Archer Aviation Inc. (NYSE:ACHR) has entered into a memorandum of understanding (MOU) with Stellantis N.V. (NYSE:STLA)'s subsidiary, FCA US LLC, to scale manufacturing of its Midnight aircraft, aiming for an annual production of 650 units by 2030. The MOU, effective November 1, 2024, details a commitment from a newly formed Stellantis subsidiary to invest approximately $400 million. This includes about $372 million for manufacturing labor and up to $20 million in initial capital expenditures.
The agreement also involves the issuance of Archer's Class A common stock to the Stellantis subsidiary, based on incurred labor and capital costs, calculated at 90% of the stock's volume-weighted average price over the relevant period. Additionally, a performance warrant agreement is planned, granting the Stellantis subsidiary the right to purchase up to 10,494,377 shares of Archer's Class A common stock at $0.01 per share, contingent on meeting manufacturing milestones.
The MOU outlines potential additional warrants, which could lead to the purchase of up to 5 million more shares, subject to reaching definitive terms on further strategic agreements. Stellantis and affiliates are restricted from transferring ownership stakes in Archer until December 31, 2027, or earlier if a change in control occurs.
Archer is to seek shareholder approval for the stock issuance under the Stellantis agreements. The partnership's success hinges on finalizing definitive agreements and obtaining necessary stockholder approval.
This move is part of Archer's forward-looking strategy to expand its manufacturing capabilities and market presence in the aircraft industry, subject to various approvals and regulatory conditions as outlined in the company's regulatory filings. The information is based on Archer Aviation Inc.'s recent SEC filing.
In other recent news, Archer Aviation Inc. has seen significant developments across its operations. The company has acknowledged the early release of the Federal Aviation Administration's (FAA) final powered-lift Special Federal Aviation Regulation (SFAR), a crucial step for the commercialization of electric vertical takeoff and landing (eVTOL) aircraft in the United States. This aligns with Archer's commercial strategy for its Midnight aircraft and sets a more definitive path toward the company's commercial operations.
Archer Aviation has also announced plans to issue shares of its Class A common stock to settle a service payment agreement, capping the total value at $5 million. Furthermore, Archer's CFO, Mark Mesler, has taken temporary medical leave, with Priya Gupta stepping in as interim CFO.
In legal developments, Archer has won a court case against Wisk Aero LLC, allowing for immediate exercisability of the second tranche of warrants. The company exceeded its target of 400 test flights for 2024, conducting 402 flights, and delivered its first aircraft to the United States Air Force under a contract potentially worth up to $142 million.
Archer established a memorandum of understanding with Future Flight Global for a potential sale of up to 116 Midnight electric vertical take-off and landing (eVTOL) aircraft, potentially worth as much as $580 million. The company raised $230 million in equity capital and secured a manufacturing agreement with Stellantis, ending Q2 with $360.4 million in cash and equivalents.
Finally, Canaccord Genuity adjusted its stock price target for Archer Aviation to $7.50, down from $9.00, while retaining a Buy rating. Additionally, H.C. Wainwright initiated coverage on Archer Aviation with a Buy rating and a price target of $12.50.
InvestingPro Insights
Archer Aviation's ambitious manufacturing partnership with Stellantis comes at a critical juncture for the company. According to InvestingPro data, Archer's market capitalization stands at $133.33 million, reflecting the market's current valuation of the company's potential. However, the company faces significant financial challenges. InvestingPro Tips highlight that Archer is "quickly burning through cash" and "not profitable over the last twelve months," with an adjusted operating income of -$416.9 million in the last twelve months as of Q2 2024.
Despite these challenges, Archer maintains a strong liquidity position. An InvestingPro Tip notes that the company "holds more cash than debt on its balance sheet," which could provide some financial flexibility as it pursues its ambitious production goals with Stellantis. This cash position may be crucial for supporting the planned manufacturing ramp-up.
The stock's performance has been volatile, with InvestingPro data showing a 3-month price total return of -18.41% and a 1-year return of -40.04%. This volatility aligns with the InvestingPro Tip indicating that "stock price movements are quite volatile." However, analysts see potential upside, with the fair value based on analyst targets at $9 USD, significantly higher than the previous closing price of $3.28 USD.
For investors considering Archer Aviation, it's worth noting that InvestingPro offers 10 additional tips for ACHR, providing a more comprehensive analysis of the company's financial health and market position.
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