Archer Aviation Midnight flight test
It has been a turbulent 30 days in the stock market for Archer Aviation (ACHR), one of several hopefuls in the emerging electric air taxi field. On November 5th, its share price clocked in at $3.25. By one point on November 29th, it was priced at $9.75, a 200% increase in just over 3 weeks. On that day alone, the stock closed up 18% from the previous day’s close.
But quicker than you can say electric vertical takeoff and landing (eVTOL), the stock price lost a quarter of its value the very next day the market was open on December 2nd.
This segment of the aviation industry caught fire as the next big thing. Visions of thousands of these tiny vehicles swooping down to pick up passengers Uber-style and dropping them off at their urban destination were stoked throughout the investment community. Some estimate that over 300 startups with a better mousetrap evolved, with billions of dollars pouring into the programs deemed most feasible.
What wasn’t always counted on was the sheer amount of time and money it takes to certify something new in civil aviation for passenger use. This was further complicated by the implications of novel technologies, ground and airspace infrastructure, and regulatory hurdles that first needed to be addressed. Hundreds of millions of dollars weren’t sufficient for an entrant to cross the finish line – it was on the order of billions with a potential time horizon upwards of a decade.
Archer Aviation got started to get traction in 2018, and by 2021 had built a team, dialed in a design, obtained an order from United Airlines, and became publicly listed on the the NYSE. By 2023 they were flying a prototype model named Midnight and upped their total funding to $1.1 billion.
Looking at Archer’s latest financials for the third quarter of this year, a net loss of $115M was realized, compared to $97M the year earlier. This is on the heels of a $116M loss for the first quarter and a $107M loss for the second for a 9-month loss of $338M. Aviation manufacturing, particularly for an early-stage entrant, is a very capital-intensive endeavor.
Despite this, the stock price had a nice run for most of November, nearly doubling in value. In addition to the 3Q financial report, the only meaningful news release during this time was a potential order for up to 100 Midnight aircraft from a Japanese joint venture. However, this only involved a right to place an order, not a firm order. This certainly wasn’t enough to move the needle by a factor of two.
A more plausible explanation for the rise was that the stock became a meme, where just like AMC and GameStop, individual investors were creating a “short squeeze”, causing financial institutions who had bet the stock would go down to cover their positions by buying more stock at a higher price. Another driver could have been some positive stock picker comments on the segment which may have triggered a fear of missing out stampede.
As for the 25% single-day loss, car maker Stellantis, maker of such brands as Dodge, Jeep and Chrysler, had invested millions to date and was to provide another funding round of close to $400M to help scale up Archer’s manufacturing.
But Stellantis hasn’t been having a good day at the office this year with overloaded dealer lots stuffed with overly expensive inventory out of touch with today’s cautious consumer tastes. The final shoe dropped when the Stellantis CEO was suddenly ousted, causing both the automaker’s stock and Archer’s stock to tumble. There now seems to be investor uncertainty in Stellantis’ future commitment to a non-core aviation gamble. Archer Aviation was contacted but has not yet provided comment.
There will certainly be some more volatility in the days to come as the uncertainty of Stellantis and the viability of the eVTOL business model battle with meme stock mania. Elsewhere in the industry, Lilium Air Mobility recently filed for bankruptcy, perhaps a harbinger of an impending culling of the herd.
