Rolls-Royce share price: why I’d follow the Archer Aviation SPAC

When most people hear the name Rolls-Royce (LSE:RR), they think of Rolls-Royce Motors and the ultra luxury vehicles. Yet Rolls-Royce doesn’t own the Rolls-Royce Motors brand name. Bayerische Motoren Werke (BMW) does. Rather than the car market, what’s actually more relevant to the Rolls-Royce share price is the aviation market. […]

When most people hear the name Rolls-Royce (LSE:RR), they think of Rolls-Royce Motors and the ultra luxury vehicles. Yet Rolls-Royce doesn’t own the Rolls-Royce Motors brand name. Bayerische Motoren Werke (BMW) does. Rather than the car market, what’s actually more relevant to the Rolls-Royce share price is the aviation market.

In pre-pandemic 2019, for example, RR’s civil aerospace division alone accounted for 51% of its underlying sales. When the aviation market didn’t do well last year due to the pandemic, the company’s fundamentals significantly worsened. Due to the headwinds in civil aviation and other factors, the Rolls-Royce share price has fallen over 60% in the last 12 months when taking into account the rights issue last year.

Given the aircraft industry’s importance to Rolls-Royce, here’s why I’d follow electric aircraft startup Archer Aviation, and its associated special purpose acquisition company (SPAC).

What’s Archer Aviation?

I think Archer Aviation’s success could have an effect on the Rolls-Royce share price. Here’s more on Archer.

Archer Aviation is an electric aircraft startup. According to the company’s website, Archer Aviation is working on an electric vertical take-off and landing aircraft that the company hopes will travel up to 150 miles per hour for a distance of up to 60 miles.

The company has some traction. According to MarketWatch, Archer Aviation won a $1bn order from United Airline Holdings for its potential products, with the airline having an option to purchase $500m more.

Archer Aviation could be targeting a big trend, as the electric air mobility market could be huge in the future. Time is money for a lot of people, and flying taxis could save a lot of time in some commutes by avoiding congestion. Furthermore, electric aircraft typically emit less carbon dioxide than normal aircraft and thus are a more sustainable transportation solution.

Recently, Archer agreed to go public through a SPAC. Specifically, a SPAC named Atlas Crest Investment Corp merged with Archer Aviation in a deal that is expected to close in the second quarter of this year.

So far the market reaction to the Archer Aviation SPAC has been positive, as the stock of Atlas Crest Investment Corp has surged over 30% since its IPO.

Why I think Archer could matter for the Rolls-Royce share price

Given the Rolls-Royce share price hasn’t done very well over the last 12 months, I think the company could use some good headlines for once.

Although Archer isn’t directly related to Rolls-Royce, Archer is in Rolls-Royce’s industry. If the Archer SPAC’s valuation outperforms, I think it could help RR. If Archer and its SPAC is worth a lot, I reckon some investors could view Rolls-Royce’s electric growth potential in a more positive light. That could potentially help market sentiment.

If the market sends the Archer SPAC stock substantially higher, I think the success could shift some attention away from RR’s weak civil aviation business and more towards the company’s more promising green divisions and opportunities. Given the company’s potential in future green fields such as electric planes, I’d hold Rolls-Royce shares.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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