Archer Aviation Inc. (NYSE:ACHR) is on a mission to unlock the skies by designing and developing a fully electric vertical takeoff and landing (eVTOL) aircraft for use in direct-to-consumer Urban Air Mobility (UAM) networks. Its vision is ambitious: to create an electric airline that moves people quickly, safely, sustainably, and cost-effectively within cities.
Archer is still in the early stages of its journey. The company has no sales yet and plans to begin production in 2025, which means its valuation is largely based on potential rather than performance. Like many speculative growth stocks, its current valuation is fueled by hype and the promise of a transformative future. In this article, I'll explore Archer's milestones, partnerships, and the potential for its Midnight aircraft as a long-term investment.
Archer Midnight
Source: Archer
At the center of Archer's vision is the Midnight aircraft, a fully eVTOL vehicle designed to address the growing demand for UAM. With space for one pilot and four passengers, Midnight is intended to make short commutes faster, safer, and a more sustainable alternative to traditional ground transportation.
It uses 12 electric propellers, six tilt propellers that enable smooth transitions between vertical takeoff and forward flight, and six fixed propellers dedicated to takeoff and landing. This design ensures stable and efficient operation in tight urban spaces, making it particularly suited for densely populated cities. Safety is another key focus. Midnight is powered by six independent battery packs, allowing it to continue flying even if one pack fails. This redundancy significantly reduces the risk of a single point of failure, a critical advantage over traditional helicopters.
The Midnight is fully electric, and the company is exploring advanced technologies like solid-state batteries, which could double energy density, extend the aircraft's range, and reduce its environmental footprint. Additionally, noise reduction, often a major concern in UAM, has been a major focus in order to minimise disruption for public acceptance and regulatory approval in urban areas.
In terms of performance, Midnight balances speed, range, and practicality. It can reach speeds of up to 150 mph (240 km/h) and has a range of 100 miles, making it ideal for rapid urban commutes or short intercity trips.
Source: Deloitte
According to Deloitte, within the next decade, AAM services like those proposed by Archer could offer significant time and cost advantages over conventional taxi services. A trip could be three to five times faster than ground transport, significantly reducing travel time which directly impacts cost-effectivenes. A standard taxi would take 69 minutes at $2 per vehicle mile, but could be reduced to 15 minutes via AAM at $3 per seat mile. This efficiency could make eVTOL seating competitive with or cheaper than premium taxi services like Uber (NYSE:UBER) Black, considering the operational costs and environmental benefits.
Although it is still too early and difficult to estimate this vision, the high initial cost of the aircraft and the pilot's salary might push the price closer to higher premium ground transportation in my opinion. Additionally, the emergence of autonomous ground taxis such as robot taxis could alter the competitive landscape, making ground taxis even more affordable and AAM very premium.
The Path to TakeoffBefore the Midnight can carry its first passengers, Archer needs to clear some significant regulatory hurdles. Specifically, the aircraft must obtain three critical FAA certifications: type, production, and operational. These certifications are essential for ensuring safety, quality, and regulatory compliance, and Archer has made steady progress toward achieving them. The company has already secured the Part 135 Air Carrier and Operator certificates, as well as the Part 145 Maintenance and Repair certificate. The next steps, type and production certifications, are currently in progress.
Archer's approach to certification has been methodical. By leveraging components from established suppliers like Honeywell (NASDAQ:HON), Safran (EPA:SAF), and Garmin, parts that are already certified for use in existing aircraft, Archer is not only reducing regulatory risks but also speeding up the overall approval process. Combining these trusted components with its proprietary technologies allows the company to create a robust and reliable product while building confidence with regulators and customers alike.
To support its certification and production goals, Archer has completed a 400,000-square-foot manufacturing facility in Georgia. This facility is designed to handle the scale of production needed to meet anticipated demand. Archer plans to produce two aircraft per month by the end of 2025, eventually scaling to 650 units annually by 2030.
A key focus for Archer has been ensuring safety. The Midnight aircraft is designed with no single critical point of failure, a stark contrast to traditional helicopters. High redundancy and simplified propulsion systems make Midnight significantly safer, as the aircraft can safely complete its flight even if a single component fails.
However, certification is one of the most challenging aspects of bringing a new aircraft to market. Delays or missteps in this process could disrupt Archer's timeline and impact investor confidence. Execution is key here, and while I find their approach reassuring, this remains a critical area to watch as the company moves closer to commercial operations.
Building Strategic PartnershipsAs Archer works to establish itself in the emerging eVTOL market, partnerships have become a cornerstone of its strategy. These collaborations offer more than financial support, they validate Archer's vision while providing critical expertise to navigate the complexities of scaling production and meeting regulatory requirements.
