Grate the peeled potatoes and onion using a box grater or food processor with a grating attachment.
Place the grated potatoes and onion in a clean kitchen towel and squeeze out as much excess moisture as possible.
In a large mixing bowl, combine the grated potatoes and onion with the egg, flour, salt, black pepper, and baking powder. Mix well until fully combined.
Preheat the air fryer to 375°F (190°C) for 3 minutes.
Form the potato mixture into small patties, about 2.5 inches in diameter and 1/2 inch thick.
Brush or lightly spray both sides of each latke with vegetable oil.
Place the latkes in a single layer in the air fryer basket, making sure they do not overlap. You may need to cook in batches.
Cook the latkes at 375°F (190°C) for 7 minutes. Then carefully flip each latke and cook for an additional 7 to 8 minutes, or until golden brown and crispy.
Remove the latkes from the air fryer and place them on a paper towel-lined plate to absorb any excess oil.
Serve warm with sour cream or applesauce if desired.