Why Archer Aviation Stock Plummeted Today

Key Points

• A judge ruled that a shareholder lawsuit related to Archer's SPAC merger will proceed.

• Stellantis, a major backer of Archer, reported preliminary numbers showing a $2.68 billion loss for the first half of the year.

• 10 stocks we like better than Archer Aviation ›

Shares of Archer Aviation (NYSE: ACHR) fell on Monday, finishing the day down 10.9%. The drop came as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) both gained modestly.

A judge ruled that a lawsuit against the company, which develops electric vertical takeoff and landing (eVTOL) aircraft, can move forward. At the same time, Stellantis, a major backer of Archer, reported poor preliminary numbers for its upcoming quarter.

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Archer must face a shareholder suit

When Archer went public, it did so using a special purpose acquisition company (SPAC). A lawsuit by shareholders of the company alleges that Archer, investor Ken Moelis, and other architects of the SPAC merger misrepresented the value of shares and misled shareholders as to how far along the company was in developing its aircraft.

Image source: Getty Images.

The Delaware Chancery Court on Monday allowed the suit to continue, and Archer now must defend itself against the allegations.

Stellantis is in hot water

A major backer of Archer, automotive giant Stellantis, released preliminary numbers ahead of its upcoming earnings report. The company expects a $2.68 billion loss for the first half of the year, and the company maintained its suspension of issuing any guidance, citing tariff uncertainty.

The poor numbers peaked investor fear that the company might lose interest in Archer as it attempts to cut costs.

While the space Archer is in is fascinating, I think that its competitor, Joby Aviation, is in a much better position to win the race to be first to market. Furthermore, Joby's relationship with Toyota -- a brand known for quality, reliability, and efficiency -- is a major advantage.

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