I did some digging because I felt my previous DD on Archer Aviation wasn’t to the standards I could be proud of and was rather light on information. When nobody else believes I like to find the things worth believing in.
Archer Aviation is worth believing in. Adam Goldstein quite simply is getting crap done. He’s just executing and has the perfect partners in United Airlines and the U.S. Military starting with deliveries to the USAF.
In the search for more information, I needed to see what the bear case was against Archer Aviation and Joby to see who the heck was causing such a massive short-interest float in these stocks. I needed to study the bear cases and see if they were correct in their thesis.
First, let’s talk about the bears and in this case there are two, Kerrisdale Capital and Grizzly Research. Kerrisdale Capital to the shots at Joby Aviation and Grizzly set it sights on Archer Aviation causing a ~19% and ~22% short in the eVTOL startups respectively.
Since we’re here to talk about Archer I will focus on the short report from Grizzly but I will say the same thesis can be made against Kerrisdale as they are largely the same troupe’s such as, “outlook for profitability as ‘delusional’” or “Joby will be a historical footnote” or Grizzly’s “Archer Aviation is a Lame Duck” or “metaphoric crash landing”.
Harsh words from institutions that are taking a position to drive the stock down. Let’s see what Grizzly’s thesis is, the date of the thesis, and what has changed in reality since that thesis was written.
Grizzly’s article you can read for yourself but here are the main points (We Believe Archer Aviation, Inc is a Lame Duck – August 15, 2023):
- Misleading DoD contract:
- Claim: Archer’s DoD contract was portrayed as a major win, leading to a 40% stock jump. However, Grizzly argues that this was a noncompetitive, indefinite quantity/indefinite delivery contract, with only $1.3 million in potential revenue for 2023, far less significant than portrayed.
- Reference: “DoD contracts ACHR received… is capped at $1.3m total revenue in 2023.”
- Flight Activity Misrepresentation:
- Claim: Archer claimed to be conducting daily test flights, but Grizzly’s investigation found only a handful of flights, likely staged for special events. Grizzly accused Archer of recycling old video footage to exaggerate progress.
- Reference: “Our investigators visited ACHR’s flight testing facilities… reported seeing only a handful of flights.”
- Partnerships with Cheap Warrants:
- Claim: Archer’s partnerships with United Airlines and Stellantis were secured by giving out millions of shares and warrants for little compensation, misleading investors into thinking these partnerships were more significant.
- Reference: “ACHR has bought credibility through partnerships… Archer awarded millions of shares for questionable or no compensation.”
- FAA Certification Timeline:
- Claim: Grizzly consulted with FAA experts who estimated that Archer would not receive Type Certification for its Midnight aircraft until at least 2028, not 2024 as Archer claimed.
- Reference: “FAA experts… estimated… 2028 was a very optimistic estimate.”
- Misleading Settlement with Wisk/Boeing:
- Claim: Archer settled a legal dispute with Wisk/Boeing by giving $100 million in free shares to Boeing, despite announcing the settlement as a success, diluting shareholders and undermining Archer’s autonomy technology claims.
- Reference: “ACHR dished out $100M in free warrants for a $12,000,000 investment by Boeing.”
- Incomplete Manufacturing Facility:
- Claim: Archer promised its San Jose lab and small-scale production facility would be operational by May 2023. However, Grizzly’s investigation in July found the facility was far from complete, casting doubt on their production timelines.
- Reference: “Our on-site visit in July found a very incomplete facility… not expected to be operational before October 2023.”
- Stock Dilution and Early Vesting:
- Claim: Archer diluted shareholders by issuing free shares to partners like United Airlines, often modifying or accelerating vesting schedules without clear disclosure, benefiting these partners at shareholders’ expense.
- Reference: “ACHR… discreetly amended and/or activated clauses to vest warrants early.”
All these claims, in my opinion, are a play against time. Time, eventually will either prove them right or prove them wrong. Time though is not the friend of this short report. With enough time business mode, transparency, and actual progress will come to light. It’s easy to make these broad claims and try to tamp down expectations because this is a hard road ahead for a new form of aircraft and a new form of transportation. But this is no Hindenburg report because as you will see Adam Goldstein has been executing the heck out of his vision and should be applauded for it.
