The energy and transportation sectors have seen massive disruption in the 21st century. From electric vehicles like Tesla to ride-sharing platforms like Uber Technologies, people have many different ways to get around these days. Some of these purported disrupters have made millionaires out of their shareholders. Others, such as the embattled hydrogen fuel cell truck company Nikola, have lost shareholders a lot of money.
Then what are investors to think of electric vertical take-off and landing (eVTOL) taxis? Many companies are working on electric air taxis, including publicly traded stock Archer Aviation (ACHR -1.32%). The start-up is aiming to build a point-to-point taxi network for eVTOL aircraft across the globe, which will theoretically decrease travel times across cities. If successful, eVTOL taxi networks could be another major disrupter to the transportation market.
Should you buy Archer Aviation while the stock trades below $5 a share and with a market cap of $1.5 billion?
Betting on air taxis
Archer Aviation is betting big on eVTOL taxis for urban transportation, with the goal of helping solve America's traffic issues. It is estimated that the average driver in the United States spends over 50 hours a year in traffic. Multiply that by the entire country's population, and you have hundreds of thousands of total years wasted in traffic every year. If a company can improve these metrics -- even slightly -- it will be a huge boom for the overall economy and quality of life for the average person.
eVTOLs aim to alleviate some of the traffic pain in big cities by skipping roads altogether. These are helicopter-like vehicles with electric motors that can go from point to point much faster than an automobile while also taking a car off the road. For example, one of Archer Aviation's first routes is going to be from downtown Manhattan to the Newark airport in New Jersey. A typical car ride to the airport can take an hour or longer. On an eVTOL, this will take less than 10 minutes.
You can see the value proposition immediately in the time saved for customers. Trimming this travel time means Archer Aviation will be able to charge a pretty penny for its services, especially in wealthy places such as New York City.
Growing losses, global ambitions
The eVTOL air taxi network concept is great, and theoretically it should lead to traffic alleviation in major cities. However, Archer Aviation's taxi network is not operational yet. Why? A big hold-up is the Federal Aviation Administration (FAA). In order to ensure safety and orderly operations between the hundreds of thousands of commercial planes, military projects, and drones that launch into our skies each day, eVTOL taxi networks will be heavily regulated. Nobody wants a cowboy taxi network with aircraft potentially crashing out of the sky.
Given the need for regulatory approvals, Archer Aviation is currently generating $0 in revenue. It won't generate any revenue until one of its point-to-point air taxi networks is operational. With all the production and regulatory start-up costs, the company posted a $492 million operating loss over the last 12 months and burned $415 million in free cash flow. It has $500 million in cash on the balance sheet, giving it around a year of runway before needing to raise more money.
This is a concern and a major risk for shareholders. But if the company can succeed in building its eVTOL fleet, there is a major demand from cities around the world for these services. At the end of last quarter, Archer Aviation had a $6 billion order book from places like New York, Los Angeles, Japan, and the United Arab Emirates. It hopes to get some of these taxi networks operational within a few years. For example, the Los Angeles network is set to begin in 2026.
ACHR Operating Income (TTM) data by YCharts
Is the stock a buy below $5?
There is clearly a lot of potential for Archer Aviation stock below $5 a share. It has a market cap of just $1.5 billion, a $6 billion order book, and a growing traffic problem around the world that it can help solve. If the company can reach 1 million annual flights and $250 charged per flight (each eVTOL can fit four passengers), that is $250 million in annual revenue. And it's not impossible for the company to see 1 million annual flights. That's less than 3,000 flights a day, which is possible if the taxi network becomes operational in just a few cities around the globe. For reference, the self-driving taxi network Waymo does 100,000 rides every week and is growing tenfold year over year.
Even with this high potential, I think it is foolish for investors to buy Archer Aviation stock today. The company has so many hurdles to get over and seems to be spending its cash irresponsibly. Even if the company reaches this $250 million revenue milestone, that barely covers half of its current operating expenses.
It will be a long time before Archer Aviation generates a profit, if it ever does. Avoid adding this stock to your portfolio for the time being.
