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Archer Aviation Inc(ACHR-N)

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Archer Aviation: Buy, Sell, or Hold?

Motley Fool - Sun Jan 14, 7:05AM CST

Imagine a world where rush hour unfolds above the gridlock and sleek electric flying vehicles zip around major urban areas. While this seems like an idea from science fiction, this future could be closer than you think. Flying taxis are poised to transform cities and redefine mobility, with companies like Archer Aviation(NYSE: ACHR) leading the way.

Archer is developing electric vertical takeoff and landing aircraft (eVTOL), also known as flying taxis. This exciting technology could transform transportation as we know it. However, the company must overcome several obstacles before this futuristic technology becomes available on a commercial scale. Here's what you need to know before investing in Archer Aviation.

Archer Aviation looks to make flying taxis a reality

The vision of flying cars could become a reality in the coming decades. eVTOLs are flying vehicles that can take off, land, and hover vertically like a helicopter. This type of technology is exciting because it allows the vehicle to operate in a small space and could revolutionize urban transportation.

What makes eVTOL possible is the evolution of battery technology that powers electric vehicles today. eVTOLs use electric motors for power, creating a greener, more efficient means of transportation that is significantly quieter than helicopters. These vehicles could not only replace your Uber but could also be used to deliver life-saving medical supplies or even your online orders quickly and efficiently.

Archer Aviation is one of several companies developing eVTOL, which it plans to sell to third parties. It also plans to operate an urban air mobility network (UAM), which is its platform that will enable fast, safe, sustainable air travel.

A concept image of flying taxis in an urban setting.

Image source: Getty Images.

There are some hurdles to overcome before flying taxis go mainstream

While the concept of flying vehicles is exciting, there are several hurdles that companies like Archer must overcome. For one, battery technology must improve. eVTOLs are limited by how far they can travel on a single charge, and battery technology must improve to achieve more extended ranges on shorter charging times.

Companies in the electric vehicle industry are making headway on battery technology. For example, QuantumScape is developing next-generation solid-state lithium metal batteries that could significantly increase the range of EVs while drastically reducing charging times. Automakers Toyota and Nio have also developed technology that substantially increases the range of EVs. As these battery technologies evolve, they should make eVTOLs a more viable method of travel.

Additionally, eVTOL developers must work closely with regulators to get these vehicles approved and ensure the vehicles are safe, quiet, and integrated into current air traffic management and urban infrastructure. Last year, the Federal Aviation Administration released a blueprint for airspace and procedure changes around flying taxis, but the details remain a work in progress.

Archer has $1.1 billion in funding to keep moving forward

The development of eVTOL is in its infancy, and the top companies in the space are those with the most funding; Archer Aviation has made significant progress here.

In 2021, United Airlines ordered $1 billion of its aircraft, making its initial $10 million prepayment in August 2022. It has also partnered with automaker Stellantis, which invested $150 million in equity capital to help Archer begin manufacturing its flagship eVTOL, Midnight. Thus far, Archer has secured $1.1 billion in funding.

Archer's top competitor is Joby Aviation, which has partnered with Toyota and Uber and completed several test flights, including one recent one in New York, the first flight in an urban setting.

Archer's commercial operations could start as soon as 2025

The opportunity for eVTOL and UAM is huge. According to Mordor Intelligence, the UAM market could grow to nearly $37 billion by 2035 -- representing a compound annual growth rate of 23.5%.

However, there is a way to go before this technology becomes mainstream. Last year, Archer's Midnight aircraft received its Special Airworthiness Certificate from the FAA, clearing the path to begin test flight operations, and it completed its inaugural test flight in October. Founder and CEO Adam Goldstein said, "The next year and a half will be focused on continuing to rapidly advance our flight test program and Archer's electric air taxi operations."

2024 will be a big step forward for Archer as it breaks ground on its 350,000-square-foot production plant, allowing it to produce 650 aircraft annually. In 2025, after its Midnight aircraft obtains certification and other FAA approvals, it plans to launch 250 aircraft as its commercial operations take flight.

Is Archer Aviation right for you?

Investing in Archer Aviation isn't for the faint of heart. The company still has several hurdles it needs to clear before its aircraft are approved for commercial operations. The stock comes with significant risk, so conservative investors may want to avoid it for now.

With that said, Archer and Joby are the two companies that are the furthest along with the development of this technology. Bearing the risks in mind, I think this stock is a buy -- as long as you don't risk more than you are willing to lose and plan to hold on to this position for the next five years and beyond.

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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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