2 Things Every Archer Aviation Investor Needs to Know

Archer Aviation (NYSE: ACHR) is one of a handful of recent aviation start-ups trying to develop an electric vertical takeoff and landing (eVTOL) aircraft. The company has made quite a bit of progress toward this lofty goal, but has also taken investors on a wild, turbulent ride so far this year.

However, with share prices down more than 45% from their recent highs, many investors are wondering whether to buy the dip. Here are two big things to know before you consider picking up shares.

1. Archer has commercial plans, but no commercial planes

Archer is trying to develop its first eVTOL aircraft, dubbed Midnight, as an air taxi for up to four passengers: a cleaner and cheaper (not to mention much cooler) alternative to helicopters, which are currently the only alternative for such trips.

Archer envisions offering fleets of these vehicles for fast urban short-hop travel, collecting passengers from city centers and speedily flying them over traffic and gridlock to an airport where they can catch a longer flight to their eventual destination. It has proposed New York, Chicago, and Los Angeles as the first U.S. locations where it will operate.

However, Archer doesn't have fleets of these eVTOL air taxis (or even one air taxi) in the air ... yet. The Midnight hasn't yet received Federal Aviation Administration (FAA) approval, although it has performed limited test flights. In one such flight, the Midnight -- carrying no passengers but its pilot -- flew for 55 miles at an average of 126 mph. Archer claims the vehicle can fly more than 100 miles on a single charge.

Once approval arrives, expect interest in the company to soar, but there are no guarantees on when that might occur. That makes the company inherently risky.

Image source: Archer Aviation.

2. Archer is burning through investor cash

The lack of FAA approval hasn't stopped the company from preparing for commercialization. It has already outfitted a manufacturing facility in Georgia, at which it expects to begin production by the end of the year.

Archer has also been named the official air taxi service of the 2028 Los Angeles Olympics. To bolster its L.A. presence, it just bought a small Los Angeles airfield, Hawthorne Municipal Airport, for $128 million. Unfortunately, all this preparation has burned a lot of cash: $487 million in free cash flow over the past year, to be precise.

To ensure it has enough cash to fund its ongoing development costs, the company has issued tens of millions of new shares, increasing the share count by almost 30% so far this year. It's just announced a $650 million offer for another 81 million shares.

These share offerings may raise needed funds, but they also dilute the value of current shareholders' stock. If you buy in now, before the company starts generating revenue to help cover its expenses, expect further share dilution and more price volatility.

John Bromels 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.