Makers of electric vertical takeoff and landing aircraft (eVTOLs) aim to revolutionize the transportation industry by allowing people to literally fly above urban traffic on short-haul routes. Archer Aviation (ACHR 8.76%) is an early mover in the air taxi space, and with its market cap at just $5.83 billion now, new investors can still get in early on what could be an exciting long-term growth opportunity.

That said, potential rewards often correlate with potential risk in the stock market. And in late May, a report from short-seller Culper Research cast doubts about the quality of Archer Aviation’s communications with investors and the public. Remember that short-sellers make money when a stock falls. 

Culper Research is short Archer Aviation

On May 20, Culper Research published a report titled “Archer Aviation (ACHR): When You Can’t Earn Airtime in the Sky, Buy it on Late Night Television” and featuring an image of Archer Aviation CEO Adam Goldstein alongside Jimmy Fallon, host of The Tonight Show Starring Jimmy Fallon. Culper Research claims the company “systematically misled” investors about its progress toward developing and testing its flagship Midnight aircraft. The report cites examples from employee emails, photos, and public statements that the short-seller believes contradict Archer Aviation’s claims about the progress of its eVTOL program.

The stock didn’t immediately drop after the report, but was down about 18% from the close of trading May 19 to the close on June 5. Archer’s management fired back in a statement, dismissing the claims as “baseless” and questioning Culper’s credibility.

Short-sellers profit when the price of a stock that they have shorted goes down, which gives them an incentive to present such a company’s situation as negatively as possible. That gives me pause about the Culper report. Furthermore, even if Archer Aviation is overselling the progress of its eVTOL program, that’s par for the course for speculative tech companies. For example, Tesla CEO Elon Musk has frequently made projections about timelines and projects (such as self-driving) that have rarely played out the way he said they would. Expectations of some exaggerations and delays are likely already priced into Archer Aviation’s stock.

Focus on the fundamentals

Instead of getting caught up in news stories and short-seller allegations, investors should focus on Archer Aviation’s financial reports. This data should give investors the best indications of how long the company can sustain its operations while it waits for factors outside its control, such as regulatory approvals. So far, the situation is complicated.

In the first quarter, its operating losses stood at $144 million, compared to $142 million in the prior-year period. This was mainly due to research and development outflows, as it spent more to bring the Midnight aircraft closer to commercialization. However, with around $1 billion in cash and equivalents on its balance sheet, Archer Aviation could sustain that rate of cash burn for about seven more quarters before it would need to seek outside sources of capital.

Artist’s rendering of futuristic eEVTOLs parked and landing on a building in a city. Image source: Getty Images.

The company is also working on expanding its manufacturing capabilities through a partnership with multinational automaker Stellantis. The companies are teaming up to build a manufacturing facility in Covington, Georgia, that will eventually be capable of producing up to 650 aircraft annually, with Stellantis contributing expertise and capital to the project. Archer Aviation expects to be able to produce two Midnight aircraft per month by the end of 2025.

What will the next three years have in store?

Like many speculative companies, Archer Aviation presents a hugely optimistic vision for its future. While the company is still awaiting final approvals from the Federal Aviation Administration (FAA) in the U.S., in international markets, it seems to be moving much faster.

Early “launch edition” customers for its eVTOLs include Ethiopian Airlines and Abu Dhabi Aviation, which plans to take delivery of Midnight aircraft later this year. Over the next three years, Archer’s revenue growth could accelerate dramatically as it secures more clients and ramps up production. But while this is exciting news for investors, it is unclear if these customers plan to merely test and experiment with eVTOLS or incorporate them into large-scale revenue-generating operations.

Furthermore, investors shouldn’t be surprised if there are delays and disappointments associated with the aircraft’s commercialization, especially considering the allegations made in Culper Research’s report. Archer Aviation remains a high-risk, high-potential-reward bet and it’s not clear where it will be in three years.

Shares of Archer Aviation (ACHR -0.66%) fell this week. The company’s stock lost 20.7% as of 1:58 p.m. ET on Friday. The loss comes as the S&P 500 (^GSPC -0.49%) fell 2.1% and the Nasdaq-100 lost 2%.

Archer Aviation, which develops electric vertical takeoff and landing (eVTOL) aircraft, was the target of a damning investigative report from short-seller Culper Research.

Allegations of fraud

The report, released early this week, alleges that Archer has systematically misled investors, making false statements about its aircraft’s abilities and development timeline in order to meet funding milestones. The report also claims that while this is happening behind the scenes, the company is spending millions promoting itself on late-night TV and buying the rights to be the official air taxi service at the upcoming LA Olympics in 2028.

In response, Archer said: “Culper is not a credible research institution. Archer has attracted significant attention due to its recent momentum and positive high-profile news. His claims are baseless.”

Image source: Getty Images.

The allegations are damning, but the short-seller has a clear motive

It’s critical to keep a level head when a report like this is released. Remember that Culper has a significant financial stake in seeing Archer’s stock decline. That is not to say I think they are false, but just to take them with a grain of salt and wait for more information.

With that being said, if the allegations are true, it would mean Archer is much further from commercialization than it claims — if it ever reaches it. That’s a problem.

Unfortunately, we just don’t have all the information at this point. Hopefully, Archer will address the core of these allegations and put them to rest. I wouldn’t sell if you hold Archer, but I might hold off on buying shares until more information comes to light.