Short sellers built up their position in Archer Aviation stock (NYSE:ACHR) stock over the past few weeks. The number of shares sold short in the electric vertical takeoff and landing (eVTOL) stock grew from 180 million at the end of January to over 240 million at the end of March. Days to cover, or the theoretical number of days it would take short sellers to cover their position now stands at nine days (anything over seven is considered a lot).
Archer Aviation stock has fallen 10% during that time, seemingly giving short sellers a victory on paper anyway. With Archer trading at just above $4 a share lowering its market valuation to below $1.3 billion, investing guru Cathie Wood swooped in to scoop up another 326,000 shares on Apr 10 for her ARK Space Exploration & Innovation ETF (NYSEARCA:ARKX).
It’s not her biggest purchase of the eVTOL company’s stock but it brings her total holdings to over 2.2 million shares valued at $9.3 million. Archer Aviation is one of the exchange-traded fund’s (ETF) top 10 holdings, representing 3.9% of the fund’s total.
Wood owns another 7 million shares in her ARK Autonomous Tech & Robotics ETF (NYSEARCA:ARKQ) valued at $29.4 million or 3.4% of the ETF’s total (another fund top 10 holding). In short, the star money manager is betting big on this eVTOL company.
It’s a classic battle between a stock market bull and short sellers betting against a company’s success. There is good reason to believe Cathie Wood will easily win this contest.
Big money backers
Wood isn’t the only big-name backer of Archer Aviation stock. Two weeks ago the CEO of Dodge and Chrysler owner Stellantis (NYSE:STLA) visited Archer’s headquarters and manufacturing facility. Immediately after the visit, the automaker bought 8.3 million shares of ACHR stock on the open market. It was a clear vote of confidence in and support of the eVTOL aircraft maker.
Stellantis has been backing Archer for several years. It became a strategic partner in 2020 and started buying its stock a year later. Last year the automaker announced it would be providing Archer with as much as $150 million in equity capital that the eVTOL company could use at will through 2024.
Archer has been using the money to build its 350,000 square feet high-volume manufacturing facility in Georgia. Stellantis said by providing the company with the financing necessary to get started it would save Archer the trouble of trying to raise that money elsewhere.
It’s obviously not an altruistic motivation by Stellantis. The automaker wants to be Archer’s exclusive contract manufacturer for the Midnight eVTOL aircraft. The facility can produce 650 aircraft every year and they are designed to carry four passengers and a pilot 20 miles to 50 milesback-and-forth. The Midnight aircraft can charge in just 10 minutes between flights.
Tilting at windmills
It’s hard to see what the short sellers hope to gain betting against Archer Aviation stock. The company is on track to begin commercial production next year. It is wending its way through the Federal Aviation Administration’s regulatory maze and is quickly drawing towards the finale of certification to launch its robotaxi business.
Archer may be a pre-revenue company at the moment but it has substantial financial backing. That means it runs little risk of running out of cash. Once it launches its commercial operation, Archer’s runway for growth looks substantial.
Analysts estimate the eVTOL industry can grow from around $1 billion in 2023 to more than $23 billion by 2030. Others see it growing exponentially higher after that.
Cathie Wood is willing to bet tens of millions of dollars eVTOL bulls have it right and the short sellers are going to come up short. With 27% of Archer Aviation stock sold short, there’s a good chance she made the opportune buy in hopes of initiating a short squeeze to send shares soaring. Archer Aviation stock investors should hold tight for liftoff.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.