The November sell-off has been hard on growth stocks as fears of a bursting AI bubble have spread to emerging technology stocks, including the budding electric vertical takeoff and landing (eVTOL) sector.
Archer Aviation (ACHR +3.74%), the pre-revenue maker of the $5 million Midnight eVTOL vehicle, is among them. Shares have slumped to their lowest point in more than six months, falling under $8.
With major ambitions of launching urban air taxi networks around the globe and taking its innovations to the military, the company has partnered with defense startup Anduril.
So is Archer Aviation a buy now that it's under $8 a share? Here's what investors should know about the high-flying eVTOL stock.
Image source: Archer Aviation.
Archer has big plans
Archer Aviation has thus far impressed the market with a number of major partnership announcements. The company may be best known for its plans to establish urban air taxi networks in major cities around the world, including New York, Los Angeles, Miami, Abu Dhabi, and Seoul.
The company promises to ferry passengers through the skies to local airports and around metro areas, replacing car rides that can take over an hour with aerial trips that take just 10 minutes. Archer has already signed up several operating partners, including United Airlines, Southwest Airlines, Delta Air Lines, and Ethiopian Airlines.
Despite the enthusiasm behind the new mode of transportation, the unit economics of urban air taxis still seems suspect, especially considering the $5 million sticker price for the Midnight, which carries just four passengers. Blade, which operated a similar helicopter transportation network, sold its passenger business to rival Joby Aviation for just $125 million earlier this year. By comparison, Archer trades at around a market cap of $5 billion after its recent pullback.
Archer has also made other significant steps toward commercialization, including purchasing Los Angeles's Hawthorne Airport and acquiring Lilium's portfolio of air mobility assets. The company has also signed military contracts, including one with the U.S. Air Force in 2023, valued at up to $142 million, and it has formed a strategic partnership with Anduril to co-develop hybrid, autonomous VTOL military aircraft.
But doubts are growing
Month to date through Nov. 25, the stock is down 34% in November as the broad-market sell-off has weighed on it, as did a $650 million share sale timed with its third-quarter earnings report, and a short-seller report that just came out.
Hunterbrook Capital announced a short position on Archer Aviation and said it was long Joby Aviation. Hunterbrook said that Archer had built anticipation for the flight of its flagship Midnight electric air taxi at the 2025 Dubai Airshow and did not acknowledge the cancellation. Joby also filed a lawsuit against Archer Aviation.
In August, Grizzly Research called Archer the "Nikola of the skies" in a short report, and said its research revealed that the Midnight was "fundamentally flawed and likely uncertificable." Grizzly said its order book was inflated with "questionable and fraudulent commitments."
In addition to the short reports, Archer also seems set to miss its earlier target of beginning monetization, or bringing in revenue, in 2025, as it did not bring in any revenue in the first three quarters, and didn't give guidance calling for it to do so in the fourth quarter.
NYSE: ACHR
Key Data Points
Is Archer Aviation a buy?
If you assume Archer's plans will come to light without a hitch, it's easy to see how the stock looks like a buy. However, this is an emerging industrial technology company, building a new form of transportation. It's a big leap from zero revenue to create even one successful urban air taxi network, and if it can get there, the economics of the business seem stacked against profitability, especially as Archer faces real competition from Uber and other ridesharing services, as well as taxis, personal vehicles, and even public transportation.
Investors looking for exposure to eVTOLs or drones are better off considering a stock like Joby Aviation or AeroVironment. Joby is currently earning revenue, and AeroVironment is an established, fast-growing business with a viable business model. It's unclear when Archer will start to make good on its promises.
