The defense tech sector is experiencing a significant surge in funding, driven by escalating geopolitical tensions, advancements in artificial intelligence, and a shift in investor focus toward resilient growth areas amid a broader tech sector slowdown. Archer Aviation, a California-based developer of vertical takeoff and landing (VTOL) aircraft, is positioning itself to capitalize on this momentum.

On Thursday, Archer announced the formation of Archer Defense, a new division dedicated to military applications of its VTOL technology. This strategic move is accompanied by a $430 million equity funding round. Notable investors include existing backers Stellantis and United Airlines, as well as new institutional players like Wellington Management and 2PointZero, an Abu Dhabi-based investment holding company. This latest injection brings Archer’s total financing to nearly $2 billion.

A New Defense Hybrid VTOL Aircraft

Central to Archer’s defense push is an exclusive partnership with Anduril Industries, a rapidly growing defense contractor known for its autonomous systems and AI-powered solutions. Together, the two companies will develop a hybrid gas-and-electric-powered VTOL aircraft specifically tailored for defense operations.

The hybrid approach offers significant performance advantages over fully electric aircraft, including enhanced speed, range, and payload capacity. According to Adam Goldstein, Archer’s founder and CEO, the design will maintain critical benefits of an electric system—such as a low noise profile and minimal thermal signature—while meeting the rigorous demands of military applications.

Although specific details about the aircraft remain under wraps, Archer plans to build the hybrid VTOLs at its factory in Georgia, where the company is also working with Stellantis to begin mass production of its Midnight eVTOLs by the end of 2024. Goldstein anticipates that early prototypes of the defense-focused aircraft will be ready by 2025.

Anduril’s Role and the Power of Lattice

Anduril Industries, led by its high-profile founder Palmer Luckey, has made waves in the defense sector with its innovative approach to military technology. The company raised a staggering $1.5 billion in a Series F funding round earlier this year to scale production of its autonomous systems.

While Anduril manufactures several aerial systems, including drones that have been deployed in Ukraine, its primary contribution to the partnership with Archer will be its Lattice platform.

Lattice is an AI-driven command and control system designed to integrate data from various sensors, providing real-time situational awareness. The platform automates critical tasks like threat detection, tracking, and decision-making, including managing the "kill chain"—the sequence of actions required to identify, target, and engage threats. By integrating Lattice into the new hybrid VTOL aircraft, Anduril and Archer aim to deliver cutting-edge capabilities at a fraction of the cost of traditional alternatives.

Applications and Weaponization

The hybrid VTOL aircraft will be versatile, capable of serving in roles such as:

  • Surveillance and reconnaissance: Gathering intelligence in contested environments.
  • Search and rescue: Reaching remote or hazardous areas efficiently.
  • Combat support: Potential weaponization for direct military engagements.

While Goldstein confirmed the aircraft could be weaponized, he emphasized its adaptability for various non-lethal applications as well. This flexibility aligns with the Department of Defense’s (DOD) increasing focus on multi-mission platforms that deliver high value at reduced costs.

Scaling Production: Leveraging Georgia Operations

Archer’s Georgia factory will serve as the production hub for both its Midnight eVTOLs and the new defense hybrid aircraft. The collaboration with Stellantis provides Archer with manufacturing expertise and additional financial resources, streamlining the path to scaled production.

According to Goldstein, the partnership with Anduril and the integration of advanced technologies like Lattice will significantly accelerate the time-to-market for the hybrid VTOLs.

“By working together, we can deliver these vehicles at a fraction of the cost of more traditional alternatives,” Goldstein noted.

Pursuing a Coveted DOD Program of Record

A key goal of Archer Defense is securing a program of record designation from the DOD. Programs of record are acquisition programs with guaranteed funding, approved by both Congress and the DOD. These contracts represent long-term financial commitments and are considered the pinnacle of defense funding opportunities.

While such contracts are notoriously difficult to obtain—typically reserved for established defense contractors or startups with undeniably critical technology—Goldstein believes the hybrid VTOL aircraft is well-suited to meet the DOD’s evolving needs.

Goldstein also cited alignment with the goals of the Department of Government Efficiency (DOGE), a committee led by Elon Musk and Vivek Ramaswamy under President-elect Donald Trump’s administration. DOGE focuses on reducing government spending while maintaining or enhancing capabilities, a philosophy that dovetails with Archer’s mission to deliver cost-effective defense solutions.

“The new administration and Elon [Musk] are advocating for rethinking traditional approaches, challenging norms, and building systems on a first-principles basis,” Goldstein said.

Archer’s Defense Credentials

This is not Archer’s first foray into defense applications. In 2022, the company delivered its first Midnight eVTOL to the U.S. Air Force as part of a $142 million evaluation contract. Archer also established an advisory body to strengthen its relationship with the DOD, underscoring its commitment to the defense sector.

However, Goldstein sees the Anduril partnership as a transformative step forward. While previous defense deals were relatively modest, the hybrid VTOL project has the potential to secure Archer’s place among top-tier defense contractors.

The Broader Defense Tech Landscape

Archer’s entry into defense reflects a broader trend of private companies moving into the sector. Defense technology has become increasingly attractive to investors, fueled by global instability and a growing reliance on AI-powered systems.

Anduril, in particular, exemplifies the new wave of Silicon Valley-inspired defense contractors. Palmer Luckey’s vision for Anduril includes disrupting traditional defense production models, which are often criticized for inefficiency and high costs. By partnering with Anduril, Archer aligns itself with this innovative approach, enhancing its credibility and market potential in the defense space.

Financial Backing and Challenges Ahead

Archer’s latest funding round brings its total financing to nearly $2 billion, providing critical resources for its ambitious plans. However, the company faces significant financial and operational challenges.

  • R&D and scaling costs: Developing, testing, and producing advanced VTOL aircraft requires substantial investment. Archer spent $83.5 million on R&D in Q1 2024 alone.
  • Profitability timeline: Like many startups, Archer is not yet profitable. The path to sustainable revenue will depend on successfully executing both its commercial and defense strategies.
  • Regulatory hurdles: Both its Midnight eVTOLs and the hybrid defense aircraft must navigate complex certification processes before entering full-scale production.

Despite these challenges, Archer’s partnerships with Stellantis and Anduril provide a strong foundation for growth.

The Road Ahead

With its hybrid VTOL aircraft, Archer Aviation is positioning itself as a key player in the defense tech revolution. The partnership with Anduril combines Archer’s expertise in eVTOL design with Anduril’s advanced AI and defense capabilities, creating a compelling value proposition for the Department of Defense.

If successful, the project could redefine the role of eVTOLs in military operations, offering a versatile and cost-effective alternative to traditional systems. Securing a program of record designation would be a game-changer, providing Archer with long-term financial stability and industry recognition.

As geopolitical tensions continue to rise and the demand for innovative defense solutions grows, Archer’s move into the sector is both timely and strategic. While challenges remain, the company’s bold vision and strong partnerships suggest a promising future in both the commercial and defense markets.