Let’s take these claims 1 by 1 knowing what we now know as of today’s date 9/28/2024.
- ***Misleading DoD contract:
- Reality: the DoD and specifically the USAF have shown a commitment and desire for these new aircraft. The reality is a substantial commitment and desire from the military for mission critical operations planned for new eVTOL aircraft.
- Delivery of Midnight eVTOL to the U.S. Air Force: On August 15, 2024, Archer delivered its first Midnight eVTOL aircraft to the U.S. Air Force as part of its $142 million contract under the AFWERX Agility Prime program. This delivery shows substantial progress in Archer’s partnership with the DoD, contradicting the earlier skepticism that the contract would yield minimal results.
- Use of Aircraft: The U.S. Air Force plans to use the Midnight aircraft for personnel transport, logistics, and rescue operations, marking real military applications. The contract includes not just the aircraft but also pilot training, maintenance, and certification support, further validating the value of the contract
- Reality: the DoD and specifically the USAF have shown a commitment and desire for these new aircraft. The reality is a substantial commitment and desire from the military for mission critical operations planned for new eVTOL aircraft.
- *Flight Activity Misrepresentation:
- Reality: Archer is actually performing many flight tests and is even ahead of schedule for this activity. Grizzly actually went to the facility and took spy pictures of what seems to be parked aircraft in a hanger which proves, nothing about absolutely nothing. Funnily, they also asked in their asked neighboring businesses if they “saw anything” regarding test flights. LOL, I mean hmm so in other words you are asking them if they weren’t doing their actual job and just watching the sky all day? Seems like a ridiculous anecdotal reference if you ask me. Also, the U.S. Military has taken part in the demonstrations so unless you are saying the U.S. Military is lying… Here are the facts since that report.
- Ongoing Flight Testing: Archer continued to make significant strides in its testing program, including manned test flights of the Midnight eVTOL aircraft, which directly counter Grizzly’s claims about limited flight activity. Archer has since confirmed daily test flights in preparation for their FAA certification and commercial launch, demonstrating more substantial progress than what the report suggested.
- Video Footage Authenticity: While Grizzly accused Archer of recycling video footage, post-August 2023, Archer showcased new videos of live flight tests, including those witnessed by government and military officials during demonstrations for the U.S. Air Force’s Agility Prime program, further legitimizing their claims of frequent testing.
- Reality: Archer is actually performing many flight tests and is even ahead of schedule for this activity. Grizzly actually went to the facility and took spy pictures of what seems to be parked aircraft in a hanger which proves, nothing about absolutely nothing. Funnily, they also asked in their asked neighboring businesses if they “saw anything” regarding test flights. LOL, I mean hmm so in other words you are asking them if they weren’t doing their actual job and just watching the sky all day? Seems like a ridiculous anecdotal reference if you ask me. Also, the U.S. Military has taken part in the demonstrations so unless you are saying the U.S. Military is lying… Here are the facts since that report.
- **Partnerships with Cheap Warrants:
- Reality: Since the update of this report there have been significant updates that contradict Grizzly’s thesis full of criticisms of Archer’s partnerships with United Airlines and Stellantis. TLDR, everyone has literally doubled down their investment. These are not cheap words, warrants, or shallow commitments.
- United Airlines has continued to show strong support for Archer, having made multiple investments since 2021. In August 2023, United was part of a $215 million investment round, its third time investing in Archer. United also made a $10 million pre-delivery payment for 100 of Archer’s eVTOLs, demonstrating continued commitment to Archer’s future aircraft.
- Stellantis, Archer’s manufacturing partner, has similarly deepened its relationship. In January 2023, Stellantis committed $150 million in equity and began scaling up its role as Archer’s exclusive manufacturing partner for the Midnight eVTOL. As of August 2023, Stellantis led the $215 million funding round, further solidifying its strategic alignment with Archer.
- Continued Insider Investment as of July 2024, in the face of all of this just recently in July N.v. Stellantis in July bought 17 million shares for $54 million.
- Reality: Since the update of this report there have been significant updates that contradict Grizzly’s thesis full of criticisms of Archer’s partnerships with United Airlines and Stellantis. TLDR, everyone has literally doubled down their investment. These are not cheap words, warrants, or shallow commitments.
