The electric vehicle (EV) market has been white-hot in 2020. With the market capitalizations of the most well-known EV stocks approaching the billions, it can be pretty hard to find a stock with potential moonshot returns. Ayro (NASDAQ:AYRO) is one company that investors should consider, as Ayro stock has a relatively small market cap of $251 million and outsized potential.
Ayro stock is down roughly 43% from its 52-week high of $11.50 and has been consolidating at these price levels. Investors shouldn’t worry though, as I believe this consolidation is simply the market “digesting” the huge run-up in late November last year.
Given the weakness in the overall market, the fact that Ayro stock has held up so well is a positive sign. The company has tremendous potential and could reward patient investors with 3x to 5x returns.
Small Vehicles Present a Big Market Opportunity
Ayro is an emerging player in the EV market focused on light-duty, short-haul vehicles. Ayro’s vehicles are much smaller than a van and thus are designed for specific, niche use-cases. These vehicles are basically designed for getting around in a massive compound. The specific advantages of Ayro’s vehicles are that they produce no fumes and are narrow. Thus, they can navigate tight, indoor spaces.
The company has identified college and corporate campuses, government municipalities, hotels and resorts as potential use-cases for its vehicles. Unlike most other companies in the electric vehicle space, Ayro’s products aren’t really sexy or exciting. However, when examining this market opportunity a little closer, I started seeing the potential in this niche.
For example, the college-campus market alone could be huge for Ayro’s vehicles. Colleges across the U.S. have committed to “go greener” by signing the “Climate Action Pledge.” In early 2020, Ayro won deployment contracts with Princeton University and Penn State University. I am convinced that the company would have been able to deploy more vehicles in more schools if it were not for the coronavirus pandemic.
The Association for the Advancement of Sustainability in Higher Education (ASSHE) has stated that college campuses across the U.S. in total have roughly 535,000 gas-powered vehicles. Assuming these are all converted to electric, this would represent a $7 billion market opportunity.
A Superior Product Generates Additional Use Cases
A report by Fortune Business Insights has indicated that the low-speed vehicle market is worth roughly $5.65 billion (as of 2018) and will grow by a compound annual growth rate (CAGR) of 4.8%. This market is expected to reach $8.17 billion by the end of 2026. These low-speed vehicles typically have limited niche uses as golf carts or public transport vehicles. However, Ayro is potentially disrupting and expanding this market.
Ayro’s Club Car 411 models have decent specifications and are street-legal. This expands the use-cases of these vehicles beyond campuses to include potential last-mile delivery. These vehicles have a maximum speed of 25 mph, a range of roughly 50 miles and a recharge time of six to eight hours. I can easily see these types of vehicles being used within a city’s downtown core to do simple deliveries.
Given the flexibility and cost-effectiveness of these vehicles, more use-cases will eventually emerge. In an interesting development, Ayro recently launched a new vehicle designed specifically for vaccine delivery. This vaccine delivery vehicle is a modification of Ayro’s food truck vehicle and carries ultra-low temperature freezer and refrigeration units.
I don’t know if the U.S. government will use Ayro’s vehicles for its vaccine rollout. There is a good chance that they will, given the logistics of administering the coronavirus vaccine and the current administration’s own green initiatives. Regardless, this shows the flexibility of Ayro’s vehicles and reaffirms my conviction that we haven’t seen all possible use-cases yet.
Is Ayro Stock a Buy?
Ayro is a dominant player in the specific low-speed EV niche. The company had been making great inroads with the deployment of its vehicles prior to the coronavirus pandemic. As schools and office campuses reopen, Ayro’s vehicle sales will start to pick up.
The company’s total addressable market (TAM) of more than $8 billion dwarfs its market cap of $251 million. If the company can obtain just 1% of this TAM, it would be trading at an excellent price-to-sales (P/S) ratio. I think Ayro stock is a good buy at these levels.
On the date of publication, Joseph Nograles held a LONG position in AYRO.