Archer Aviation (ACHR 6.82%) and Joby Aviation (JOBY 6.20%) are the two most prominent electric vertical takeoff and landing (eVTOL) aircraft stocks. The two pre-revenue companies share many similarities. Both have received financial backing from well-known transportation companies, and both plan to launch air taxi services as part of their monetization strategies.
Yet when it comes to valuation, there is a clear difference. Archer Aviation has a market cap of around $7 billion. Joby is currently worth twice this figure, with a $14 billion market cap. However, while Joby's in the valuation lead today, that may not be the case down the road.
Joby, Archer, and the market cap gap
There are many reasons why Joby Aviation currently has a higher market cap. For one, Wall Street has so far been more confident about the company's long-term business model. Joby is backed by Delta Airlines, Toyota, and Uber, and is going with a vertically integrated production approach alongside plans to launch commercial air taxi operations.
Artist's rendering of electric vertical takeoff and landing (eVTOL) aircraft. Image source: Getty Images.
While Archer also has some big backers, including Stellantis and United Airlines, investors seem to be more skeptical of the company's production strategy, which entails outsourcing much of the aircraft manufacturing to Stellantis. Joby has also made far greater progress toward getting the necessary Federal Aviation Administration (FAA) approval to commence U.S. operations.
Several mergers and acquisitions also further bolster perceptions that Joby is the first mover among these two companies. As part of its Uber partnership, Joby acquired the rideshare giant's air taxi venture, Elevate. Joby also recently purchased Blade's helicopter rideshare business.
Why Archer Aviation could end up becoming more valuable
Archer Aviation may be behind Joby in terms of regulatory approval, but the company continues to steadily catch up. More importantly, Archer's business model may have the greater upside potential and a clearer path toward profitability.
NYSE: ACHR
Key Data Points
This company is targeting a wider swath of potential end users. Besides the air taxi market, Archer wants to penetrate the defense market as well. Archer's asset-light strategy may also enable it to more quickly scale up without having to commit so much capital upfront. Joby, with its more capital-intensive business model, recently announced plans to raise more capital through a dilutive secondary stock offering.
Assuming it finds success in both the defense and commercial markets, Archer could have a greater amount of long-term revenue potential. Considering these key differences in business strategy and the road to profits, it's not hard to envision Archer eventually becoming the more valuable of the two companies. I think that will be the case, in the next five years.
Is Archer Aviation the better buy?
For investors looking to add exposure to the eVTOL trend, Archer may be the better choice of these two. Besides the aforementioned key positives, Archer also has $1.7 billion in cash on hand to meet growth capital needs. Joby only has around $1 billion.
That said, for now, expect market volatility to remain high with both names.
