Several years ago, Morgan Stanley published a research paper suggesting that the market for urban air mobility (think “flying cars”) could reach $1.5 to $3 trillion by 2040. A handful of companies, like Archer Aviation (NYSE:ACHR), are in a heated race to make that lofty goal a reality. Several months ago, I wrote that ACHR stock was like a “lotto ticket” – long odds, but a high reward if it hits. Archer’s recent progress suggests the odds are looking a bit better. It’s still a speculative play, but if the firm can navigate the FAA approval process, Archer may become the future of urban air mobility, which would benefit the stock.
Archer Prepares for Take-off
Archer Aviation is a leading innovator in electric vertical take-off and landing (eVTOL) aircraft, developing its flagship eVTOL, the Midnight. The company is working towards obtaining the necessary regulatory approvals, Indeed, the Midnight aircraft has successfully passed numerous rigorous tests ahead of its safety of flight readiness for upcoming piloted flight tests as part of the FAA certification program. This timeline aligns with the expected completion of their volume manufacturing facility in 2024, designed to produce aircraft at scale. The company has set a goal for commercial operations to begin by 2025.
Archer’s competitive edge lies in its strategic partnerships with established suppliers and manufacturers like Honeywell, Garmin, Safran, and Stellantis. These alliances could potentially lower the company’s risk profile while giving it a leg up over its competition. In addition, Archer’s partnership with Stellantis is poised to mitigate the cash outlays necessary for procuring materials and equipment and optimize its cash flow while scaling production.
The company is well-positioned with customer orders for up to 700 aircraft potentially worth $3.5 billion based on the estimated average selling price of $5 million per aircraft. Further, a significant multi-hundred million dollar agreement has been reached between the Abu Dhabi Investment Office (ADIO) and the commercial air taxi operations to bolster the future of air travel across the UAE, with the objective of launching operations as early as next year.
Finally, the company is finalizing a comprehensive joint venture with InterGlobe, a significant aviation powerhouse that owns Indigo, the third-largest airline in the world. The venture involves purchasing an initial fleet of up to 200 Midnight aircraft for operations in Delhi, Mumbai, and Bengaluru and creating a network of vertiports and services across India.
An Overview of Archer’s Financials
The company recently reported financial results for Q1 2024. The total operating expenses reported were $142.2 million, resulting in a net loss of $116.5M. At the quarter’s close, the company’s liquidity stood at approximately $523 million. This includes $406 million in cash and cash equivalents, alongside $117 million available under various capital arrangements in the form of debt and equity proceeds.
For Q2 2024, the projected non-GAAP operating expenses are expected to be between $80M and $95M. The company foresees a significant reduction in capital expenditures and upfront non-recurring costs, which will reduce cash burn and financial needs as it pivots towards preparations for a commercial launch by next year.
Given the company’s balance sheet, the cash burn rate is a significant and critical risk for investors to monitor.
Is ACHR Stock a Buy?
Analysts following the company have been cautiously optimistic about the stock. For instance, Barclays analyst David Zazula recently reiterated an Equal Weight rating on the shares while lowering the price target to $4.50 from $6.50. He noted the progress toward regulatory certification with the FAA as a key catalyst for future value.
Overall, Archer Aviation is rated a Strong Buy based on the aggregate ratings and price targets issued by five Wall Street analysts over the past three months. The average price target for ACHR stock is $8.10, which represents an upside of 146.95% from current levels.
The stock is highly volatile and has fallen over 46% year-to-date. It sits at the lower end of its 52-week price range of $2.18-$7.49 and continues to demonstrate negative price momentum, trading below its 20-day (3.80) and 50-day (4.12) moving averages.
Final Thoughts on ACHR – There Are Still Hurdles to Overcome
Archer Aviation is among the companies leading the eVTOL wave. As such, it is positioned to become a market leader in a dynamically growing market. However, the ride is likely to continue to be volatile, as there are still hurdles to overcome, any of which could derail the company’s trajectory. Investors looking for a speculative play with a potentially significant upside may find this one a high flyer.
