With shares down by around 54% since inception, Archer Aviation (NYSE: ACHR) has been a punishing investment for long-term shareholders. The decline can be blamed on poor operating performance, high interest rates making unprofitable growth stocks less attractive, and investors’ shift toward more hyped-up opportunities like artificial intelligence.
Let’s discuss what the next five years could have in store for Archer Aviation as it pioneers electric vertical take-off and landing technology.
Electric vertical take-off and landing aircraft, also known as eVTOLs, took Wall Street by storm in the late 2010s and early 2020s. Analysts at Morgan Stanley boldly predicted the opportunity could be worth $1.5 trillion by 2040 because of potential use cases like autonomous air taxis. And Archer Aviation capitalized on the hype to go public via a special-purpose acquisition company (SPAC) in late 2021.
While Archer is far from the only company tackling the eVTOL opportunity, it benefits from big-name backers like United Airlines and automaker Stellantis, which owns popular brands like Jeep and Chrysler.
The relationships could give Archer a competitive moat through design, supply chain, manufacturing expertise, and (perhaps most importantly) capital. In July, Stellantis invested $55 million in Archer, following share purchases worth $39 million this year and $100 million in 2023.
Over the next five years, Archer Aviation must turn its eVTOL concept into a commercialized reality. And the sooner it does this, the better, because its current operations are burning through tons of cash.
In the first quarter, the company generated no sales. However, it did incur $142.2 million in operating expenses, mainly related to office salaries, research, testing, and developing its aircraft technology. With just $405.8 million in cash and equivalents on its balance sheet, it’s only a matter of time before Archer needs more outside capital to maintain its operations.
Image source: Getty Images.
And while stock-based compensation is massive at $40.7 million, this might be a good thing because it conserves cash, shifts some risk to employees, and gives them a stake in the company’s success.
In June, Archer Aviation received a Part 135 Certification from the Federal Aviation Administration after achieving final airworthiness criteria in May. These milestones clear a path for the company to get its Type Certification by 2025. If awarded, the Type Certification will approve the design and all components of Archer’s flagship Midnight eVTOl aircraft, opening the door for commercial operation and possible revenue.
Archer Aviation may have a bright future if it wins a Type Certification and works with large mainstream companies to quickly scale up manufacturing and commercialization. However, investors who buy the stock now seem a little too early for the party.
Even if Archer starts operations in 2025 (far from guaranteed), it could take additional years for it to gain profitability or positive cash flow. This means the company is likely to continue to rely on dilutive capital raises to maintain its operations, which would reduce current shareholders’ claims on future earnings. Investors may want to wait for more information before betting on this highly speculative eVTOL company.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
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