When I look at AYRO (NASDAQ:AYRO), it feels a bit like déjà vu from when I was recently asked to give an opinion on ElectraMeccanica Vehicles (NASDAQ:SOLO). I felt the basic problem for ElectraMeccanica was that it didn’t have a good answer to why this time is different. In other words, it might be the right product at the wrong time. And for investors in AYRO stock I have a similar concern.
The difference is that when I look at Ayro, I see similar demand issues to what has befallen the cannabis industry.
Ayro Makes Sense…Kind Of
I like the idea of Ayro more than I like the stock. Having quiet, electric vehicles moving around a campus or hotel or corporate campus makes a lot of sense. And I can imagine when the company first started trading publicly in 2000, it had visions of what could be.
But that was 20 years ago. That’s a long time and the company still generated just $1 million in revenue in 2019. As Matt McCall wrote recently, Tesla (NASDAQ:TSLA) is showing that the EV market is well beyond proof of concept. So why isn’t the company seeing more demand?
This May Be Cannabis 2.0
Not all EV stocks remind me of the cannabis industry, but Ayro does for one reason. The company’s stock moved substantially in early July on news that it had finished construction of a factory in Austin, Texas. This will allow the company to increase production from 200 to 600 EVs every month.
But that reminds me of cannabis companies that were in an arms race to see who could be the biggest grower. That quickly turned into a problem when regulations and other factors tamped down demand. The novel coronavirus may be having the same effect on demand for Ayro products.
Now in the case of Ayro, the company has early demand. In July, the company announced it has received $584,000 in orders for its inaugural purpose-built EV hospitality truck solution. And the company also announced a partnership with Gallery Carts to launch “on-the-go” hospitality vehicles.
Don’t misunderstand. The company showing the ability to produce product at scale is important, but that won’t matter if demand isn’t there. And while it’s good to see that the company has orders, they need more. A lot more.
Right Product at the Wrong Time
The company’s vehicles are designed for small “campus like” settings. Naturally colleges and universities are a key target. But the company also cites corporate campuses, hotels, and even food and beverage companies as its targets.
And like cannabis, Ayro may indeed have the right product. But as my colleague Josh Enomoto wrote, this may be the wrong time. Restaurants are struggling to keep their doors open. They’re not looking to make capital expenditures. The same goes for many of the company’s other target markets.
Could that change? Yes, but like the cannabis market the situation for AYRO stock won’t get better until there is real demand. And that simply does not exist at the moment.
Is AYRO Stock a Good Speculative Bet?
According to Ayro, the addressable market for low-speed electric vehicles (LSEV) will reach $23.9 billion by 2026. The takeaway is simple. If Ayro claims just a small percent of that market share, it will have a significantly higher valuation than its current $100.6 million market capitalization.
Ayro just initiated a share offering and there has been strong demand for the company’s equity. The same could be said for cannabis stocks back in 2018. The short-term future for AYRO stock comes down to what the company is able to do with the cash it receives. And that means that companies that are in their addressable market have to turn sustainability pledges into action. I’m not sure if that can happen right now.
Like cannabis, I’m generally bullish about electric vehicles. It’s an idea that is finally starting to become commercially viable at scale. But for Ayro, the Covid-19 pandemic could not have come at a worse time. If you’re willing to wait on AYRO stock, it might be worth your while. But as you should have learned from cannabis stocks, waiting for the next new thing may be a longer wait than you thought.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.