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3 Things You Need to Know if You Buy Archer Aviation Stock Today

Motley Fool - Sat Dec 16, 2023

Imagine a world where, instead of hailing an Uber, you jump into a flying taxi that takes you away to your destination. With help from companies like Archer Aviation(NYSE: ACHR), this futuristic vision may be closer than you think.

Archer is one of several companies developing electric vertical takeoff and landing aircraft, aka flying taxis, that could revolutionize urban transportation as we know it. This exciting technology has garnered investments from United Airlines and Stellantis, but there are hurdles companies must overcome to make it a reality. If you're considering opening a position in Archer Aviation today, here are three things you should know first.

1. Archer Aviation is doing groundbreaking research and development of flying taxis

Electric vertical takeoff and landing aircraft (eVTOL) are flying vehicles that take off, land, and hover vertically, similar to a helicopter. However, while helicopters use gasoline, eVTOLs use electric motors for power, enabling them to operate quieter while reducing pollution from emissions.

eVTOL transportation is appealing because of the vehicle's ability to take off and land vertically, allowing it to operate in relatively small spaces. While the technology is in its infancy, some believe it could change urban transportation as we know it. For example, these vehicles could replace ground taxis for getting from point A to point B. eVTOLs could also transport things from life-saving medical supplies to packages quickly and efficiently.

Archer Aviation is one company developing eVTOL and plans to operate an urban air mobility network (UAM) and sell aircraft to third parties. Some estimate the UAM market could explode. According to a report by Mordor Intelligence, the UAM market could grow to nearly $37 billion by 2035, representing a compound annual growth rate of 23.5%. Keep in mind that the industry is in its infancy and far from developed, so long-term estimates are still a shot in the dark.

2. Archer faces stiff competition in the developing eVTOL industry

Archer Aviation is making headway in its business. In 2021, United Airlines ordered $1 billion worth of its aircraft. Archer also gained access to United's expertise in airspace management to help it get off the ground. Earlier this year, it partnered with Stellantis, which provided up to $150 million in equity capital to help Archer begin manufacturing its Midnight aircraft.

a person walks in front of an Archer Aviation vehicle sitting on the runway

Archer's Midnight aircraft sits on a runway. Image source: Archer Aviation.

Funding like this is vital in the eVTOL market because of how young it is and how many others are trying to break into it. One of Archer's top rivals is Joby Aviation, which has forged partnerships with Toyota and Uber and has had several successful test flights, including one recent demonstration flight in New York -- its first flight in an urban setting. Other competitors include China's EHang, Wisk Aero, a subsidiary of Boeing, Vertical Aerospace, and Eve Holding.

3. The eVTOL Industry faces big hurdles

Flying taxis are an exciting concept. However, there are numerous hurdles companies must overcome before the technology becomes widely available.

For one, battery technology has to get better. eVTOLs currently have a limited range, and lithium-ion batteries need to be improved so that these vehicles have a more extended range and shorter charging times.

Also, developers must work with regulators to get these vehicles approved for use with passengers. Earlier this year, the Federal Aviation Administration (FAA) released a blueprint for airspace and procedure changes to manage flying taxis, but the development of regulations is a work in progress. Companies must work alongside regulators to ensure these vehicles are safe, quiet, and integrated into existing air traffic management and urban infrastructure.

Archer has worked closely with the FAA and is one of only two companies with Airworthiness Criteria in the Federal Register by the FAA. Despite its close work with regulators, it will still take years before commercial operations begin.

This innovative company has a way to go before achieving profitability

Archer Aviation is one of the leaders in developing eVTOLs and plans to launch its first commercial flight in 2024 with its flagship eVTOL model, Midnight. This exciting technology could change transportation as we know it while also providing environmental benefits. However, there is still a long way to go before these companies gain approval and can operate commercially. Even then, this technology could take a while to gain widespread acceptance.

Investors should understand that Archer has alluring long-term potential, but it's also risky because its market isn't established. Investors need to understand those risks. Archer Aviation stock is highly speculative, and if you're a conservative investor, you'll want to leave this one alone.

Even if you don't mind the risks and want to take a chance on this innovator, don't risk more than you are willing to lose. Just be sure it's part of a well-balanced, diversified portfolio.

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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

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