- *****FAA Certification Timeline:
- Reality: This is both the most important and seemingly the biggest blunder of the short report. There is evidence that this may be the undoing of the short that I will discuss towards the end. In short, the notion that Archer was misleading investors is turning out to be a flat out misleading statement. To the contrary, in many ways they are ahead of schedule and or ontime. Especially, when you consider the difficulty of all of this. 2028 doesn’t seem optimistic but rather an inevitability. So much so, they have scored 2 out of 3/4 of the FAA Type Certification which is outstanding. They are on total track for the FAA for-credit flight testing that will allow them to make test flights with an operational in-flight test pilot which is the critical part of their Type Certification.
- Significant FAA Milestones Achieved: Archer has made substantial progress in its FAA certification pathway: Final Airworthiness Criteria: On May 23, 2024, Archer achieved a significant regulatory milestone when the FAA issued the final airworthiness criteria for the Midnight aircraft. This finalized the required steps for achieving Type Certification. Part 145 Maintenance & Repair Certificate and Part 135 Air Carrier Certificate: Archer received both certifications from the FAA, which are essential for starting commercial operations
- For-Credit Flight Testing: As of September 2024, Archer successfully completed 402 test flights. These were completed ahead of schedule and have been crucial in preparing for for-credit flight testing, which is expected to begin in early 2024.
- Delivery to the U.S. Air Force: On August 15, 2024, Archer delivered its first Midnight aircraft to the U.S. Air Force under the AFWERX Agility Prime program, showcasing substantial military interest and further validating the company’s technical progress.
- Part 135 Certification: On August 15, 2024, Archer delivered its first Midnight aircraft to the U.S. Air Force under the AFWERX Agility Prime program, showcasing substantial military interest and further validating the company’s technical progress.
- Reality: This is both the most important and seemingly the biggest blunder of the short report. There is evidence that this may be the undoing of the short that I will discuss towards the end. In short, the notion that Archer was misleading investors is turning out to be a flat out misleading statement. To the contrary, in many ways they are ahead of schedule and or ontime. Especially, when you consider the difficulty of all of this. 2028 doesn’t seem optimistic but rather an inevitability. So much so, they have scored 2 out of 3/4 of the FAA Type Certification which is outstanding. They are on total track for the FAA for-credit flight testing that will allow them to make test flights with an operational in-flight test pilot which is the critical part of their Type Certification.
- ***Misleading Settlement with Wisk/Boeing:
- Reality: Grizzly makes the argument Archer’s settlement with Wisk and Boeing was a costly defeat and a net negative. And they argue that reliance on Wisk’s autonomous technology could jeopardize Archers future autonomy capabilities. In a master stroke Adam and the Archer team have turned this into a net positive for the prospects of the company. What’s actually misleading is how Grizzly which writes the report on August 15th seemingly did a news grab from articles written just days prior making the case in the exact opposite sentiment than what Grizzly decided to report against. it’s like you know the news is not that but you want to mislead for your own purposes so you decide to spin it in the opposite direction. This wasn’t a legal defeat but rather an opportunity for Archer to form a lasting partnership with boeing and a sizeable investment from them.
- Collaboration Instead of Defeat: The settlement has evolved into a collaboration agreement between Archer and Wisk, with Boeing as a key investor. Instead of a costly loss, the settlement paved the way for Wisk to become Archer’s exclusive provider of autonomous flight technology. This strategic partnership is expected to significantly enhance Archer’s technological capabilities for future aircraft.
- Boeing Investment: As part of the settlement, Boeing made a significant investment in Archer during a $215 million funding round that included major players like Stellantis and United Airlines. This is a substantial boost to Archer’s financial position, contradicting the narrative that the settlement was purely a negative outcome.
