This California-Based Company Could Be a High-Potential eVTOL Play Right Now

Joby Aviation (NYSE: JOBY) is the standout pick among electric vertical take-off and landing (eVTOL) aircraft makers. This is so because compared to peers like Archer Aviation (NYSE: ACHR), it offers potentially more reward, and arguably, less risk. Here's why.

Joby Aviation's business model

Starting with the potential reward side of matters, it's crucial to understand Joby Aviation's business model. The starting point is a clear statement in its SEC filings: "We do not currently intend to sell our aircraft to independent third parties or individual customers as a primary business model."

While management's position on such sales has somewhat moderated -- it recently announced it was exploring the sale of 200 eVTOLs to Saudi Arabia for $1 billion -- Joby's original guiding purpose remains intact.

Joby plans to operate under a vertically integrated business model whereby it will "manufacture, own and operate our aircraft ourselves," offering transportation to customers, including government agencies, and an "app-based aerial ridesharing service" to individuals.

As such, Joby isn't a company developing eVTOLs for sale: It's building aircraft that it will use to provide transportation services itself. That's a model with significantly more potential upside than a company could reap by merely selling eVTOLs, thanks to the recurring revenues of the service side of the business.

Indeed, this business model is exactly why Joby has a long-term partnership with Uber Technologies (NYSE: UBER) in place. Joby acquired Elevate (Uber's planning unit for a future eVTOL network) in 2020 and received a $75 million investment from Uber. In addition, Joby recently acquired Blade's passenger business (Uber's air mobility service, which includes helicopters). Blade will now be integrated into the Uber app in preparation for the eventual availability of eVTOL travel.

Image source: Joby Aviation.

A vertically integrated business model

That said, Joby's "vertically integrated" approach involves more than just offering transportation services. It's also part and parcel of its manufacturing strategy.

Whereas rivals such as Archer Aviation or U.K.-based Vertical Aerospace are relying on heavyweight partners to develop key components for their aircraft, Joby operates its own powertrain and electronics manufacturing facility in California. Contrast that with Archer, which buys actuators and thermal management technology from Honeywell, and has a contract manufacturing relationship with Stellantis. Vertical Aerospace has many partners in its asset-light model -- among them, Honeywell (aircraft management and flight controls), GKN Aerospace (aerostructures), and Leonardo (fuselage).

That's not to say Joby is going it completely alone, because it's not. It has a deep partnership with one of the world's manufacturing heavyweights, Toyota. The Japanese automaker has committed to investing $894 million in Joby, and its engineers are collaborating with Joby's engineers to develop solutions through a manufacturing alliance. Toyota supplies Joby with powertrain and actuation parts.

Image source: Getty Images.

Joby Aviation is arguably less risky.

For Archer and Vertical Aerospace, one of the supposed benefits of extensively tapping experienced partners for manufacturing is that it de-risks their technological development and certification process as compared to Joby's largely in-house approach.

But here's the thing.

Joby Aviation is ahead of Archer in the certification process. In Joby's recently released third-quarter report and shareholder letter, it outlined that it was 77% complete (on the Joby side) on stage four (out of five) in the certification process and 55% complete on the Federal Aviation Administration (FAA) side. CEO JoeBen Bevirt said the company expects to begin type inspection authorization (TIA) "certification flights with FAA pilots early next year."

Meanwhile, Archer is widely reported to be behind Joby in the FAA certification process. As Archer CFO Tom Muniz said on his company's Q3 earnings call, its modular approach to certification means "the TIA process, at least for us, will be broken into many phases on the order of, say, 10 different TIAs, each one targeting compliance for a very specific system or aspect of the aircraft."

Image source: Getty Images.

A stock to buy

The combination of greater upside potential and relatively less risk (at least in terms of Joby being relatively closer to getting FAA certification for its aircraft) makes Joby an outstanding stock to buy, provided you want to invest in the eVTOL theme. The stock is not without risk, though, as there are no guarantees that this novel technology will pan out, or that the business model will. Still, the future looks bright for Joby and its vertically integrated operation.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Honeywell International and Uber Technologies. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.