Archer Aviation: risk/reward analysis for this flying car stock

Archer Aviation (NYSE: ACHR) stock price has remained under pressure this year as it continued to underperform the broader market. It has slipped by over 34% in 2024 while the Nasdaq 100 and S&P 500 indices have risen by over 17%. Other flying car stocks like Joby Aviation have also retreated this year.

Archer Aviation has made progress

Archer Aviation, one of the biggest eVTOL or flying car companies, has made a lot of progress as it works to launch and commercialize its projects in 2026.

In addition to significant testing, the firm has received important certification by US regulators. The first certification ensures that the company can run its air taxi business in the United States. Also, the FAA has finalized Midnight’s airworthiness criteria as it moves to the next phases of certification.

Most importantly, Archer Aviation, which is backed by United Airlines and Stellantis, has received substantial orders. Its order backlog stands at almost $6 billion. The most recent order came from Future Flight Global, which ordered 116 aircraft.

Archer has also been working on its factory to ensure that it start manufacturing the eVTOLs immediately the certification process ends. It hopes to have a manufacturing capacity of 615 eVTOL’s annually. 

While the final price of midnight is not yet public, it is estimated that the aircraft will cost about $5 million, meaning that the company will be making over $3.07 billion annually.

Archer Aviation has made progress in other areas. For example, it has already received an order by the US Army and reached a deal with Southwest Airlines. 

Multiple challenges remain

Archer Aviation and other eVTOL companies are facing several challenges. First, it is unclear whether the industry will gain traction among users when it launches. Reports by companies like McKinsey have painted a good picture about their future. 

In a 2021 report, the consultants predicted that the industry would be worth over $300 billion  or even $10 trillion and that it would be dominated by about 5 companies. If this is the case, some of the most advanced companies to watch will be Archer, Lilium, Volocopter, and Joby Aviation. 

A need for eVTOLs exists now that cities have gotten more crowded and many people are spending hours in traffic. 

However, as a new industry, these reports are based on assumptions. In the past, many similar predictions have not worked out. A good example of this is in the 3D printing industry, which McKinsey estimated would be worth $14 billion in 2022. Today, most 3D printing stocks like 3D Systems, Desktop Metal,  and Stratasys have crashed. 

The other big challenge for Archer Aviation investors is that of dilution. Data by TradingView shows that the company started trading with 50 million shares, a figure that has soared to over 298 million.

This dilution will continue because of the need for capital and its arrangement with Stellantis, its biggest investor. 

Stellantis has invested $300 million in the company. It just handed it $50 million recently. According to the arrangement, Stellantis will fund its manufacturing by spending almost $400 million by 2030. In return, Archer Aviation will issue new shares to Stellants each quarter based on the amount spent.

This is a good arrangement because it shows that Stellantis is highly confident in Archer’s future. However, existing investors should be prepared for more dilution for the foreseeable future. 

Besides, Archer, like many companies in the industry, will not be profitable for a while, meaning that it will need to keep raising money. Just this month, the company raised $260 million in cash from institutional investors, Stellantis, and United. 

These funds will not be enough to push it for a long time since it expects that non-GAAP operating expenses of between $90 million to $100 million in the current quarter. 

Archer Aviation stock: risk vs reward

So, is Archer Aviation stock a good investment? On the positive side, we believe that the company is in a good place in terms of its development and orderbook. It also has a group of strong investors who have many years in the aviation and manufacturing industries.

Most importantly, Archer Aviation will become a major player in the eVTOL industry if the rosey estimates by analysts work out well. Besides, its Midnight plane would be the biggest one in the sector. Also, the stock seems cheap since it has crashed from a record high of $18 to $3.82. 

However, I believe that it is a risky investment for now because of the dilution aspect and the fact that its industry has not been tested. While it has a huge order book from the US and other countries, it is still unclear whether the customers will see a big benefit of buying these products. 

A good example of this is its relationship with United, which will start an air taxi service in Chicago’s O’Hare Airport. Ideally, United would use the taxi service to transport people from the airport to the city center. While the concept is a good one, it is unclear whether it will be successful.