As Archer Aviation stock takes off, is it a good eVTOL investment?

Archer Aviation (NYSE: ACHR) stock price continued its recovery this week after the company received another investment from Stellantis, the parent of Jeep, Chrysler, Citroen, and Dodge. The stock rose to a high of $4.8 on Friday, up by over 50% from its lowest point this year.

Good news for Archer Aviation

Archer Aviation is the biggest Electric Vertical Take-off and Landing (eVTOL) company in the industry with a market cap of over $1 billion.

The company is building its electric planes that will be useful for urban mobility, humanitarian work, and military work. It hopes that it will reduce the 90-minute urban commutes to trips taking less than 15 minutes. 

In a statement this week, Stellantis announced that it had invested $55 million in the company. This investment is in addition to the $39 million funding it nade earlier this year and the $110 million it made in 2023.

The company justified this investment on the recent testing events that have brought Archer Aviation close to certification. Also, Stellantis noted that it had appreciated the company’s progress on its high-volume facility in Georgia that will be able to produce 350 new aircraft annually. 

Archer has also expanded its business in key areas. For example, it announced a deal with the Abu Dhabi government, which will see it become the key provider of eVTOL planes to the city.

Archer Aviation has done a lot of work in its Midnight testing, which it completed in June with a lot of progress. Most importantly, it managed to transition the plane within less than two years. 

Transition is a process where the plane takes off vertically, accelerates forward, and then moves from thrust-borne to wing-borne flight. It is one of the most challenging things in the eVTOL industry. 

Archer faces key challenges ahead

Despite the progress, Archer Aviation faces numerous challenges that it will need to deal with in the future. 

First, the company is still not making money and is losing substantal sums of cash every quarter. Its net loss in the last quarter came in at $116 million, an increase from the $109 million it lost in the fourth quarter. It has lost over $573 million in the last five quarters and the trend will continue.

The company ended the last quarter with $550 million in liquidity. Together with the $55 million investment from Stellantis, it has about $600 million in liquidity. 

This means that it will likely need to raise additional capital either in 2024 or in 2025, a move that will dilute its shareholders. Data compiled by TradingView shows that Archer Aviation’s outstanding shares have risen from about 50 million in 2021 to over 281 million today. 

Second, Archer Aviation is not the only eVTOL company in the industry. It will face robust competition from the likes of EHang Holdings, Joby Aviation, and Lilium, all which are making strong progress in development and certification. 

Third, the eVTOL industry is a relatively new one and has not been tested in the past. That means that it faces substantial risks since it is unclear whether there will be enough demand.

Archer Aviation stock price analysis

ACHR chart by TradingView

Turning to the daily chart above, we see that the Archer Aviation share price formed a double-top chart pattern around $7 in 2023. A double-top is one of the most bearish signs in the market, which explains why it then dropped to a low of $2.98 in June. 

The stock has now bounced back after it formed a small double-bottom pattern at $2.98 and moved above the top’s neckline at $4.40. It has also crossed the 50-day and 100-day Exponential Moving Averages (EMA) while the Relative Strength Index (RSI) has moved to the overbought point. 

Therefore, the ACHR share price will likely continue rising for a while as investors reflect on the Stellantis investment and then pull back as the hype dries. If this happens, it could rise to about $5 before pulling back.