AYRO (NASDAQ:AYRO) announced an agreement with Element Fleet Management (OTCMKTS:ELEEF) on March 17 that will see the manufacturer of last-mile delivery electric vehicles (EVs) use the fleet management company’s services to roll out its commercial EVs. AYRO stock has gained steadily ever since.
It looks as if a little volatility has been introduced in the last several days, as the company looks to be trading around $6.50 as I write this.
Even still, I wonder Whether AYRO stock is a buy on the news, especially if it tracks a little lower before another pop.
Here are my thoughts on the subject.
Who Is Element Fleet Management?
The one thing I’ve learned about following money-losing growth startups is that they tend to treat every little morsel of news as the second coming. More often than not, the news turns out to be much ado about nothing.
So, before understanding what this means to AYRO stock, one must understand what Element brings to the table. For this answer, we go back to October 2016 when shareholders of Toronto-based Element Financial voted to split its business into two companies: Element Fleet Management and ECN Capital (OTCMKTS:ECNCF).
Both Element Fleet Management and ECN Capital are listed on the Toronto Stock Exchange and also over-the-counter in the U.S. ECN Financial was the creation of Canadian financier Steven Hudson, who’s still the CEO of ECN Capital.
His earliest claim to fame was building Newcourt Credit Group into one of the world’s largest asset-backed financing providers. Newcourt was sold to CIT Group (NYSE:CIT) in 1999.
Since Element Fleet Management has been a pure-play automotive fleet manager, its shares have generated a miserly annualized total return of 4.8% over the past five years but an awe-inspiring 53.3% over the past three years.
Year-to-date, it’s up nearly 7%. That’s less than half the performance of the Canadian markets over the same period.
Financially, it’s doing fine, finishing fiscal 2020 with adjusted operating income of $399 million or flat to last year, which is impressive given Covid-19 limited its sales practices. That’s on revenue of $766.3 million.
What Does It Mean For Both Companies?
There’s no question that AYRO is partnering with a business that can help it grow.
“Restaurants, food services, and delivery companies with national footprints need more than just EVs – they need financing, telematics, and maintenance and repair services to manage the entire fleet lifecycle and keep operating costs low,” AYRO stated in its March 17 press release.
By AYRO focusing on manufacturing its EVs while Element focuses on the acquisition, financing and maintenance of this fleet of vehicles, AYRO ought to be able to build repeat business with its buyers.
Element has been working on growing its EV fleet in the Australia/New Zealand market. It has 528 EVs in New Zealand, approximately 1.8% of the total fleet it manages in the country. However, over the next 12-36 months, it feels that it could grow exponentially.
Element believes that demand for its fleet management services will increase as automotive fleets transition from ICE-powered vehicles to EVs. Its experience in New Zealand will go a long way to helping AYRO be successful in the U.S. and Canada.
What’s This Mean for AYRO Stock?
The benefit of providing fleet management services through Element Fleet means that AYRO can focus its efforts on building the best commercial EVs possible. Element Fleet’s size and scale will allow AYRO to reduce costs while ensuring its buyers are getting the appropriate service.
In the third quarter, AYRO received orders for and delivered nine of its Club Car 411 EVs for use at a military medical facility in the Northeast. It’s got a backlog of $624,069 as of the end of September. The company’s partnership with Gallery Carts continues to pay dividends.
On the manufacturing front, capacity at its Austin plant’s been tripled to 600 EVs per month. With Club Car, Gallery Carts, Karma Automotive, and now Element Fleet as partners, its aim to deliver 20,000 commercial EVs over the next three years is on its way to reality.
Back in August 2020, I felt AYRO was an excellent speculative buy at $3.25. In December, after doubling in just four months, I argued that the risk-to-reward had tilted against new buyers. I felt an entry point around $4.25 or less would be appropriate given the inherent risk.
The lowest it’s gotten since then is the mid-$5s. Now above $7, I view the recent news as a positive. That said, Element Fleet’s services don’t come free. That will add to its quarterly losses.
I see enough progress from AYRO that a buy at current prices won’t be a disaster for the long-term buyer. I’d also consider putting aside some cash in case it falls back into the mid-$5s.
I’m not saying it will, but if it does, you’ll be ready to take advantage of this EV up-and-comer.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
