Could This Cathie Wood EV Stock Be the Next Tesla?

Cathie Wood is the CEO and chief investment officer at ARK Investment Management. One feature that differentiates Wood from her peers in the wealth management industry is her appetite for more-speculative opportunities -- often assuming higher degrees of risk compared to blue chip stocks.

One of Wood's earliest wins was in electric vehicle (EV) company Tesla. Today, it is the largest position across Wood's collection of exchange-traded funds (ETFS), worth more than $1 billion.

She has also taken an interest in a new pocket of the EV realm: electric air taxis. Wood's top position among electric vertical take-off and landing (eVTOL) aircraft stocks is in Archer Aviation (ACHR 1.71%).

Could Archer be the next opportunity to generate Tesla-like returns in Wood's portfolio? Let's dig in and find out.

Archer has a lot of exciting opportunities

Archer manufactures battery-powered aircraft. The company's vision is to use them to complement mobility in densely populated areas, typically cities that experience unusual levels of traffic congestion. It has attracted a number of strategic investors in the mobility market including the automaker Stellantis and United Airlines.

The company has also received interest from the U.S. military. It is working closely with defense specialists including autonomous-systems developer Anduril, to identify how its aircraft can be used in military operations.

All told, Archer's deal book is in excess of $6 billion -- suggesting that demand for the company's aircraft is very real, and not just a pipe dream out of a science fiction novel.

Comparing Archer's valuation to Tesla's

Right now, you can buy shares of Archer for roughly $10. Seems cheap, right?

ACHR Market Cap data by YCharts

Smart investors understand that a stock price alone doesn't provide the true value of a company. Right now, Archer's market capitalization is about $4.2 billion. This is much lower than Tesla's market value of $1.1 trillion, but there's a reason for the disparity.

Why I don't think Archer will be the next Tesla

For now, Archer remains a pre-revenue business. While I do believe the company is on the right path with regulators, it's going to be years before Archer reaches any form of critical scale.

Until then, I think it's highly likely that the company will burn cash that's required to invest heavily into research and development (R&D) and capital expenditures (capex).

To be fair, Tesla was in a similar spot in its early days. For many years, it burned cash and was subject to a lot of doubt that its EV business would ever turn a profit. Through years of relentless investment in innovation, Tesla eventually reached the commercial scale required to produce a premium vehicle and sell it for a considerable profit margin.

It is very possible that Archer reaches these same milestones some day. However, that still wouldn't make the company comparable to Tesla in my eyes.

Tesla's overall business has more dimensions to it than that of Archer. Beyond EVs, it also produces energy storage packs and is current investing heavily in artificial intelligence (AI) -- primarily in the form of autonomous vehicle software and humanoid robotics.

CEO Elon Musk has been talking about his AI ambitions for years now, well before the technology became the newest megatrend. To me, Wood bought into Musk's vision a long time ago, and today, she's reaping the rewards financially as Tesla's progress from AI is becoming increasingly apparent.

Until Archer Aviation can prove that its aircraft represent a growing opportunity, it's pure speculation that the company will branch into other opportunities and witness success there, too. For all of these reasons, I see Archer as an intriguing business, but not one that carries the same level of upside that Tesla does.