Archer Aviation (NYSE: ACHR) has a new deal to collaborate with the National Aeronautics and Space Administration (NASA), and the agreement looks like a validation of the "flying taxi" start-up's engineering. Investors are excited about the development, sending shares of Archer up as much as 15% on Monday morning.
The announcement seemed to rekindle interest in the once-hot but lately out-of-favor sector, sending shares of Lilium (NASDAQ: LILM) up by as much as 13% and Joby Aviation (NYSE: JOBY) up by as much as 11%. All three stocks had retreated somewhat as of midday.
Is Archer going to the moon?
Archer is one of a handful of start-ups developing electric vertical takeoff and landing (eVTOL) aircraft -- so-called flying taxis -- that might one day ferry commuters over crowded highways and allow airlines to more efficiently feed their large hubs with passengers from the outer suburbs. Archer's eVTOL is still in development, but NASA apparently is intrigued by what it's doing.
The company has signed a Space Act Agreement with NASA that will allow the government agency to collaborate with Archer on research and development. The company said its collaboration with NASA will be focused for now on studying high-performance battery cells and safety testing.
"We're extremely proud to partner with NASA, who has pioneered the eVTOL industry over the last 3+ decades, in support of our collective mission to ensure U.S. leadership in aerospace continues for decades to come," Archer CEO Adam Goldstein said in a statement. "Many countries around the world are challenging the U.S. in this new era of flight and our country is at risk of losing its global leadership position unless we work together, government and industry, to ensure we seize the moment and pioneer this new era of aviation technology, which stands to benefit all Americans."
Though the deal doesn't do anything to speed Archer's timeline to market, it does indicate that NASA sees potential in the start-up's technology.
The announcement also sparked much-needed rallies in the shares of its eVTOL peers. A year ago, these start-ups were all the rage among investors who were excited about the promise of the new tech. But a combination of a shift in investor sentiment away from riskier stocks and concerns about competition and the extended timeline for approvals have caused investors to shy away of late.
Even after factoring in Monday's gains, shares of Joby, Archer, and Lilium are all down by between 62% and 91% since their respective market debuts.
Are eVTOL stocks a buy?
This new agreement is definitely a positive development for Archer, but investors would be wise to show some restraint, and the midday share price pullback makes sense. The company is hardly alone in working with NASA. Rival Joby, for example, signed a Space Act deal back in 2020 to provide a vehicle for a NASA demonstration.
The reality is that there was validity in both the initial hype surrounding these stocks and the market's recent caution regarding them. The eVTOL concept is new, but backed by relatively established technologies, and the Federal Aviation Administration (FAA) appears to be working toward approving the concept and certifying individual company's airframes. Alliances with NASA -- and before that, with defense agencies -- show that there is real interest in the tech among established buyers.
But the market is unproven, and with so much competition, there are likely to be winners and losers even if we assume the demand for these vehicles matches what the companies involved project.
Joby and Archer appear to be the furthest along toward winning regulatory clearance to get their businesses up and running. But it is still a competitive race that won't play out with a launch until 2025 at the earliest.
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