Where Will Archer Aviation Be in 3 Years?

Imagine a world where you can avoid traffic gridlock by jumping into a flying taxi that whisks you away to your destination. While this seems like an idea out of science fiction, electric vertical takeoff and landing aircraft (eVTOL), also known as flying taxis, could be coming to a city near you.

Flying taxis could potentially change urban transportation, and Archer Aviation (NYSE: ACHR) is one company looking to make them a reality. The company is well-positioned in this developing industry, but still has a challenging path ahead of it as it attempts to scale its manufacturing and operate commercially.

If you're considering buying Archer Aviation stock, here's the outlook for the company over the next few years.

The Midnight aircraft is undergoing rigorous testing

Archer Aviation's flagship Midnight aircraft is capable of vertical takeoff, landing, and hovering, similar to a helicopter. However, unlike helicopters, eVTOLs once airborne can transition into flying like traditional planes, tilting their rotors 90 degrees so that they are providing forward thrust, and remaining aloft thanks to the lift from their wings. They also use electric motors, which makes them an efficient, quieter mode of transportation that is suitable for use at relatively low altitudes in urban environments.

In June, Archer completed a transition flight test of its Midnight vehicle. The eVTOL took off vertically, successfully transitioned from hovering to wing-borne flight, accelerated forward to speeds of more than 100 miles per hour, then decelerated, transitioned back, and landed vertically.

What the next few years have in store for Archer Aviation

As of the beginning of September, Archer had completed 402 test flights, putting it four months ahead of schedule, and marking key progress toward the Midnight's Type Certification from the Federal Aviation Administration (FAA).

This certification would be a stamp of approval that the design of the aircraft and its components meet the stringent safety standards required for it to be flown commercially. The company expects to earn this certification in late 2025, after which it will need to earn production certification, which will allow it to manufacture Midnights at scale.

Assuming things go according to plan, Archer projects it will produce 10 aircraft in 2025. By 2027, the company projects it will be producing 252 aircraft annually at a gross margin of between 40% and 50%, delivering a gross profit of $500 million to $630 million. By 2028, it expects to produce 650 aircraft, with gross profit ballooning to $1.6 billion.

Image source: Archer Aviation.

The company is also laying the foundation for an air taxi business. It recently signed a memorandum of understanding with Southwest Airlines to develop plans for electric air taxi networks to operate out of California airports. An air mobility network could be operational in Los Angeles by 2026.

Additionally, it plans to set up charging and operational bases for eVTOLs in the New York City metropolitan areas, Northern California, and South Florida. The company also hopes to commercialize in the United Arab Emirates as early as late 2025 and launch an air taxi service in India by 2026.

Is Archer Aviation right for you?

Archer Aviation is an exciting company that's developing a new method of urban transportation. Its upside potential is huge -- Morgan Stanley projects that the urban air mobility market could reach $1 trillion by 2040.

The company is making solid progress and has taken pre-delivery payments for 1,141 aircraft. The United Arab Emirates leads the way with 475 orders, followed by the United States (300) and India (200). The total value of its order book is up to $5.71 billion, and it has received deposits of $26 million on these orders, so it has a huge pile of potential cash flow awaiting it.

However, the company is still in the early stages of its growth story, and given that it is a pre-revenue and pre-commercial business, a significant amount of execution risk remains. Any hiccups in testing or manufacturing its aircraft could affect its timelines, pushing back the point at which it can begin making deliveries and recognizing revenue.

For these reasons, Archer Aviation stock is best-suited for investors who have a high tolerance for risk and a long-term investing horizon. Further, if you choose to buy it, your holding should be a modest-sized part of a balanced portfolio; don't risk more money on Archer Aviation stock than you're willing to lose.

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Courtney Carlsen has positions in Morgan Stanley. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.