According to third-party estimates, the average American driver spends 54 hours a year stuck in traffic. Multiply that by a total of 243 million drivers, and that's 13 billion cumulative hours spent in traffic in the United States each year. Globally, this number may exceed 100 billion hours. Sitting in your car on the road wastes time, money and quality of life.
What if there was a company designed to help solve this problem? that's the goal Archer Air (NYSE:ACHR) and other electric vertical takeoff taxi (eVTOL) companies. With innovative products and a clear goal (to help solve transportation problems), these new air taxi companies have a lot of potential. Does this make Archer Aviation a once-in-a-decade buying opportunity in 2025?
An eVTOL is an innovative vehicle type that is similar to a helicopter, but with some significant improvements. First, electric VTOL aircraft are much quieter than helicopters, making them easier to use in communities and cities. Second, they are fully electric, utilizing tilt propeller technology to make them cleaner and more energy efficient.
Archer Aviation is building an electric vertical take-off and landing aircraft to help people get around faster in crowded urban areas. For example, it highlights the journey from downtown Manhattan to Newark Airport, which sometimes takes more than an hour's drive. The trip will be completed in 10 minutes once the company's eVTOL point-to-point air taxi network is built, the company said.
This saves a lot of time not only for the rider, but also for everyone else on the road. For everyone traveling from Manhattan to Newark on an eVTOL, there's one less car on the road. This air taxi trip will probably cost quite a bit (and it will have to be done in order for the network to be profitable), but I think the demand for the service will be huge. Only the wealthiest can afford to skip the typical airport trip and take to helicopters and private jets.
There are plenty of people with enough wealth who would pay hundreds of dollars to fly in an air taxi if it meant a 10-minute trip to an airport, at least in wealthy cities around the world. This is the passenger transport market that Archer Aviation is targeting, with plans to open networks in Japan, India, the Middle East and the United States. According to management, its first peer-to-peer network will begin operations by the end of this year.
It's not just Archer Aviation that sees electric air taxis as a modern solution to transportation problems. There are eight other eVTOL stocks trading today, and that's only counting publicly traded stocks. Fortunately, Archer Aviation is one of the largest airlines and has a lot of financial backing. It's also about to bring the service to market (hopefully sometime in 2025).
For air taxi startups, the financial support is huge because of all the capital costs required to develop the product, obtain regulatory approval, and build all the takeoff sites. Archer Aviation burned through $415 million of free cash flow in the last 12 months. At the end of the third quarter, the company had $500 million in cash on its balance sheet and $400 million in commitments star Help build its manufacturing facilities.
The hope is that the funding will bridge the gap for Archer Air, helping its taxi network gain regulatory approval and build all the air taxis it needs. If this gap can be bridged, Archer Aviation could fill a significant number of orders. As of the end of the third quarter of 2024, the backlog was approximately $6 billion, including commitments from airlines and cities around the world. There is clearly a need for eVTOL solutions. Why? Because if they work, they bring tangible benefits to society.
Electric air taxis are a promising product. Personally, I hope these companies succeed, and be hugely successful. That doesn't mean you should buy Archer Aviation stock. For one, its stock price has risen 167% in the past three months, and its current market value has reached $4 billion. Today, Archer Aviation has zero revenue and burns through hundreds of millions in cash every year.
A typical Archer Aviation air taxi will cost $5 million, according to some estimates from its committed orders. Such manufacturers have lower profit margins, which means the company needs large orders and operating leverage to achieve positive cash flow. Even if 100 units were sold annually, revenue would be only $500 million and the profits generated would likely be minimal.
With a market capitalization of $4 billion, the stock looks very expensive. Even if you think the underlying eVTOL technology has potential, avoid adding Archer Aviation stock to your portfolio at these prices.
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Brett Schafer has no position in any of the stocks mentioned. "Motley Fool" recommends Stellantis. The Motley Fool has a disclosure policy.
Is 2025 Archer Aviation a once-in-a-decade buying opportunity? Originally posted by The Motley Fool