Where Will Archer Aviation Stock Be in 5 Years?

Key Points

• EVTOLs might be the next frontier in transportation technology, and Archer Aviation is an early leader.

• Wall Street analysts are optimistic. But is it time to buy?

• 10 stocks we like better than Archer Aviation ›

We are in an exciting period of innovation in the transportation industry as electric batteries improve and companies find new use cases for the technology. Archer Aviation (NYSE: ACHR) is particularly exciting because of its ambitious plan to pioneer electric vertical takeoff and landing vehicles (eVTOLs) in the U.S. and other countries. Let's dig deeper to understand what the next five years might have in store.

Why eVTOLs?

EVTOLs are small electric battery-powered aircraft capable of vertical liftoff, landing, and hovering just like a traditional helicopter. The difference is that eVTOLs are quiet, clean, and capable of operating in dense urban environments, making them a potential alternative to taxis on short-haul routes: Think airport to airport or medical transport.

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Wall Street is optimistic, with analysts at Morgan Stanley projecting that the market for "next-generation flights" could be worth $1 trillion by 2040.

The U.S. government has also taken a favorable attitude toward the industry. On June 11, President Trump signed an executive order designed to accelerate domestic drone, flying car, and supersonic flight development by clearing up regulatory red tape to make testing easier. This could mean the stage is set for Archer Aviation to develop its eVTOL programs and try to transition to commercial operations.

Can Archer Aviation create a sustainable business?

There are a large number of eVTOL start-ups across the U.S., E.U., and China. However, Archer Aviation's unique business model helps it stand out. Instead of only manufacturing and selling aircraft, Archer is also building a vertically integrated urban air-mobility service where it will also operate air taxi routes with the help of local partners.

If things go according to plan, Archer Aviation's services-led strategy could help it establish an economic moat against Chinese rivals, which may undercut its price. More importantly, services could lead to recurring high-margin revenue, dramatically boosting potential investor returns over the long term. That said, these trends are yet to play out.

Image source: Getty Images.

In the first quarter, Archer Aviation generated practically no revenue, but it lost a whopping $144 million, mainly because of huge research and development (R&D) outflows as it continues to test its flagship Midnight eVTOL -- a four-passenger electric aircraft currently seeking approval from the Federal Aviation Authority (FAA) to serve as a short-haul air taxi.

This month, the company began test flights in Abu Dhabi to help gather experience and data that will assist with the commercial rollout in stricter markets like the U.S., which it expects to tackle in 2026.

What will the next 5 years have in store?

Over the coming years, Archer Aviation plans to wrap up FAA testing and start building a sustainable commercial operation. With over $1 billion in cash and equivalents on its balance sheet, it can probably sustain current losses until that is supposed to happen in mid-2026. But investors shouldn't necessarily take management's projections at face value.

Regulatory milestones are notoriously tricky to predict. And other next-generation transportation companies like Virgin Galactic have been beset by delays and changing strategies. Some observers believe Archer Aviation could face a similar scenario. In May, short-selling organization Culper Research published a report that claims Archer Aviation has been misleading investors about the progress of its eVTOL program and suggests commercialization may be further away than expected.

While Archer Aviation's management denies these claims, investors may want to wait for more information before considering a position in the stock. Archer Aviation is at an extremely early (and uncertain) stage in its long-term journey, and investors probably shouldn't be in a rush to buy.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.