Joby and Archer Are Racing to FAA Certification While Burning Hundreds of Millions a Year. Here's the 1 Number That Picks the Winner.
Key Points
Joby is narrowly ahead of Archer in FAA certification progress.
100% completion of final for-credit testing by FAA pilots is the decisive milestone.
FAA certification impacts each company's business model and near-term value differently.
The race for Federal Aviation Administration (FAA) certification won't determine the long-term winner, because Joby Aviation (NYSE: JOBY) and Archer Aviation (NYSE: ACHR) have vastly different business models that will evolve. However, achieving FAA certification will immediately de-risk the stocks and change the investment narrative from "burning cash in risky development" to "investing cash to scale growth" for both companies. Certification matters, and here's what to look out for in the process.
The key number to look out for
Given that the FAA won't make a certification decision until each company's electric vertical take-off and landing (eVTOL) aircraft has completed aircraft-level "for credit" testing, investors should look for each company to complete this process 100%. This is the process by which FAA pilots conduct or witness extensive test flights of an eVTOL under a Type Inspection Authorization (TIA). Before achieving TIA, companies must build an FAA-conforming eVTOL and test it with their own pilots.
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If you are wondering who is ahead, Joby is generally considered ahead because it conducted its first FAA-conforming eVTOL flight in early March. Moreover, CEO JoeBen Bevirt outlined that "We now have five of our electric air taxis in the air, including our first FAA-conforming aircraft" on the recent earnings call.
In comparison, Archer's management has not said it has produced an FAA-conforming aircraft. Still, CEO Adam Goldstein did say, "We're actively working with the FAA on for-credit testing this year." That said, readers should note that this could refer to component-level rather than aircraft-level testing of an FAA-conforming aircraft.
Whichever way you take it, Joby is slightly ahead.
Image source: Joby Aviation.
Why FAA certification matters more to Archer
Joby's focus is on becoming a vertically integrated transportation-as-a-service (TaaS) company that builds, owns, and operates its eVTOLs, and Archer's focus is on being an original equipment manufacturer (OEM). While the distinction is somewhat blurred (Joby will also sell some aircraft, and Archer has some TaaS plans of its own, such as becoming an airport shuttle service), it helps explain why early FAA certification is arguably more of a game changer for Archer. Simply put, Archer is likely to generate more upfront revenue and cash flow from OEM sales. In contrast, Joby's business model entails building a TaaS network before it receives significant recurring revenue from ride services.
What investors should look for in both companies
For Joby, the key milestone to follow as it moves toward 100% credit testing is achieving FAA TIA, which will allow final testing to begin. For Archer, it's building its FAA-conforming eVTOL and having its pilots fly it. Joby looks likely to achieve FAA certification first (though the situation is highly dynamic), but arguably, certification will unlock more value for Archer Aviation. Winning the race is important, but think of it as the first leg in a relay race rather than a one-off sprint.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.