Vertical Aerospace and Europe's Defense Tech Surge

Increased Funding Fuels European Defense Tech Innovation

Geopolitical factors, including the ongoing conflict in Ukraine and concerns regarding the commitment of former President Trump to NATO allies, are contributing to a significant rise in financial support for European defense technology. This situation presents considerable opportunities for startups operating across various sectors.

Vertical Aerospace and the eVTOL Market

U.K.-based Vertical Aerospace is one company poised to capitalize on this trend. The firm is focused on the development of eVTOL (electric vertical takeoff and landing) aircraft, primarily intended for air-taxi services. To date, Vertical Aerospace has secured over 1,500 preorders for its VX4 eVTOL model from prominent clients such as American Airlines, Japan Airlines, GOL, and Bristow.

The company is now increasingly emphasizing the potential within the defense and logistics sectors. A key step in this direction was announced on Monday, with Vertical Aerospace unveiling plans to engineer a hybrid-electric version of its VX4 aircraft.

Hybrid-Electric VX4: Expanding Capabilities

According to Stuart Simpson, CEO of Vertical Aerospace, the aircraft was always designed with defense applications in mind. He explained to TechCrunch that the hybrid version is projected to achieve a range of up to 1,000 miles, representing a tenfold increase compared to the standard eVTOL configuration.

The inherent characteristics of VTOL aircraft – notably their low noise and heat signatures – make them well-suited for defense purposes. Furthermore, Vertical Aerospace is developing capabilities for autonomous and remote operation, features they anticipate will be integrated into their aircraft in the future. The company is collaborating with Honeywell, a leader in autonomous aircraft technology for the U.S. military, to develop the necessary flight control and aircraft management systems.

Industry Trends: Archer Aviation and Beyond

Vertical Aerospace is not alone in pursuing a hybrid-electric strategy. In December 2024, Archer Aviation, a California-based company, established a dedicated defense unit and announced a partnership with Anduril, a weapons manufacturer, to create a hybrid-electric aircraft for crucial military applications. This move resulted in an additional $430 million in equity investment for Archer.

Simpson clarified that Vertical’s announcement regarding its hybrid vehicle isn’t a reaction to current events, but rather the culmination of 18 months of discreet development work. However, the timing is undeniably advantageous.

A Shifting European Defense Landscape

Over the past two years, the European defense technology sector has undergone a transformation, with a growing emphasis on domestically produced solutions. For the first time, venture capital investment in the industry surpassed $1 billion in 2023, a fivefold increase since 2018.

New specialist defense tech funds have emerged, including the €1 billion Nato Innovation Fund and the Estonian SmartCap’s €100 million defense fund. Lithuania is also planning to allocate 5% to 6% of its GDP to defense spending, with a portion directed towards startups through its sovereign VC Coinvest Capital.

Vertical Aerospace’s Competitive Position

Within this evolving landscape, Vertical Aerospace currently enjoys a unique position in the European eVTOL market. The bankruptcy of Germany’s Volocopter and the cessation of operations at Lilium at the end of 2024 have left Vertical largely without direct European competitors. The company believes this positions it favorably to address the increasing defense requirements across Europe.

With the addition of its forthcoming hybrid-electric capabilities, Vertical Aerospace is poised to become a significant player amidst rising defense budgets and a heightened focus on bolstering sovereign industrial capacity.

Capital Requirements and Future Growth

To fully leverage this opportunity, Vertical Aerospace will likely need to secure additional funding. The startup has already raised $468.8 million, primarily through a reverse merger in 2021 and subsequent PIPEs (private investments in public equity), as reported by PitchBook. In January, a second direct public offering generated an additional $90 million.

However, this amount remains considerably lower than that raised by competitors such as Joby Aviation ($2.82 billion), Archer Aviation ($3.36 billion), and Beta Technologies ($1.15 billion).

Efficiency and Focused Development

“We’ve been spending about $100 million a year,” Simpson stated. “Our competitors have been spending $400 to $500 million. We’ve been developing, within our $100 million spend envelope, this hybrid. We are incredibly efficient and focused.”

Indeed, Archer’s operating expenses in 2024 exceeded $500 million, partly due to a dispute with Boeing and Wisk Aero. Joby’s operating expenses last year nearly reached $600 million.

Strategic Approach to Manufacturing

While Archer and Joby are heavily investing in manufacturing infrastructure to enable large-scale eVTOL production, Vertical Aerospace is taking a more measured approach. Simpson indicated that the company will not prioritize manufacturing ramp-up until it completes certification, which is anticipated in 2028.

“You can burn a lot of money by going to build and get a load of robots,” Simpson cautioned. “This is not something you want to robotize. These are highly, highly complex. What you need to do is understand how you build them, and then… you build a few hundred of them manually. Then you simplify, standardize, and automate.”

Roadmap to Certification and Beyond

Vertical Aerospace plans to have its first certified pre-prototype for the VX4 eVTOL completed next year, followed by the construction of several additional prototypes. The integration of the hybrid powertrain into the next-generation VX4 variant is planned, with flight testing scheduled to commence next year.

During Vertical’s first-quarter earnings call on Tuesday, Simpson further elaborated on these plans.

Regulatory Considerations and Customer Acquisition

Vertical Aerospace’s flight tests are currently conducted with a pilot onboard, due to the more stringent regulations governing flight operations in the U.K. Joby and Beta have already completed piloted flights, while Archer is preparing to do so in the near future.

As of now, Vertical Aerospace has not yet secured any contracts for its military offerings. However, the company reports engaging in “deep, meaningful discussions” with government agencies and potential customers.

“We’re the only European player in the space. So it gives us a really unique position,” Simpson concluded.