People hate traffic. In fact, if you ask, it is one of the most commonly loathed inconveniences of everyday life. Archer Aviation's (ACHR +0.93%) goal is to help alleviate the traffic pressure in major cities around the world. How? With electric vertical takeoff and landing (eVTOL) taxi networks. Electric air taxis take off vertically and go from point-to-point terminals across metropolitan areas, greatly reducing travel times. In theory, at least.
Investors are excited about the prospect, sending Archer Aviation shares soaring in the last year as it gets closer and closer to operating a taxi network. Will Archer Aviation disrupt the transportation market? Should you buy the stock? The answer may surprise you.
Image source: Archer Aviation.
Flying above the traffic
Founded in 2018, Archer Aviation has devoted the last few years to designing and building its Midnight model aircraft. It already has some approvals from the Federal Aviation Administration (FAA) to operate an air taxi service, and it is currently working to get FAA approvals for the Midnight model. If approved, the company has already established multiple partnerships to bring the eVTOL concept to cities around the world. eVTOLs are different from helicopters in that they use battery-electric power and much quieter propellers, which will enable them to operate in areas with more people.
For example, Archer Aviation has a partnership with United Airlines to bring a point-to-point network to New York City, helping passengers skip traffic as they head to the airport. It is working with cities around the globe, including Abu Dhabi in the United Arab Emirates. It is even a working sponsor of the Los Angeles Olympic Games, with eVTOL trips set to take place during the 2028 event, if all goes according to plan.
Archer Aviation raised a lot of money to help fund its efforts. As of the first quarter of 2025, it had paid-in capital of $2.79 billion. Recently, it did another capital raise of $850 million with a common stock offering at $10 a share. The company estimates it has $2 billion of liquidity to fund its growth plans. It may need every penny. The company reported $450 million in negative free cash flow this year.
Will people be willing to pay up for a ticket?
The business model for Archer Aviation is still under development. First, it needs to get full approval from the FAA. Then, it will start selling its Midnight aircraft to customers or work with partners to operate its own taxi networks. Each air taxi will be manned by a pilot and has room for four passengers and their luggage.
The Midnight is estimated to sell for $5 million per vehicle, with likely slim profit margins, especially if there are bulk discounts like with airplane sales. Boeing, for reference, had a gross margin of just over 10% at its peak (it is much lower today). If each ticket costs $100 per passenger, there are 10 flights a day, and all four tickets are booked on every flight, that is $4,000 in daily revenue for each eVTOL. Annually, that is $1.46 million in revenue for each aircraft.
While that may seem like a lot of money, it will take years for operators of the air taxis to make up for their upfront aircraft purchases and operating costs at these ticket prices. Pilots need salaries, and the electric battery power is not free. In order to operate profitably, tickets for eVTOL routes will need to cost much more than $100. It is unclear how much demand there would be for a product like this, especially if potential passengers are already paying for an airline ticket.
This, in my mind, is the largest hurdle to Archer Aviation's business model. Investors should be worried about this more than FAA approval.
Data by YCharts.
Disruption is a long way away
Even if Archer Aviation keeps making progress with its electric air taxi, it will be a long time before any disruption happens to traffic in major cities. 10,000 air taxi trips a day -- which would take hundreds if not a thousand taxis flying around in a single city, something that is likely not going to be deemed safe by the FAA -- may take an equivalent amount of trips off the road. This is nowhere near the traffic figures in a major city like New York. On the Brooklyn Bridge alone, over 100,000 cars travel every day.
Traffic problems will not be solved by eVTOLs anytime soon. That does not mean there is no demand for a point-to-point air taxi network. Perhaps a few wealthier customers will be willing to spend hundreds of dollars a ticket to skip out on an hour of traffic heading to the airport and back. What should concern investors is the business model for Archer Aviation and the stock's valuation.
Archer Aviation has a market cap of $6.5 billion, and that is before considering its recent stock offering. It is generating zero revenue today. In the future, it may sell 100 eVTOL units a year, which could translate into $500 million in revenue. With slim profit margins, this would likely turn into less than $100 million in bottom-line earnings, and that is many years from now. Its price-to-earnings ratio (P/E) would still be sky high. The company is burning a lot of cash. You get the picture.
I don't believe Archer Aviation can solve traffic issues in cities, and I believe the stock is overvalued today. Avoid adding this hot stock to your portfolio right now.
