Time to Buy the Dip on Archer Aviation Stock Below $10?

Key Points

• Archer Aviation has large investors in the aviation space.

• The company is ramping up manufacturing and hopes to get its aircraft approved soon.

• Burning close to $500 million in free cash flow a year, Archer Aviation will struggle to generate a profit.

• 10 stocks we like better than Archer Aviation ›

Is the future of flight electric? That's what industry insiders are saying. Companies are investing heavily into electric vertical takeoff and landing (eVTOL) vehicles, which promise to revolutionize urban transportation. Yes, the future may finally have flying cars.

Boeing, United Airlines, Stellantis, and Cathie Wood's Ark Invest have all invested in Archer Aviation (NYSE: ACHR), which promises to bring an eVTOL product to market shortly. On Sept. 2, the stock trades at a price of $8.46 and is in a 37% drawdown from recent highs.

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Let's decide whether Archer Aviation stock is worth buying below $10 as it aims to build the future of flight with electric air taxis.

Near-term commercialization

Archer Aviation's flagship vehicle is called the Midnight, which has been going through a long run of design, manufacturing, and certification processes. As an entirely new aircraft with electric motors lifting the vehicle vertically like a helicopter, Archer is going through an arduous certification with the Federal Aviation Administration (FAA).

Rightfully so, as the organization wants these eVTOL vehicles to be safe when flying over residential neighborhoods. Unlike helicopters with large noise pollution, the Midnight is quiet enough to not disturb residential areas and can fly vertically over traffic in cities. For the Summer Olympics in Los Angeles in 2028, Archer is planning to debut point-to-point taxi networks with the Midnight aircraft, ferrying people over Los Angeles, such as a route from LAX to Santa Monica.

Cutting an hour-long trip down to an approximate 10-minute flight, these Midnight vehicles can provide a huge time savings for customers, which should lead to pricing power for taxi tickets. It is unclear exactly when the FAA will approve these vehicles, but the Midnight has gone through extensive amounts of test flights in 2025, including a 55-mile flight earlier this month.

In the United Arab Emirates, the company will generate its first revenue as it begins to deliver Midnight aircraft to Abu Dhabi Aviation shortly. This will be another proving ground for the technology as it aims to garner momentum in cities around the globe.

Image source: Getty Images.

Scale and positive cash flow

Manufacturing vehicles -- whether for the roads or for the skies -- requires expensive up-front spending. It also comes with low profit margins. Each Archer Aviation Midnight vehicle is reportedly going to cost $5 million. Right now, Archer Aviation is losing $447.5 million a year in free cash flow.

Assuming the company can eke out a 30% gross margin on each Midnight sale, the company will need to generate around $1.5 billion in revenue in order for its gross profit to cover its current expenses. That is around 300 Midnight aircraft delivered to customers every year. This does not include a partnership with defense start-up Anduril, but it is unclear today how large that deal will be to make eVTOL technologies for the military.

In the near term, Archer Aviation expects to produce just 50 Midnight aircraft annually. In order to reach positive cash flow, it is going to need to greatly up that figure or else reduce its operating costs. Either way, it is likely many years before Archer Aviation achieves positive cash flow.

ACHR Shares Outstanding data by YCharts

Is Archer Aviation stock a buy?

At the end of last quarter, Archer Aviation had $1.7 billion in cash on its balance sheet after executing an $850 million capital raise. This likely gives it a few more years of runway at its current burn rate, giving it plenty of time to scale its manufacturing and prove the viability of its eVTOL technology.

However, this does not mean the stock is a buy below $10. Even at its current price, it has a market cap of $5.6 billion, a figure that may keep increasing due to shareholder dilution. In the last year alone, Archer Aviation's shares outstanding are up 53% because of all the money it needed to raise in order to fund its manufacturing build-out. This will be a headwind to per-share value creation in the years to come.

Even without this shareholder dilution, Archer Aviation is going to have a hard time getting to profitability without enough scale in its eVTOL manufacturing. And $1.5 billion in revenue may not be enough to achieve positive free cash flow, which is the lifeblood of a business. It could take Archer Aviation five to 10 years to reach this level of revenue. Remember, it generates zero revenue today.

For this reason, Archer Aviation stock is not a buy for investors, even with the stock dipping below $10.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.