Among the most noteworthy is its partnership with United Airlines (NASDAQ:UAL), which placed a $10 million deposit for 100 Midnight aircraft, with options for an additional 200 units. United's experience in aviation and its commitment to exploring new transportation modalities make this collaboration particularly promising. Together, they plan to launch the first commercial air taxi route in Chicago.
Archer has also made significant progress internationally. In Abu Dhabi, the company has been selected as the primary eVTOL supplier for the Emirate's air taxi plans. This partnership, supported by a multi-hundred-million-dollar investment from the Abu Dhabi Investment Office, sets the stage for commercial services as early as Q4 2025. Beyond the Middle East, Archer has formed a joint venture with Sumitomo Corporation to expand into Japan, where UAM demand is accelerating. The agreement could result in up to $500 million in aircraft orders, further solidifying Archer's global presence. These deals bring Archer's indicative order book to over $6 billion, reflecting growing confidence in its technology and vision.
In addition to commercial partnerships, Archer has secured a foothold in the defense sector through a strategic collaboration with Anduril Industries. This partnership aims to develop hybrid-propulsion eVTOLs for military applications, including a potential program with the Department of Defense. Anduril's advanced military platform, combined with Archer's expertise, positions the company to tap into a lucrative and stable market segment. Diversification into defense strengthens Archer's business model, providing additional stability as the company navigates the uncertainties of the commercial air taxi market.
Financials This year can be a turning point for the company. Archer is progressing to achieve full certification, the Georgia facility is ready and plans to launch commercial air taxi services late in the year, but there needs to be progress on the income statement. Like many startups in emerging industries, the company is burning significant cash as it invests in research, development, and operational readiness. Last year alone, Archer incurred over $450 million in expenses, resulting in a negative free cash flow (FCF) of $320 million. For the first nine months of 2024, FCF has already reached a negative $322 million, surpassing the full last year's figure. While this level of spending is expected for a company in its growth stage, it highlights the importance of transitioning from development to revenue generation in the near future.
Source: Gurufocus
The company's balance sheet provides some short-term relief. As of last quarter, Archer had just over $500 million in cash providing enough runway to support operations for roughly a year at its current burn rate. The company recently raised $430 million in equity capital through key partners such as Stellantis (NYSE:STLA), United Airlines, and the Abu Dhabi Investment Office. While this extension is reassuring, I believe additional funding will likely be required, especially if production ramps or regulatory milestones face delays. Investors should be prepared for further dilution, as the company's share count has already increased more than fivefold in recent years.
Despite these challenges, there are reasons for optimism. Archer's indicative order book has grown to over $6 billion, signaling strong demand for its Midnight aircraft. However, these orders won't contribute to revenue until production begins and deliveries are made. The key question is whether Archer can convert this robust pipeline into sustainable financial performance. For 2025, I'll be closely watching the company's ability to start recognizing revenue, whether from commercial air taxi operations or its defense contracts. Clarity on the air taxi business's economics will be essential for assessing Archer's long-term prospects.
Is Archer a buy?When considering Archer as an investment, the risks are impossible to ignore. Archer operates in a highly speculative market, where much of the company's value is tied to future execution rather than current performance. The most significant challenges revolve around execution risks, given that the eVTOL market is still in its early stage. There's a real possibility that UAM might take longer to achieve viability than anticipated, or that the costs of manufacturing and operating the Midnight aircraft could outweigh what customers are willing to pay, creating negative margins. These uncertainties are compounded by Archer's ongoing cash burn, which necessitates frequent capital raises. As a result, dilution remains a significant and persistent risk for investors.
That said, there are clear reasons for optimism. Archer's growing backlog, now exceeding $6 billion, and its strong partnerships with industry leaders like United Airlines, Abu Dhabi, and Sumitomo Corporation reflect genuine interest and belief in its vision. Its dual focus on commercial air mobility and defense applications adds an element of diversification, which could help mitigate some of the risks associated with the emerging eVTOL market. If Archer can execute on its ambitious plans, it has the potential to carve out a leadership position in an industry that could transform urban transportation.
In my view, Archer's future centers on its ability to execute. Achieving certification, scaling production, and converting its pipeline into tangible revenue are critical milestones. If these goals are met, Archer could redefine urban transportation and secure a dominant position in a transformative industry. However, investors need to be prepared for volatility. Dilution, missed timelines, or failure to achieve profitability could result in significant downside.
For those with a high tolerance for risk and a long-term horizon, Archer could offer a rewarding opportunity.
This content was originally published on Gurufocus.com
