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This Cathie Wood Electric Vehicle Stock Is Disrupting a $1 Trillion Industry, According to Wall Street. Should You Buy?

Motley Fool - Thu Dec 14, 2023

When it comes to electric vehicles (EVs), most investors probably think of car companies such as Tesla and Rivian, and for good reason. EVs are becoming more popular across the globe.

But what if EVs weren't limited to the road? There are actually a number of companies investing heavily in electric air taxis, such as the Cathie Wood favorite Archer Aviation(NYSE: ACHR). Wood is the CEO of Ark Invest, an investment management firm known for taking big bets on emerging technology.

While Archer Aviation's electric air taxis may sound like something from the future, the technology could be closer than you realize. With the stock trading below $10 per share, now could be a lucrative opportunity to buy into this little-known EV disruptor.

Is the air taxi market just hype?

It's understandable to be incredulous about the applications of air taxis. After all, what's wrong with traditional modes of transportation like cars, busses, and trains?

Well, for starters, one of the biggest use cases air taxi companies are looking to tackle is road traffic. In fact, a company called Blade Air Mobility is already solving this challenge thanks to its on-demand helicopters and jets. The challenge here is accessibility. Blade Air Mobility offers more of a luxury service and isn't as affordable as ride-hailing services such as Uber and Lyft.

An electric airplane flying over a city.

Image source: Getty Images.

The $1 trillion air mobility industry

The air mobility market is comprised of many different types of aircraft, including drones, supersonic jets, and electric vertical take-off and landing (eVTOL) vehicles. Archer Aviation is focusing on eVTOL aircraft for both military operations and alternative urban mobility services.

According to a recent report from management consulting firm McKinsey, the total backlog for air mobility vehicles eclipsed $100 billion as of June. It's important to note that this figure excludes commercial airplanes. Moreover, Wall Street estimates that the urban air mobility market could be worth $1 trillion by 2040.

Given these demand undercurrents, investors might not be surprised to learn that the market is garnering the support of institutional investors. For example, venture capital investors have poured hundreds of millions of dollars into a unicorn start-up and Archer competitor called Volocopter.

When it comes to Archer, the company has no shortage of impressive investors. In addition to Wood, Archer's backers include Stellantis, United Airlines, and Boeing. United Airlines, for its part, has a vested interest in Archer's success with a purchase order in place of up to $1.5 billion.

Additionally, the relationship with Boeing makes a lot of sense given its heavy investments in urban air mobility company Wisk. Working closely with Wisk and earning the financial support of Boeing should be a major catalyst for Archer's vision of commercial electric taxis.

Is Archer Aviation stock a good buy?

ACHR Cash and Equivalents (Quarterly) Chart

ACHR Cash and Equivalents (Quarterly) data by YCharts

The chart above might appear a little misleading. Investors can see that for the last couple of years Archer has been operating at a net loss on a consistent basis, and yet its cash balance has remained fairly robust save for a noticeable dip last summer.

The company's mounting losses can be attributed to two primary factors. The first is that Archer is pre-revenue. The second is that building aircraft is expensive. The combination of heavy capital requirements and a sales operation that is not yet operating at scale has required the company to continue raising funds.

While this may not spark much confidence, consider that multiple banks on Wall Street are bullish on Archer stock, with one believing the stock is currently undervalued. At the time of this writing, Archer stock trades for roughly $6.70 per share. This reflects a healthy uptick from its all-time lows earlier this year.

ACHR Chart

ACHR data by YCharts

At the end of the day, there are several reasons to believe that Archer Aviation could be a lucrative stock to buy. Given the positive outlook of the size of urban air mobility's total addressable market coupled with the surging demand for non-commercial aircraft, it seems obvious that Archer could be onto something big.

Moreover, the steadfast support of some of the most recognized mobility brands in the world could suggest that Archer Aviation is a leader in commercial eVTOL transportation. For investors who are looking for additional exposure to the EV space, Archer Aviation could represent a unique opportunity. With the company's commercialization efforts beginning as early as 2025, now could be a good chance to scoop up shares before they take flight.

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Adam Spatacco has positions in Tesla. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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