Can Archer Aviation Survive a Recession?

Of the many emerging technologies on the horizon, the most exciting ones to many investors is electric vertical takeoff and landing vehicles (eVTOL).

These vehicles, being developed by companies like Joby Aviation and Archer Aviation (NYSE: ACHR), operate like helicopters, but have no emissions and are much quieter. They have not yet reached commercialization, though they are expected to begin making vehicle deliveries this year.

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Of the two stocks, Archer Aviation seems to be getting more interest from investors. Shares of Archer Aviation stock soared in the wake of President Trump's election as investors seemed to bet that deregulation in his administration would create an easier path to commercialization.

In less than a month after the election, the stock had tripled at its peak, ultimately reaching a three-year high at $12.48 on Jan. 7, up nearly 300% from its level before the pandemic.

The stock has pulled back since then, but it's still more than double where it was before the election. However, there are a number of vulnerabilities that investors seem to be overlooking, including the impact of the Trump administration.

Image source: Getty Images.

The Trump bump might be backfiring

It's not fully clear why Archer Aviation stock soared after the election. Stocks rose in general as investors bet that the Trump administration would lower taxes and loosen regulations in areas like mergers and acquisitions. As a pre-revenue company, those policies seem less meaningful for Archer than they would be for a more established company.

However, stocks have fallen, including Archer Aviation, as Trump's second term has thus far focused on tariffs and the economic picture has been clouded by weakening consumer sentiment. Additionally, Trump is clearly favoring traditional fossil fuels over green technologies like eVTOLs, meaning the administration is likely to be less friendly to Archer and Joby than investors have hoped. Trump's tariffs may already be impacting Archer, as aluminum is the most important raw material used to manufacture its key Midnight aircraft.

Additionally, green aviation has faced a number of setbacks recently, tracking with similar disappointments in the electric vehicle and autonomous vehicle markets. Industry leaders like Airbus are scaling back on investments in the technology, and there are signs that the market for air taxis is more limited than investors in Joby and Archer are betting.

However, the biggest risk to Archer Aviation at this point may be in the macroeconomy as a recession at this stage could be devastating to Archer.

What a recession would mean for Archer

Archer has never generated any revenue in its history, though the company is aiming to begin commercialization as it plans to manufacture 10 Midnight aircraft this year and sell its first to Abu Dhabi Aviation.

However, for a company with no revenue that's likely to generate significant losses for years to come, the most important metric to watch is liquidity on the balance sheet, and the cash burn rate.

Archer Aviation finished 2024 with $834.5 million in cash and equivalents, and had more than $1 billion as of its February earnings report after a $302 million equity raise. At this point, Archer's cash burn rate is not sustainable over the long term, as it reported a free-cash-flow loss of $451 million, indicating at the current rate it has about two years' worth of cash. At a list price of $5 million, even selling all 10 of those Midnight eVTOLs would bring in $50 million, making a minor dent in its cash burn.

With no revenue currently, a recession won't have as clear of an impact on Archer Aviation as it would on larger companies, but the company is more at risk of a significant setback.

Customers, many of which are cyclical companies like airlines that are vulnerable to a recession, could scale back or delay orders, and a falling stock price would limit the company's ability to bring in cash through additional secondary offerings. Additionally, as a stock that's already trading at a speculative valuation, Archer Aviation could crash.

Archer should be able to survive a recession, especially if it can deliver on its manufacturing and commercialization targets, which would give investors more confidence in the stock. However, investors seem to be overlooking the macroeconomic risks facing them. In addition to watching Midnight production this year, investors should keep an eye on macroeconomic data, because a weakening economy could sink Archer Aviation stock.

At this point, there's little besides high investor expectations to support the stock price.

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Jeremy Bowman 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.