Archer Aviation (ACHR 1.14%) just completed the longest test flight yet of its Midnight aircraft, covering 55 miles at speeds of more than 125 miles per hour. The flight took just 31 minutes to complete. That's more than enough distance and speed to make Midnight an attractive travel option for those living in congested cities.
And that, in turn, could make the company's stock a smart investment for aggressive, long-term investors. Here's what you need to know.
Archer Aviation's big goal
Archer Aviation is, basically, attempting to use new technology to break into the competitive and well-developed aerospace industry. The Midnight aircraft that was just zooming through the skies above the company's test site has unusual features that make it an attractive choice for short trips. First, it is a vertical take-off and landing (VTOL) aircraft -- so it doesn't require runways. Second, it is small, only holding a handful of people at a time, but also able to maneuver in tight spaces. Third, it's electric. Essentially, it is an air taxi.
Image source: Getty Images.
Don't underestimate the value of that achievement. Indeed, a range of 55 miles is more than enough for Archer Aviation's Midnight to deliver passengers between any array of locations in most large cities. The key is that these trips will be quick and allow the customer to avoid sitting in ground traffic, which is often severe in large cities. Archer Aviation already has plans to offer air taxi services in New York and California. And the company has already been selected as the official air taxi service of the 2028 Summer Olympics to be held in California.
The key missing piece here is that the Midnight has yet to receive the necessary regulatory approvals to fly commercial customers. That's the big goal. If Archer doesn't achieve that, nothing else will matter -- which is why it is important to highlight its progress in Abu Dhabi, where Archer Aviation is working with a partner to set up the first air taxi service using Midnight aircraft.
The hope is that it will have the regulatory approvals needed to operate that service either in 2025 or early 2026. If that goal is reached, its chances of Federal Aviation Administration (FAA) approval in the U.S. likely rise materially.
A lot is happening in the background
That said, nothing happens in a vacuum. Archer Aviation can't get the big approvals it needs to bring its Midnight aircraft into commercial operations without spending a lot of money to build out its operation. Spending money while no material revenue is coming in means red ink on the income statement, and a lot of it. The company's losses are likely to continue for many years, too, so this is a high-risk stock.
For example, Archer Aviation is hoping to manufacture 10 Midnight aircraft in 2025. It currently has six in production. It has also sent an aircraft to Abu Dhabi for testing. A lot of cash went toward making those things happen.
Once its new production facility in Georgia gets up to speed, the company's near-term target is to manufacture as many as 50 Midnight aircraft a year. There's still more cash to be spent as it heads toward that ramp up, and these aren't optional expenses. But if Archer Aviation is successful, it could be an industry leader in the air taxi space and, thus, a strong long-term investment choice for aggressive growth investors.
This is why the company's balance sheet will be so important to watch. Archer ended the second quarter with $1.7 billion in cash and short-term investments. It spent about $130 million in the quarter on "operating and investing activities," which included some acquisition-related costs. While it is still burning cash, that $1.7 billion should be enough to keep it afloat through its first commercial flight. That would require regulatory approval, at least in Abu Dhabi.
Things are going well, but there's still more to be done
Because it's a money-losing start-up and a story stock, it is hard to calculate a material valuation for Archer Aviation's stock. Still, it is up more than 150% over the past year. Investors are pricing in a lot of good news here, and they're clearly impressed with what is happening at the company right now. If you are a conservative investor or have a value stock bias, you probably won't want to buy this company's shares.
That said, if you believe in the story, are impressed by the steady progress being made, and are a long-term investor who wants to get early exposure to the air taxi concept, it could be a smart buy for you. Just go into this investment recognizing that there are competitors taking aim at the same goals and that there's always the risk that Archer Aviation will never become a profitable business.
Even if it does eventually succeed, meanwhile, there will likely be some zigs and zags for the stock along the way. If you want to add Archer Aviation to your portfolio, you should be prepared to hold it through periods of stock market uncertainty, and to focus on business execution over profitability in the medium term.
