Many people say they enjoy our content because we’re not afraid to speak frankly and call things out. What they’re really saying is that mainstream content doesn’t do that anymore. That’s because everything has become political and people are afraid to speak their minds, despite that it’s often what everyone else is thinking. Even outside the United States, there seems to be a strong demand for unabashed critical thinking.
Occasionally, the Twitter critics drop by and point out what we said they disapprove of, followed by the mandatory “please do better” closing statement. Whenever someone tells you “do better,” it’s usually an attempt at gauging whether or not you will blindly conform to whatever ideology they’re pushing.
We’ve been doing better before doing better was even a thing – Credit: Nanalyze
Bloomberg still publishes some great content – like last month’s piece on why SPAC Magic Isn’t Free – but their recent piece titled “The King of SPACs Wants You to Know He’s the Next Warren Buffett,” contains some utter shite. “Nobody’s going to listen to Buffett,” says Chamath Palihapitiya, the man who brought us the special purpose acquisition company (SPAC). Actually Chamath, plenty of people still listen to Buffet. Maybe nobody should listen to you when you talk about “generating enough wealth to shrink the inequality gap in America.” That SPAC vehicle which made you billions does a disservice to retail investors, so don’t try to spin it like you’re some modern-day Robin Hood for retail investors. There are ways to do good while doing good, but SPACs aren’t one of them. (Full disclosure: we’ve traded in several of his SPACs.)
As the SPACs continue to pile up, we’re selectively covering those that we believe represent something worth looking at (Desktop Metal or Butterfly Network), or pose a pitfall for retail investors who may not understand the risks they’re taking (Momentus). Today, we’re going to look at the planned SPAC for an electric vehicle company called Archer Aviation.
About Archer Aviation
There’s not a lot to say about Archer because they haven’t been around for very long. “There’s currently a race to create the first air taxi service using electric vertical take-off and landing aircraft (eVTOL) and a new serious player has entered the race: Archer.” That was the first sentence of a May 2020 Electrek article introducing us to Archer which concluded with “They didn’t offer a timeline for bringing the aircraft to production or the electric air taxi service that they plan to be powered by the aircraft.” So, we’re left looking at the glossy SPAC deck to figure out what’s under the hood.
Urban Air Mobility
His Holiness Elon Musk once remarked that we already have flying cars. Just put some wheels on a helicopter. It’s with this in mind that we need a better understanding of the value proposition here which we previously described as urban air mobility. It’s the next trillion-dollar industry, and it’s all about flying electric taxis that take you places using an Uber-like business model. With applications stemming from cargo to defense, the opportunity has a $1.5 trillion total addressable market (TAM). Of that, $674 billion belongs to the “shared mobility” category which has some very appealing economics when compared to your typical ride-sharing car.
Autonomous transportation is the way forward – Credit: Archer Aviation
With one eVTOL, you can generate $2.4 million a year using it for urban transportation against an operating cost of $1.4 million, giving you an operating income of around $1 million a year. (Don’t forget about the flight control infrastructure you’ll need – permits from city bureaucrats, things like that.) It’s this profitable business model that has lots of others developing eVTOL aircraft for the same reason, not to mention it’s a safer transportation method that reduces traffic congestion which in turn reduces carbon emissions. Archer differentiates their offering as the first which is backed by a major airline.
Archer Aviation and United Airlines
Archer Aviation came out of stealth mode less than a year ago, and now they’re taking the company public using a SPAC called Atlas Crest Investment Corp (ACIC). The entire investor deck hangs its hat on their collaboration with United Airlines. Here’s what that collaboration means based on the official United Airlines press release.
United will contribute its expertise in airspace management to assist Archer with the development of battery-powered, short-haul aircraft. Once the aircraft are in operation and have met United’s operating and business requirements, United, together with Mesa Airlines, would acquire a fleet of up to 200 of these electric aircraft…[.]
Credit: United Airlines
United Airlines also happens to be an investor in Archer, so they’re incented to try as hard as possible to make things happen. Just remember, UA took it right in the chops from The Rona, meaning that they’re now operating in survival mode.
United Airlines quarterly and annual revenues – Credit: Yahoo Finance
Bulls will see this as United Airlines pivoting into air mobility while bears will point to the unpredictability of a business that’s struggling to deal with a pandemic right now. Having a single potential future customer who says they’ll buy your product if it meets their “operating and business requirements” isn’t exactly paid-for pre-orders. It’s the intent to purchase a product sometime in the future if the product happens to meet some arbitrary specifications. Archer doesn’t say much about what their eVTOL looks like today, but they expect to open their first manufacturing facility in 2022 with first sales expected in 2024 bringing in $42 million in revenues. The following year, that number jumps +2,375% to over a billion dollars in revenues for 2025, so take it all with a grain of salt. Regardless, we’d like to see more traction, especially when others are much further ahead.
EHang vs. Archer Aviation
Slide 27 of Archer’s deck compares the company to other VTOL startups we’ve looked at like Volocopter, Joby Aviation, Lilium, and of course, EHang.
Manned and unmanned aircraft powered by electricity – Credit: Archer Aviation
One key metric has been overlooked – which of these companies have actually built an electric aircraft and are selling it? The winner in that respect would be EHang.
When Archer’s website says, “The first-ever commercially viable electric VTOL aircraft,” we’re impressed. You’d need some massive cojones to completely write off the 800-lb
gorilla panda in the room – EHang (EH). (Just be careful when you look at their financial information and don’t confuse RMB with USD which is what Yahoo Finance has done.) In 2019, EHang did about $19 million in revenues, though bear in mind they dabble in other things like aerial drone shows.
What matters is EHang is selling a growing number of electric planes – 64 as of the end of 2019. In the fourth quarter of 2019, they sold 26 passenger-grade electric planes, compared with 18 in the third quarter of 2019 and 17 in the first two quarters of 2019 combined. One order was 22 passenger-grade vehicles “to a tourism operator, which it intends to use for sightseeing and other potential applications.” As of last spring, EHang had completed over 4,000 passenger-grade AAV trial or demo flights, including passenger-carrying flights and flight tests in strong winds and fog. As of December 31, 2019, they had unfilled purchase orders for 33 passenger-grade AAVs.
If you’re going to invest in an eVTOL that’s actually being made and sold, that would be EHang’s, that is if you can look past the fact their stock has risen +1,080% in the last 30 days alone. Since our exit from Ali Baba, we’ve been avoiding all Chinese stocks that utilize VIE structures until we have a chance to really dig into the risks involved with VIEs. Putting EHang aside, would we invest in Archer Aviation?
To Buy or Not to Buy
It’s depressing to see just how little information is being provided in these SPAC decks, but we know enough that we’re not interested in the risk vs. reward on offer. For those people who want to pull the trigger anyway, you’ll be pleased to hear that shares are only trading at a +37% premium right now as opposed to the triple-digit premiums that retail investors have paid in the past. Just remember what that man who nobody listens to once said:
For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
Credit: Warren Buffett
An article by Forbes talks about how Lilium, Joby Aviation, and Volocopter are all “reported to be exploring SPACs.” It’s no surprise that every electric vehicle startup on this planet is now looking to make hay while the sun shines. There is good reason to try and pick a winner, and there’s room for more than one.
Investors who want exposure to the urban air mobility market are best served to only invest in companies that have a vehicle that’s currently available for sale. That’s not much traction to ask for, and it’s the minimum amount you should require before investing in any of these firms. Demand that they do better.
The transaction is expected to close in Q2-2020 after which time the ticker will change from ACIC to ACHR.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That’s why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.
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