Why Archer Aviation Is Flying Lower Today

Archer Aviation (NYSE: ACHR) has secured important new funding from a partner as it moves toward production of its small electric plane. But the funding came at a steep price for existing shareholders.

Archer stock is down 10% as of 10:30 a.m. ET on Friday following the announcement.

Building the cash pile ahead of production

Archer is one of a handful of companies working to commercialize electric vertical takeoff and landing (eVTOL) aircraft. Its plane, which would be capable of taking off and landing like a helicopter, would ferry a handful of passengers over crowded roads or work in partnership with airlines to transport passengers to larger jets.

Archer lost $106.9 million in its most recent quarter as it works to build out its manufacturing footprint and secure regulatory approval ahead of a planned 2025 launch. With that goal in mind, Archer also announced a new $175 million private placement from existing investors including Fiat Chrysler parent Stellantis , as well as United Airlines Holdings .

The funding deal involves the sale of 49.3 million shares of Archer stock. The company also entered into a subscription agreement with Stellantis involving nearly 3 million additional shares to offset Stellantis labor costs in assisting with the development of the Midnight aircraft.

Archer had 319.4 million shares of its Class A stock as of Aug. 2, and 36.1 million shares of Class B stock.

Is Archer a buy?

Adding new shares typically leads to price declines, as each existing share is worth a little less of the overall company. But share issuances can still work out for existing holders if they provide the capital needed to push a company forward.

Archer has an order book of up to $6 billion in potential orders from customers including United and Southwest Airlines . It also has plans in the works for air taxi networks in Los Angeles and other crowded markets that would coordinate with airline partners.

eVTOLs remain a risky, unproven technology, but Archer is near the front of a crowded pack of start-ups vying to bring the technology to commercial markets.

Investors should not be discouraged but should continue to limit Archer to a small part of a well-diversified portfolio .

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines and Stellantis. The Motley Fool has a disclosure policy .