Is Archer Aviation a Once-in-a-Decade Buying Opportunity in 2025?

According to third-party estimates, the average driver in the United States spends 54 hours a year stuck in traffic. Multiplied by 243 million total drivers, that is 13 billion cumulative hours spent in traffic every year in the United States. Globally, the figure is likely over 100 billion hours. Time, money, and quality of life are lost by sitting in your car stuck on the road.

What if there were a company aiming to help solve this issue? That is the goal of Archer Aviation (NYSE: ACHR) and other electric vertical takeoff taxi (eVTOL) companies. With an innovative product and clear goal (to help solve the traffic issue), there is a lot of potential for these new air taxi companies. Does that make Archer Aviation a once-in-a-decade buying opportunity in 2025?

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Disrupting urban transportation?

An eVTOL is an innovative vehicle type that is similar to a helicopter but with some major improvements. First, eVTOLs are much quieter than helicopters, making them easier to tolerate in neighborhoods and cities. Second, they are fully electric, utilizing tilt-propeller technology to make them cleaner and more energy-efficient.

Archer Aviation is building an eVTOL to help people travel quicker in congested urban areas. For example, it highlights the trip from downtown Manhattan to the Newark airport, which can sometimes take over an hour in a car. Once the company's eVTOL point-to-point air taxi network is built, the company says this trip will take under 10 minutes.

This could be a huge time save not only for the riders, but also for other people on the roads. For every person who takes an eVTOL trip from Manhattan to Newark, that is one less car on the road. It is likely that it will cost a pretty penny for this air taxi trip (and will have to in order for the network to make a profit), but I think there will be plenty of demand for the service. Only the wealthiest people have the ability to skip the typical airport trip with helicopters and private jets.

There are plenty of people with enough wealth who will be willing to pay hundreds of dollars for an air taxi trip if it means a 10-minute flight to the airport, at least in wealthy cities around the globe. This is the passenger segment that Archer Aviation is targeting, with plans to open up networks in places such as Japan, India, the Middle East, and the United States. According to management, its first point-to-point network will start operating by the end of this year.

Lots of competition and large capital investments

It isn't just Archer Aviation that sees electric air taxis as a modern solution to traffic issues. There are eight other eVTOL stocks trading today, and this is only counting the ones that are publicly listed. Luckily for Archer Aviation, it is one of the largest and has a lot of financial backing. It is also close to bringing a service to market (hopefully sometime in 2025).

Financial backing is huge for an air taxi start-up due to all the capital costs required in building the product, getting regulatory approval, and building all the takeoff sites. Over the last 12 months, Archer Aviation has burned $415 million in free cash flow. At the end of the third quarter, it had $500 million in cash on the balance sheet and has a $400 million commitment from Stellantis to help build its manufacturing facility.

Hopefully, these funds will bridge the gap as Archer Aviation works to get regulatory approval for its taxi network and build all the air taxis it needs. If this gap can be bridged, Archer Aviation has a ton of orders it can fill. The backlog at the end of Q3 2024 sat at around $6 billion, with commitments from airlines and cities around the world. There is clearly a demand for eVTOL solutions. Why? Because if they work, there are tangible benefits to society.

ACHR Free Cash Flow data by YCharts

Should you buy the dip on Archer Aviation stock?

Electric air taxis are a promising product. Personally, I hope these companies succeed, and in a big way. That doesn't mean you should buy Archer Aviation stock. For one, its shares are up 167% in the last three months and now have a market capitalization of $4 billion. Today, Archer Aviation is generating zero dollars in revenue and burning hundreds of millions in cash each year.

Using some estimates from its committed order book, a typical Archer Aviation air taxi will sell for $5 million. Manufacturers like this have low margins, meaning it will take a lot of orders and operating leverage for the company to reach positive cash flow. Even at 100 unit sales a year, that is just $500 million in revenue and likely minimal profit generation.

With a market cap of $4 billion, this looks like a wildly expensive stock. Avoid adding Archer Aviation shares to your portfolio at these prices, even if you think the underlying eVTOL technology has potential.

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