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Ayro: Material Electric Vehicle Sentiment Has Usurped Short-Term Fundamentals (NASDAQ:AYRO)

Ayro (AYRO) has quickly become one of the poster boys of 2020 electric vehicle stock surge. The company rallied by just over 300% in three weeks from $2.52 to a record high of $10.60. It has since lost some ground to $8.70 as of writing this article and now trades at a market capitalization of $226 million.

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Data by YCharts

Ayro went public on the 29th of May 2020 via a reverse takeover of NASDAQ listed penny stock DropCar after failing to make progress on its efforts for an IPO. The company designs and manufactures sustainable electric vehicles for campus management, last-mile delivery, urban commuting, and campus transport. It currently produces two vehicles (1) AYRO 311 and (2) Club Car 411.

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AYRO 311 (Source)

Club Car 411 LSV

Club Car 411 (Source)

Herein lies the key differentiator for Ayro. While Tesla (TSLA), Nio (NIO) and new EV upstarts like Fisker (FSR) and Lordstown Motors (RIDE) are targeting the consumer market for sedans or pick up trucks, Ayro is focused on manufacturing small electric vehicles for mainly commercial customers. This would include university campuses, airports, hospitals, resorts, and government.

This entirely different focus on a fringe relatively non-mass market puts Ayro more inline with other three-wheeled vehicles manufacturers like Arcimoto (FUV), Elio Motors (OTCPK:ELIO), and Electrameccanica Vehicles (SOLO). Electric Last Mile Solutions which will soon to be public via SPAC Forum Merger III Corporation (FIII) is also targeting the same market as Ayro.

Ayro has pinned its key value proposition on maintenance cost savings for fleet managers as the fewer moving parts of electric vehicles could mean its models are up to 50% less costly to maintain. Further, the long term push towards decarbonisation could also spur demand from government and academic institutions. Ayro has also stated that the compact size of its models makes them better suited for accessing certain areas like university thoroughfares, stadiums, industrial parks, and resort paths.

The company has just started ramping its operations in the state of Texas, just outside Austin, after raising $30 million in a series of successive equity raises in the summer of 2020. A further $10 million was raised in a stock sale to Karma Automotive, an EV producer owned by Chinese multinational conglomerate Wanxiang Group Corporation. The initial tranche of funding enabled Ayro to triple its manufacturing capacity to 600 vehicles monthly from 200 and expand its total square feet to 24,000 from 10,000.

Ayro’s stock price surge not only stems from the euphoric sentiment currently extended to EV stocks but a fundamental belief by the market that Ayro will be able to deliver significant cost savings to managers of internal combustion engine fleets. This would spark cost led upgrades of entire fleets to electric in the short to medium term, a trend that in the longer term would be buoyed by regulations and laws meant to decarbonise transportation. This long-term bull case is bolstered by the backing of Wanxiang which will become a source of nearly unlimited capital and automotive expertise to enable Ayro to grow.

A Lower-Tier EV Stock

Ayro recorded revenue of $1 million in 2019 and most recently announced a $584,000 order for its Club Car 411. This order was made through its joint development partnership with hospitality cart manufacturer and distributor Gallery Carts.

Ayro’s management failed to provide revenue guidance for 2020, stating instead that its near term aim is to ramp up growth by expanding to Europe, Middle East and Africa. With a current production capacity of 600 vehicles monthly, as assuming the company is production constrained, quarterly revenue would ramp up significantly as its Club Car 411 currently retails at a starting price of $21,199, while AYRO 311 costs between $10,000 – $14,000.

Both these costs are substantial for such a small and compact vehicle and could eliminate any potential cost savings for fleet managers looking to upgrade. Hence, revenue could very well be demand constrained.

Could Collapse Or Rocket Higher

Predicting the top of euphoric sentiment is almost impossible. Ayro could rocket higher by another 4x from its current elevated level or it could fall even further precipitously. This is what happens whenever fundamentals are usurped by euphoric expectations and rosy predictions.

However, the larger macro environment Ayro operates provides an immense long term tailwind for the company. The push towards zero-carbon vehicles has already seen Britain and US states like California ban the sale of new ICE vehicle by 2030 and 2035 respectively. This will likely continue at pace across most developed countries.

However, one cannot help but be cautious when you see volatility such as that which has been experienced by Ayro. Fundamentally, such short-term price action can only be driven by desperation and FOMO as traders look for alternative ways to profit off the EV hype. Hence, Ayro’s dramatic rise is likely not sustainable. The transition towards EVs is happening but not at the pace currently being conveyed by Ayro’s stock price movement.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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