When a sector gets hot, it often brings its weakest plays along for the ride. That’s exactly what going on with Ayro (NASDAQ:AYRO) at the moment. So, if you had any interest in AYRO stock, let me be the first to nudge you the other way.
After all, electric vehicles (EVs) are an unquestionably hot topic with investors at the moment. It’s no surprise why. The industry is at the beginning of growth that should last not just for years, but decades. That’s why I’ve been bullish on EVs for years.
But we’ve seen the rising EV tide lift more than a few leaky boats. AYRO stock is one of these, even though the company has an admittedly intriguing opportunity in so-called LSEVs (low speed electric vehicles).
It also has a market capitalization now clear of $180 million backed by minimal revenue. The addressable market doesn’t appear that large. Competition is intense and entrenched. And Ayro products don’t appear to have an edge over rivals.
Put simply, there are many better EV plays out there — if AYRO can even be considered an EV play at all.
AYRO Stock and a Thin Product Line
AYRO stock is an EV play in the sense that it manufactures electric vehicles. But it’s not manufacturing the kinds of electric vehicles that have rightly driven so much investor optimism over the past few years.
For instance, the Ayro 311 is a 3-wheeled, street-legal “autocycle” with a maximum speed of 50 miles per hour. It is designed, unsurprisingly, for urban environments and delivery services.
But three-wheeled cars have a long track record of failure in the U.S. market, which Ayro is targeting. So do “tiny” cars of all wheel configurations.
More broadly, the problem with three-wheeled cars in the past wasn’t that they had gas-powered engines, but that they had three wheels, small engines and minimal safety features. Adding an electric motor but keeping those same drawbacks changes little.
Additionally, the Ayro 411 is basically an electric utility cart with the potential for modifications. It tops out at 35 miles per hour. Obviously, electric models of similar vehicles have been available for decades.
In fact, the company doesn’t even own the design of the 411. And according to a recent prospectus, Ayro can lose its exclusive reselling rights if unit sales targets aren’t hit.
Finally, according to the same prospectus, the EV maker is now “investigating and researching” a four-wheel drive EV which would be called the 511. But given the lack of design and manufacturing capability the company currently has, it’s difficult to project much success in a move to full-sized vehicles.
The LSEV Problem
Meanwhile, the LSEV market isn’t even that big to begin with. Ayro’s own prospectus puts the market at $2.4 billion globally in 2017. Growth is expected, but even a 2024 projection cited by the company estimates that revenue would amount to under $9 billion worldwide. And obviously, that estimate could prove too high.
Plus, it’s not as if Ayro has that small market to itself. Other startups are developing tiny and even three-wheeled vehicles. For the 411, existing competition isn’t going anywhere.
The size and the nature of the market is further evidence of the core problem with AYRO stock. Ayro is not a company that will — or can — disrupt a meaningful part of the EV market.
Its business model, essentially, is assembling and reselling products made in China. Its intellectual property is minimal. In fact, Ayro is only public because it merged with DropCar, a failed player in the mobility space.
There are many, many reasons to see EV stocks as an attractive long-term investment. But, unfortunately none of those reasons apply to AYRO stock.
The Rally in AYRO
Yet, in the span of weeks, AYRO quadrupled. Why?
It’s hard to pin down an exact reason, but we’ve seen crazy moves in questionable stocks plenty of times this year. We’ve even seen stocks post huge rallies in the middle of bankruptcy.
And again, EV stocks have been hot of late. So, it seems that the company has just gone along for the ride.
But it shouldn’t have. Investors are starting to figure that out. These kinds of rallies usually reverse. Now the name has dropped by more than 25% in just a few sessions, including a 12% fall on Monday.
AYRO stock now trades at $6.55. I’d expect the declines to continue.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.