Why Archer Aviation Belongs on Your Watchlist, Not in Your Portfolio (Yet)

Archer Aviation (NYSE: ACHR) wants to redefine urban travel. The company is developing electric vertical takeoff and landing (eVTOL) aircraft -- air taxis designed to cut hours-long commutes into minutes. With sleek designs, bold promises, and partnerships with household names, Archer has become a stock that sparks conversation.

But hype is not the same as investability. Archer's long-term vision is intriguing, yet the path forward carries significant risks. For most investors, the stock looks better suited for the watchlist than the portfolio today.

Image source: Getty Images.

A bold vision taking shape

Archer's flagship aircraft, called Midnight, is designed to carry four passengers and a pilot over short urban routes. The aircraft promises quieter flights, lower emissions, and faster trips compared to ground travel. Archer hopes to eventually operate these air taxis in partnership with airlines and ridesharing platforms, creating an entirely new transportation network.

The company is not working alone. United Airlines has placed a conditional order for up to 200 of Archer's aircraft. Stellantis, the global automaker, has pledged manufacturing support. Archer has also secured contracts with the U.S. Department of Defense to explore eVTOL applications for military use. These partnerships provide credibility and could help Archer scale once it secures certification.

Management expects its first commercial flights to launch in 2026, pending approval from the Federal Aviation Administration (FAA). If successful, Archer could tap into a market that analysts believe could reach trillions of dollars within the next few decades.

Why it's worth watching

Archer continues to build momentum, even without commercial sales. In its latest shareholder update, management highlighted progress on its Covington, Georgia, factory -- a key step toward scaling production. The company is producing six Midnight aircraft, three of which are in the final assembly stage. It also advanced through FAA certification stages, inching closer to a commercial green light.

Internationally, Archer delivered its first Midnight aircraft to the United Arab Emirates, where it has begun flight testing in Abu Dhabi. The company expects to collect initial payments later this year, providing it with an opportunity to demonstrate its aircraft in a live urban environment.

The macro backdrop also works in Archer's favor. Cities worldwide are struggling with traffic congestion, and governments are promoting greener transportation options. eVTOL aircraft offer solutions on both fronts. That's why Archer keeps appearing on investor watchlists and in headlines -- it represents a bold bet on the next wave of mobility.

Why not in your portfolio (yet)

While the story is exciting, investors should not overlook the risks. Three stand out in particular.

1. Ongoing cash burn could lead to future shareholder dilution

Archer still generates zero commercial revenue. Yet, operating expenses continue to rise in the latest quarter, running at an annualized rate of more than $700 million. While it has just raised $850 million, bringing the total cash and cash equivalents on its balance sheet to $1.7 billion, it won't be long before the company will need fresh funding, especially given its high cash burn rate. That likely means new debt or equity, either of which could dilute shareholders' interests.

2. Regulatory and execution challenges

FAA certification remains the most significant hurdle Archer must overcome. The regulator has limited experience with eVTOL aircraft, which may lead to delays. Even if approval comes by 2026 -- a timeline the company is aiming to achieve -- ramping from prototypes to large-scale production adds another layer of risk. History shows many aerospace programs stumble at this stage due to supply chain problems, cost overruns, or quality issues.

3. Intense competition

Archer is far from alone. Joby Aviation is a key competitor and is further along in the certification process. Lilium and several aerospace giants are also pursuing the market, making this industry increasingly crowded. If Archer fails to keep pace, it risks becoming one of many also-rans in an industry that eventually has just a few survivors.

What does it mean for investors?

Archer Aviation is the type of stock that captures imaginations. The vision of flying taxis may feel futuristic, yet the company has lined up credible partners that validate its approach.

But being early is not the same as being right. Archer still lacks revenue, faces heavy cash burn, and must clear major regulatory and operational hurdles. Until the company proves it can execute on certification and move toward commercialization, the stock remains a more speculative bet than a business investment.

For now, Archer Aviation looks better on a watchlist than in a portfolio. If the company hits its milestones over the next few years, that stance could change.

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