According to third-party estimates, the average U.S. driver spends 54 hours a year stuck in traffic. Multiplied by a total of 243 million drivers, that’s 13 billion cumulative hours spent in traffic each year in the United States. Globally, the number is likely more than 100 billion hours. Time, money and quality of life are lost by sitting in your car stuck on the road.
What if there was a company aiming to help solve this problem? And that’s the goal Archer Aviation(NYSE: ACR) and other electric vertical take-off (eVTOL) taxi companies. With an innovative product and a clear goal (to help solve the traffic problem), there is a lot of potential for these new air taxi companies. Does this make Archer Aviation a once-in-a-decade buying opportunity in 2025?
An eVTOL is an innovative vehicle type that resembles a helicopter but with some key improvements. First, vertical take-off and landing aircraft are much quieter than helicopters, making them easier to tolerate in neighborhoods and cities. Secondly, it is completely electric, and uses tilt fan technology to make it cleaner and more energy efficient.
Archer Aviation is building an eVTOL plane to help people travel faster in crowded urban areas. For example, it highlights the trip from downtown Manhattan to Newark Airport, which can sometimes take more than an hour by car. Once the company’s point-to-point eVTOL air taxi network is established, the company says this trip will take less than 10 minutes.
This can be a big time not only for riders, but also for other people on the roads. For every person who takes an electric helicopter trip from Manhattan to Newark, that means one less car on the road. It’s likely that this air taxi ride will cost a pretty penny (and it will have to for the network to make a profit), but I think there will be significant demand for the service. Only the rich have the ability to skip the typical airport trip by helicopter and private plane.
There are plenty of people with enough wealth who would be willing to pay hundreds of dollars for an air taxi ride if it meant a 10-minute ride to the airport, at least in wealthy cities around the world. This is the passenger segment that Archer Airlines is targeting, with plans to open networks in places such as Japan, India, the Middle East and the US. According to the administration, the first point-to-point network will start operating by the end of this year.
Archer Aviation is not alone in seeing electric air taxis as a modern solution to traffic issues. There are eight other eVTOL stocks trading today, and this includes only publicly listed stocks. Fortunately for Archer Aviation, it is one of the larger companies and has great financial backing. It’s also close to bringing the service to market (hopefully sometime in 2025).
Financial support is huge for an air taxi startup given all the capital costs required to build the product, get regulatory approval, and build all the take-off locations. Over the past 12 months, Archer Aviation has spent $415 million Free cash flow. At the end of the third quarter, it had $500 million in cash on the balance sheet and had a liability of $400 million from… excellent To help build its manufacturing facility.
Hopefully, these funds will bridge the gap as Archer Aviation works to gain regulatory approval for its taxi network and build all the air taxis it needs. If this gap can be filled, Archer Airlines has a large number of orders it can fulfill. The backlog at the end of the third quarter of 2024 was approximately $6 billion, with commitments from airlines and cities around the world. There is clearly a demand for electric helicopter solutions. Why? Because if they succeed, there are tangible benefits to society.
Electric air taxis are a promising product. Personally, I hope that these companies succeed, in a big way. This doesn’t mean you should buy Archer Aviation stock. For example, its shares are up 167% in the past three months and its market cap now stands at $4 billion. Today, Archer Aviation generates $0 in revenue and burns hundreds of millions in cash every year.
Using some estimates from the committed order book, a typical Archer Aviation air taxi will sell for $5 million. Manufacturers like these have low profit margins, which means it will take a lot of orders and operating leverage for the company to reach positive cash flow. Even at 100 units sold per year, that’s only $500 million in revenue and likely minimal profits.
With a market cap of $4 billion, this seems like an expensive stock. Avoid adding Archer Aviation stock to your portfolio at these prices, even if you think the underlying eVTOL technology has potential.
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