- Reality: Grizzly makes the argument Archer’s settlement with Wisk and Boeing was a costly defeat and a net negative. And they argue that reliance on Wisk’s autonomous technology could jeopardize Archers future autonomy capabilities. In a master stroke Adam and the Archer team have turned this into a net positive for the prospects of the company. What’s actually misleading is how Grizzly which writes the report on August 15th seemingly did a news grab from articles written just days prior making the case in the exact opposite sentiment than what Grizzly decided to report against. it’s like you know the news is not that but you want to mislead for your own purposes so you decide to spin it in the opposite direction. This wasn’t a legal defeat but rather an opportunity for Archer to form a lasting partnership with boeing and a sizeable investment from them.
- ***Incomplete Manufacturing Facility:
- Reality: Grizzly’s early criticisms of Archer’s manufacturing facilities is now crumbling with the reality their facilities’ are nearing completion and are now operational. This is what I mean that the time of this report is not proving well for Grizzly. They are executing and point by point this report becomes more incorrect in its entire premis.
- San Jose Facility: Archer completed the installation of its high-volume battery pack manufacturing line at the San Jose Integrated Test Lab in May 2024. This facility now has the capacity to produce up to 15,000 battery packs per year, a crucial step toward scaling production.
- Conforming Midnight Aircraft: Archer’s first conforming Midnight aircraft is expected to be completed in Q4 2023, with flight testing set to begin in early 2024. The San Jose facility has been central to the assembly and testing of these aircraft, demonstrating substantial progress.
- Covington, Georgia Manufacturing Facility: In addition, Archer began construction on a high-volume manufacturing facility in Covington, Georgia in March 2023. This facility, projected to support the production of up to 650 eVTOL aircraft per year, is on track for completion in 2024, ahead of the Midnight eVTOL’s planned entry into service in 2025. Per Archers news report, Archer’s team has made rapid progress with the buildout of this nearly 400,000 square foot facility and remains on track to complete construction by the end of the year as of July 2024.
- Reality: Grizzly’s early criticisms of Archer’s manufacturing facilities is now crumbling with the reality their facilities’ are nearing completion and are now operational. This is what I mean that the time of this report is not proving well for Grizzly. They are executing and point by point this report becomes more incorrect in its entire premis.
- ***Stock Dilution and Early Vesting:
- Reality: The fact is Adam is executing and institutions that were complaining or directly impacted are now converts into the Archer Aviation plan. The navigating here of issues and problems by Archer CEO Adam Goldstein is honestly a master-class if you ask me. At every turn of seemingly negative interactions Archer has leveraged partnerships over conflict and has secured long-term strategic advantages, mitigating concerns raised by Grizzly. This has been good for investors and antithetical to the shareholder dilution premis.
- Stellantis Partnership: Since August 2023, Stellantis has increased its investment in Archer, contributing $55 million following successful flight milestones. Stellantis has remained a crucial manufacturing partner, providing capital, manufacturing expertise, and technical support. The partnership with Stellantis is expected to help Archer scale up production to 650 aircraft annually once their Covington, Georgia facility is operational. This long-term commitment demonstrates that the warrants issued to Stellantis have fostered a valuable strategic alliance rather than merely diluting shareholders.
- Wisk/Boeing Settlement: The Boeing/Wisk settlement resulted in Archer gaining access to autonomy technology, which is crucial for scaling the eVTOL business in the future. Boeing has invested in Archer as part of a $215 million funding round, which included other major investors like United Airlines and ARK Invest. These investments further strengthen Archer’s financial position and allow it to avoid significant R&D costs.
- Reality: The fact is Adam is executing and institutions that were complaining or directly impacted are now converts into the Archer Aviation plan. The navigating here of issues and problems by Archer CEO Adam Goldstein is honestly a master-class if you ask me. At every turn of seemingly negative interactions Archer has leveraged partnerships over conflict and has secured long-term strategic advantages, mitigating concerns raised by Grizzly. This has been good for investors and antithetical to the shareholder dilution premis.
As you see, none of the key points made by Grizzly are coming to fruition, and in many cases, Archer has used the challenges to strengthen their strategy and vision.
If you remember in the conversation I alluded to that there is some evidence that the short which was almost at 30% has come down from that level to the 22.28% as last reported.
Here are the short stats from Benzinga with highs in the short as recent as the month of August.
My theory is these shorts are going to start to exit as Archer continues to execute.
