Tesla stock’s been a monster winner since listing in 2010, having increased by a mind-boggling 27,443%!
Indeed, shares of the electric vehicle (EV) pioneer have jumped 35% in just the past month. Yet that’s not a patch on Archer Aviation (NYSE: ACHR), whose share price is up a whopping 91% in November alone.
I mention this relatively obscure firm because, like a young Tesla, it’s striving to disrupt transportation through electric innovation. However, this late-stage start-up is a minnow by comparison. Its market-cap is a mere $2.5bn versus Tesla’s $1.1trn.
Still, its clearly got some investors excited. So could buying shares of Archer be like investing in Tesla in 2010? Let’s discuss.
What does it do?
Archer Aviation’s developing an electric vertical take-off and landing (eVTOL) aircraft called Midnight for urban travel. In other words, an electric flying taxi that’s quieter and greener than a helicopter.
It’s designed to carry four passengers and a pilot and cruise at speeds of up to 150 mph. The aim is to slash commute times and eliminate traffic bottlenecks in the world’s most congested cities.
For example, Archer plans an air taxi network in Los Angeles that would replace one-to-two-hour drives with 10-to-20-minute flights. It’d be a ride-hailing service similar to Uber.
As well as this, Archer’s selling its aircraft directly to third parties. It recently signed a $500m intended purchase agreement with Japan Airlines, pushing its aircraft order book above $6bn.
The company’s backed by auto giant Stellantis, which is helping to manufacture the Midnight aircraft.
A new form of transportation
Last month, the Federal Aviation Administration (FAA) approved eVTOLs and brought in a final set of safety rules. This is the first new category of aircraft overseen by the FAA since helicopters were introduced back in the 1940s.
Therefore, this now seems less a question of if but when these flying taxis are ferrying passengers.
But how long exactly? Well, this is where the uncertainty comes in. The company’s still working its way through the aircraft certification process. It’s on course to finish this by early 2026, but there could still be setbacks.
It’s also set to launch commercial air taxi services in the United Arab Emirates as early as Q4 2025. So we’re still at least a year away.
Losing money
Archer’s generating no revenue and posted a $115.3m net loss in Q3. It did end the quarter with $500m in cash though, and could soon receive another $400m from Stellantis. So it has enough cash for now.
However, it plans to ramp production to two aircraft a month by late 2025. Therefore, it’ll almost certainly need to raise more money at some point, potentially diluting shareholders.
The next Tesla?
I hold shares in eVTOL rival Joby Aviation, as I think its partnership with Uber and vertically integrated model might give it a competitive advantage over Archer. Joby stock is up 47% so far in November.
But both shares are very high-risk and far from certain to generate Tesla-esque returns. Another eVTOL start-up, Germany’s Lilium, just went bust.
However, Morgan Stanley sees this urban air travel market reaching $1trn by 2040. Archer offers investors a compelling entry point into this potentially transformative industry.
That said, I believe owning both stocks is too risky, so I’m sticking with Joby for now.
