We have all been stuck in traffic, wishing there was a convenient way to just fly above the congestion. Electric vertical take-off and landing vehicles (EVTOLs) might be that solution. These are small, battery-powered aircraft that take off and set down like helicopters, then shift configurations in flight to move like planes, capable of quickly and quietly transporting people from point to point on an array of short-haul routes. The icing on the cake is that they cause less environmental damage because, unlike traditional fossil-fuel-powered aircraft, these electric vehicles don't produce tailpipe emissions.
Archer Aviation (ACHR 2.20%) is an early front-runner in the race to bring eVTOLs to the public. And with shares up by almost 200% over the last 12 months, it has certainly gotten the market's attention. But what might the next year have in store?
NYSE: ACHR
Key Data Points
An attractive business model
It could take years for eVTOLs to enter mainstream commercial use due to technological limitations, manufacturing challenges, and strict regulations. Remember, it is inherently risky to fly passenger aircraft through dense urban areas, and governments around the world will obviously want to make sure eVTOLs are well-tested before giving them a green light. But that isn't stopping a slew of start-ups from pursuing the opportunity.
There are already a handful of publicly traded eVTOL stocks in the U.S., plus dozens more that are privately held or based in other jurisdictions like the E.U. or China. That said, Archer Aviation is working to set itself apart from the crowd through a unique business strategy.
Instead of simply manufacturing eVTOLs for sale to other operators, Archer plans to also offer its own air taxi service. Vertical integration will give the company some significant advantages by expanding its total addressable market and allowing it to design its aircraft around its specific operational needs.
The company isn't sitting still
Management has taken impressive strides toward establishing both supply and demand. Late last year, Archer completed what it describes as a high-volume manufacturing plant in Georgia. It is expected to be able to complete two of Archer's Midnight eVTOLs per month by the end of 2025, and to scale up to 650 per year by 2030. The company has also entered into early commercialization agreements, including an exclusive partnership with Korean Airlines, which could involve the carrier purchasing up to 100 Midnight aircraft for use in its own operations.
Archer's efforts to launch its own air taxi service appear less advanced, but the company continues to work with the Federal Aviation Administration (FAA) for the necessary certifications. And it has been selected as the official air taxi provider of the 2028 Olympics in Los Angeles, where it plans to transport fans, VIPs, and provide support for emergency services. This implies that management expects to hit all the necessary regulatory milestones (such as the type certification of the Midnight) by that time.
Image source: Getty Images.
Type certification is the process by which the FAA formally approves the airworthiness and safety of a particular aircraft design and all its components -- a crucial step in the commercialization process in the U.S. Archer will also have to obtain the necessary regulatory certifications in other jurisdictions, such as the United Arab Emirates, where it plans to begin flying passengers next year in partnership with local carriers and backers.
Is Archer Aviation a Buy?
From a fundamental perspective, Archer Aviation is a weak stock. The company is generating essentially no revenue. Meanwhile, it's incurring significant operating expenses to test and develop its aircraft; it booked a net loss of $206 million in the second quarter alone. That said, it is normal for growth-oriented companies to generate losses until they achieve economies of scale.
Over the next 12 months, investors should focus on how Archer fares in hitting the critical regulatory milestones it must achieve before it can actually commercialize the Midnight in the US. Until that happens, it will be far too speculative an investment for my comfort, despite the company's attractive business strategy. Archer's share price performance over the next year looks likely to be flat. And the stock could decline substantially if the company encounters regulatory delays en route to getting the Midnight certified.