I am looking at a strategy of staggered calls in the 3, 6, 9, and 12 month range. At some point Archer is going to get it’s 3rd and most important leg of the FAA Type certification which is the for-credit flight testing that essentially is the green light for piloted flights. After that it will be smooth sailing with only manufacturing (production certification) left to certify.
While the Grizzly Research short report was seemingly more apt over a year ago, it absolutely is proving to be inaccurate and obsolete on all of their main points and concerns criticizing the notion of viability for Archer Aviation’s Air-Mobility aspirations.
This is one where I think Cathie has done her due diligence and is correct in her outlook and investment into AA along with United Airlines and Stellantis. The DoD contracts are coming in and the USAF can’t wait to get their hands on these aircraft. Cathie and ARK are doubling down again and this time it’s the shorts that maybe on the wrong side of history as certification seems inevitable for flight and operations of Archer Aviations Midnight eVTOL aircraft.
With the stock nearing ATLows this stock looks to pop at some point with any positive news on the certification front. The sweet spot here looks to be 6 and 9 month calls along with straight up shares.
Currently I have a small position and calls in the October 18th and November 15th timeframe. When I figure out the exact call I want I am going big. I will update you on that front when i have more information.
Update: Analyst have this a Moderate Buy and a lot of Overweight ratings from top investment firms.
A number of equities analysts recently commented on the company. Benchmark reaffirmed a “buy” rating and issued a $12.00 price objective on shares of Archer Aviation in a research note on Friday, August 9th. Cantor Fitzgerald reaffirmed an “overweight” rating and issued a $10.00 price objective on shares of Archer Aviation in a research note on Monday. JPMorgan Chase & Co. increased their price objective on shares of Archer Aviation from $5.00 to $6.00 and gave the stock an “overweight” rating in a research report on Wednesday, July 24th. Finally, HC Wainwright started coverage on shares of Archer Aviation in a report on Tuesday, September 3rd. They issued a “buy” rating and a $12.50 target price on the stock. One investment analyst has rated the stock with a hold rating and four have assigned a buy rating to the stock. According to data from MarketBeat.com, Archer Aviation has a consensus rating of “Moderate Buy” and a consensus target price of $9.00.
Update 2: This information is huge regarding final SFAR FAA Rule:
The U.S. Federal Aviation Administration (FAA) is preparing to release a crucial regulation that will help pave the way for the commercialization of eVTOL aircraft in the U.S., according to Christopher Coes, acting under secretary of transportation for policy at the U.S. Department of Transportation.
Speaking at Honeywell’s Advanced Air Mobility (AAM) Summit on Sept. 19, Coes announced that the final special federal aviation regulation (SFAR) for powered-lift pilot certification and operations is expected to be published in the “next month.”
“I think you’ll see it is quite responsive to [industry] comments,” Coes told attendees. “It will come well ahead of certifications that the FAA is working very hard with our manufacturers.”
The SFAR was a hot topic at last year’s summit, where the draft version faced considerable criticism. Industry concerns focused on the certification process for pilots, the requirement for dual flight controls, energy reserves for electric aircraft, and flight simulation training devices.
Many in the industry felt the rules governing pilot certification and operations of a novel technology like powered-lift eVTOLs should be modernized to reflect the unique aspects of electrification and range.
However, at this year’s summit, the mood had shifted toward cautious optimism for the release of the final SFAR.
“There’s great anticipation for the rule, which we’re told is coming in just a few weeks,” said Kristie Greco Johnson, senior vice president of government affairs with the National Business Aviation Association (NBAA). “If the FAA can deliver [the rule] in just a few short weeks, it’ll be a major accomplishment for the agency.”
While Coes contends the final SFAR will be released in the next month, the FAA technically has until Dec. 16 to finalize the regulation, according to the FAA reauthorizaton bill. The same bill also mandated that a notice of proposed rulemaking (NPRM) for unmanned aerial systems (UAS) operating beyond visual line of sight (BVLOS) be issued by Sept. 16. However, the FAA missed that deadline, raising concerns about the SFAR’s timely release.
There is broad consensus that the U.S. faces stiff competition from global players to lead in AAM. With first movers like Joby Aviation and Archer Aviation aiming for a 2025 commercialization of eVTOLs, the pressure is on the FAA to meet expectations.