Thinking of Buying Archer Aviation Stock? 3 Things You Should Know
November 22, 2024
3 4 minutes read
One of the most exciting new technologies on the stock market these days is electric vertical takeoff and landing (eVTOL) aircraft. These vehicles, designed for short-distance urban transit, have the potential to disrupt the urban transportation market.
Two companies are leading the charge in the development-stage technology: Archer Aviation (NYSE: ACHR) and Joby Aviation. Joby is the more valuable of the two companies with a market capitalization of $5 billion versus $2 billion for Archer Aviation. However, Archer has surged 61% in the last month as it signed a $500 million intended purchase agreement with Japan Airlines and it reported third-quarter results, showing momentum toward its commercial launch.
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If you’re thinking about buying Archer Aviation stock after the rally, you’re not alone, but let’s take a step back and review three things you should know before you take the plunge.
Image source: Getty Images.
Archer is a development-stage company, meaning it doesn’t yet generate revenue. The company is focused on two lines of business that it sees as complementary. First, it plans to operate its own urban air mobility (UAM) system, serving essentially as an airborne ride-hailing service with its own app-based platform, and it envisions being price-competitive with existing ride-sharing services like Uber Technologies.
Archer is planning to take off and land from key locations it calls vertiports that include airports and other locations available in metro areas. That will allow it to replace a one- to two-hour drive with a 10- to 20-minute flight.
The company is also selling its aircraft directly to third parties. It’s made a conditional purchase agreement with United Airlines for $1 billion and recently signed the Japan Airlines deal above. It’s also entered into a contract with the U.S. Air Force worth up to $142 million. It also benefits from a strategic relationship with Stellantis, the maker of Chrysler, Dodge, and Jeep vehicles.
eVOTLs are the first new class of civil aircraft since the helicopter in the 1940s, but the FAA has given its approval to the new form of transportation with a final set of safety rules in October, contributing to Archer’s gains over the last month.
The new set of regulations makes flight training more cost-effective for Archer and Joby, whose vehicles include one pilot and up to four passengers.
With support from regulators lined up, the major obstacles to deploying the new transportation seem to be ensuring the technology is safe and commercializing it by building out a customer base. Archer is hopeful it can begin providing rides as soon as 2026, starting with the Los Angeles metro area.
The closest existing parallel to eVTOLs currently is the helicopter, but Archer and its peers believe its transportation is a significant advance beyond helicopters. According to Archer, its aircraft are safer than helicopters as they don’t have a single point of failure because they have several small propellers rather than one large rotor. They are also much less noisy for that reason. Additionally, the vehicles are electric so they don’t have any emissions.
However, the addressable market for this new form of transportation is still unclear. Archer’s annual report cites Morgan Stanley data that projects the addressable market for urban air mobility will reach $1 trillion by 2040, but that basically seems like a guess for a technology that has not been commercialized yet. eVTOLs could also face competition from robotaxis such as the ones Tesla hopes to roll out.
By comparison, the helicopter services market was estimated at $29 billion in 2024. Additionally, questions about its commercialization remain, including how many points they can ferry passengers to, and how it competes in terms of both price and convenience with a rideshare company like Uber.
Overall, investors should understand that Archer Aviation is a high-risk stock and there are a number of hurdles it must overcome to be successful, including commercializing the technology and beating the competition, as there are a number of aspiring eVTOL companies.
Still, if this new form of transportation catches on, the upside potential for Archer Aviation is considerable.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
