the same time, this will also effectively avoid the issue of scarce takeoff and landing resources at large city airports.

The logic behind good products is always simple.

Caijing: The emergence of flying cars has already overturned the imagination of ordinary people. Will there be more products or companies in the future that were unimaginable before?

Li Jianwei: With the continuous advancement of technology, we will see more unprecedented product forms. For example, flying cars have begun to take off, although they are still in the early stages, but they may evolve into more aesthetically pleasing and efficient forms in the future. In addition, I am also very much looking forward to seeing more companies like DJI continue to promote the innovation and application of drone technology.

In the FPV (First Person View) toy drone field, I believe there is an opportunity to redefine the basic products, and products similar to remote-controlled cars will emerge. We have invested in StarQi World. They aim to make high-quality toy FPV drones, and the product has made rapid progress in the past two years.

The difference between this toy drone and DJI's consumer-grade drones is that DJI's drones are mainly used for aerial photography, are relatively expensive, equipped with GPS, and are mainly used outdoors. You can think of it as a flying camera. In contrast, StarQi World's FPV drones do not have GPS and are mainly used indoors, with the primary focus on allowing users to control the drone through a first-person perspective. You can view this kind of aircraft as a flying remote-controlled car.

StarQi World's current high-end models are selling well, and they are also expected to launch models priced below 900 yuan this year to enrich their product line. In addition, they have also assisted in organizing the Ministry of Education's National Youth Drone Competition and monthly commercial competitions, which have been met with a strong response.

When we invested in StarQi World in 2021, we encountered many difficulties. At that time, the toy drone industry was not productized, very fragmented, and primitive, mainly participated in by some geeks. StarQi World spent two years redefining the toy drone product, adopting independently controllable chips, redefining battery standards, and completely rewriting the flight control algorithms. After the new product was launched, it was very popular and often out of stock.

The logic behind good products is always simple: they are easy for the public to get started with, can provide flexible configuration capabilities to achieve higher performance, and are priced appropriately.Finance and Economics: Zhencheng Investment has already laid out several companies in the low-altitude economy sector. What are the criteria for investing in related enterprises?

Li Jianwei: The criteria for judgment vary with the stage of the enterprise. It is easier to make judgments when enterprises have revenue and profits. However, for projects that have revenue but no profits, or even with very minimal revenue, it is necessary to incorporate analysis of the technological route and predictions about the future market trends.

In emerging and cutting-edge fields, the most important criterion is still the product itself. We place great emphasis on the clarity of the product definition and the business model. A successful product must not only have a unique selling point but also a sustainable business model that can bring stable revenue to the company.

Of course, the excellent startup team behind the product is also crucial. Team members should possess profound technical acumen, passion for the industry, and a reasonable team composition. It is not just about having sufficient technical strength, but also about having keen market insight and the ability to respond quickly.

Finance and Economics: Looking back to the present, are there any things we can be quite certain about, such as whether there will be another wave of startup financing this year?

Li Jianwei: In my view, the drone industry this year is indeed full of opportunities and challenges. Although fluctuations in secondary market stock prices are a matter of concern, as investors in the primary market, we pay more attention to the underlying drivers of industry development. This driving force is propelling the entire industry forward, which is a very clear trend.

In the consumer-grade aerial photography drone sector, DJI continues to lead the pack, capturing more than 80% of the global market share; the indoor toy FPV drone market has the potential for rapid growth in the coming years. Industrial-grade drones will penetrate deeper into various industries.

With technological advancements and market maturation, more passenger and logistics drone routes will be opened, covering more cities. Additionally, urban drone logistics are also developing rapidly.

As for the ultimate form of passenger-carrying products, I believe this needs to be determined based on market demand and technological development. But in any case, safety, comfort, and cost-effectiveness are key factors we must consider. Only when a product meets the requirements in these three aspects can it achieve success in the market.