Imagine a world where you can jump into a flying taxi and avoid the traffic gridlock below to reach your destination. Although this idea sounds like something out of science fiction, electric vertical takeoff and landing aircraft (eVTOL), also known as flying taxis, could be coming to a city near you.
Flying taxis could change urban transportation as we know it, and Archer Aviation (ACHR -4.12%) is one company looking to make it a reality. Its Midnight aircraft has met several key milestones as it works toward commercial operations.
Most recently, Archer delivered its first aircraft to the U.S. Air Force and got a boost when Stellantis invested tens of millions more into the eVTOL company. Despite the news, Archer Aviation stock trades below $5 per share. Is now the time for investors to get in?
Archer Aviation achieved another key milestone
The past few months have had some exciting news for Archer Aviation. In early July, Stellantis, a big backer of Archer, invested another $50 million in the company following its successful transition flight in June. As part of this test, Archer's Midnight eVTOL reached flight speeds of over 100 miles per hour and successfully transitioned from hover to wing-borne flight. According to the company's press release:
A transition flight occurs when the aircraft takes off vertically like a helicopter, accelerates forward, transitions from thrust-borne to wing-borne flight like an airplane with tilt propellers forward before decelerating and landing vertically.
Following the successful test, Future Flight Global agreed to purchase 116 of Archer's Midnight aircraft in a deal worth $580 million. Future Flight Global's goal is to launch air taxi services across the globe, including Asia, Europe, and the Middle East. The agreement has nearly $5 million in pre-delivery payments, and Archer's indicative order book now stands at around $6 billion.
Image source: Archer Aviation.
Investors got more good news when Archer Aviation recently delivered its first Midnight aircraft to the U.S. Air Force. The U.S. Department of Defense accepted its military airworthiness assessment, and the aircraft is ready for flight testing as part of its AFWERX Agility Prime contract, worth up to $142 million.
As part of the assessment, the government will test and validate the aircraft's operational and military-specific mission concepts, such as simulated medical evacuation, cargo, intelligence, surveillance, and reconnaissance flights.
What's next for Archer?
Archer is making solid progress, hitting key milestones, getting investments from Stellantis, and delivering on contracts with the federal government. However, the company is still in the early stages of its growth story and is in pre-revenue and pre-commercial operations, so there remains a fairly significant amount of execution risk. Any hiccups or delays in testing or the manufacturing of its aircraft could affect its timelines and timing of future cash flows.
ACHR Net Income (TTM) data by YCharts
Not only that, but it will take time for Archer to scale up to commercial operations. The company is currently constructing a 350,000-square-foot facility in Georgia that could produce up to 650 aircraft annually. It says it is on track to complete this construction later this year.
The company also hopes to achieve Type Certification on its Midnight aircraft in late 2025, which would pave the way for it to launch its commercial operations. It recently signed a memorandum of understanding with Southwest Airlines to develop operational plans for electric car taxi networks at California airports and has plans for a Los Angeles air mobility network, with its goal to begin network operations by 2026.
Is it a buy?
Archer Aviation is an exciting company that could make an entirely new method of transportation mainstream. The upside is huge, with Morgan Stanley projecting the urban air mobility market could reach $1 trillion by 2040. However, it is the definition of a high-risk, high-reward stock. The stock will continue to face volatility as long as Archer is pre-revenue and years away from turning a profit.
This makes the stock suitable for investors with a high tolerance for risk and a long-term investing horizon. Even so, if you choose to buy it, make sure it's part of a balanced portfolio and don't risk more than you're willing to lose.
