First there was Tesla (NASDAQ:TSLA). Then Nio (NYSE:NIO) hit the scene last year. In 2020, the floodgates opened wide. Almost every month, we get some new electric vehicle company making a splash on the stock market. One of the new ones to enter the fray recently is Ayro (NASDAQ:AYRO) stock.
Ayro hasn’t made a big splash yet. The stock popped from $3 to $6 in July but quickly settled back to around $4, where it currently trades.
And with a market capitalization of about $100 million, it hasn’t established substantial investor interest yet either. There may be good reason for that.
Our Matt McCall recently described one of the troubling parts of the Ayro stock story.
The company didn’t go public via an initial public offering (IPO). Instead, it used a reverse merger. This is where a company that is private buys another company already listed on the New York Stock Exchange or Nasdaq and merges into them. In this way, a company can obtain a stock listing without going through the normal due diligence required to go public.
An IPO has some underwriting standards. Investment banks don’t want to attach their names to a company of low caliber. With a reverse merger, however, there is no such limitation. In this case, Ayro merged with Dropcar, a parking lot logistics company that never took off.
McCall ultimately pointed out a distinct lack of credibility in Ayro’s business. As a result, he said to steer clear of the company and its red flags. And, unfortunately, I have to agree.
It’s extremely rare that companies that come public via reverse merger turn out well for shareholders. Simply put, reverse mergers are a notorious way of positioning your stock to the public.
Smaller Electric Vehicles
For those unfamiliar with Ayro, the company is aiming to commercialize small electric vehicles. I recommend checking out the company’s website if you want a video of what we’re talking about.
The quick takeaway is that current commercial electric vehicles are primarily aimed at being road-worthy and making long trips. That’s logical – the main vehicle market is cars and light trucks after all. However, there’s a lot of expenses that go into a vehicle capable of going 300 miles on a charge.
Ayro is targeting small distance applications, such as transportation and delivery vehicles for resorts, universities, airports and similar contained environments. With a smaller vehicle footprint, Ayro’s products could move across campuses, resort pathways and narrow alleys and streets.
Ayro estimates that its vehicles could help reduce carbon emissions by up to 75%.
Is There a Market for This?
That all sounds great. Question is, will there be significant commercial demand for these sorts of vehicles? A lot will come down to pricing and reliability. Until Ayro starts getting some firm contracts and revenue, it’s hard to judge how viable this business will be.
The company recently announced orders of $584,000 of its vehicles. This contract will be for Ayro vehicles purposed for the food hospitality industry. The company sees these food delivery vehicles working in stadiums, airports, resorts and other settings where food needs to be delivered rapidly over short distances.
And to the company’s credit, this $584,000 order represents a tangible step toward proving market fit. Still, the fact that the company is putting out press releases for orders of this size shows that Ayro is still in its infancy. It will take far more business for AYRO stock to justify its current $100 million market cap.
AYRO Stock Verdict
There are many listed electric vehicle companies now; it’s a golden age for the industry. With all the research and infrastructure spending being showered on this space now, it seems likely that we’re going to get some big winners out of the segment. So I get why investors are clamoring for these offerings.
In a nascent industry like this, however, most companies aren’t going to succeed. It’s a real challenge building a commercially successful business in an area that is just forming.
As such, your odds are far better sticking with one of the electric vehicle companies with tons of funding, a charismatic leader and many distinct signs of progress. Ayro isn’t at that point yet.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities.
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