With a mission to develop aircraft for urban air mobility that alleviates traffic congestion and reduces environmental impact, Archer Aviation (NYSE:ACHR) stock is a leading player in the nascent electric vertical takeoff and landing (eVTOL) market.
Unfortunately, the market didn’t seem to appreciate the robotaxi maker’s fourth-quarter earnings report and ACHR stock is down 10% in the past week. That’s the opposite direction I thought it would go. Here’s why Archer Aviation is down now but could go vertical very soon.
Ramping up speed for takeoff
Losses continue to grow for Archer but that’s not surprising since it has no revenue to speak of. The money it does have comes from accessing the capital markets and contract awards for its experimental aircraft.
For example, in August it announced it entered into two new contracts with the U.S. Air Force worth $142 million and has received several payments totaling about $2 million. Last year Archer received $10 million from United Airlines (NASDAQ:UAL) as part of a conditional purchase agreement to buy up to $1 billion worth of eVTOL aircraft.
Archer CEO Alan Goldstein also noted that with the help of Stellantis (NYSE: STLA), the company is on track to completing its manufacturing facility in Georgia later this year. The plant will have the capacity to produce 650 eVTOL aircraft per year. Archer is still targeting commercialization in 2025.
That’s possible because the company is essentially within sight of the FAA’s finish line for certification. It is building three of its Midnight aircraft for piloted testing. Because 80% of the components are sourced from existing aerospace suppliers with certification, the oversight agency is already familiar with their make up and performance. Had Archer been vertically integrated and produced all of its components in-house, the road would be much longer. The company expects to complete 400 flights this year.
An approaching inflection point
So it is surprising the market reacted as it did. Yes, its expenses are rising but that’s expected from a development-stage company building up towards commercialization. While the 34 cents per share Q4 loss was much wider than expected that isn’t much of a concern at this point.
Archer’s plan is to have Stellantis absorb its prior and future capital expenditures for building out hundreds of the Midnight aircraft at scale. When the transition happens, which could be as soon as Archer finalizing its contract manufacturing plans, the company’s spending will dramatically decrease.
Archer is now focusing on the final phase of the FAA’s four-part certification program, implementation, though it is still in third part, which is compliance. The company believes it has implementation well in hand and can now concentrate on the portion of the oversight that leads to commercialization.
Ready to fly high
The eVTOL leader is ready to take flight. Its order book totals some 700 aircraft worth $3.5 billion. It includes as many as 300 craft for United, 200 craft for India’s Interglobe, and another 200 for the United Arab Emirate’s Air Chateau.
Archer will be able to hit the ground running as soon as it gets FAA approval. It will be able to launch here in the U.S. and simultaneously in UAE, which said its approval is only conditional upon FAA certification.
There are still logistics to be ironed out between now and 2025. Vertiports need construction and electrification for recharging needs to be installed. Coordinating with air traffic control for airspace around airports also needs finalizing. Yet these have already been planned for and shouldn’t represent a significant hurdle to surmount.
ACHR stock is down 30% in 2024, which doesn’t seem warranted. It does, however, provide investors with a very inexpensive entry point into one of the most exciting developments in flight in decades.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
