AYRO: Reports Q1 Results. Don’t miss the forest for the trees.
NASDAQ:AYRO
READ THE FULL AYRO RESEARCH REPORT
AYRO, Inc, (NASDAQ:AYRO) reported first quarter 2023 results and provided an update on the launch of their new low-speed electric vehicle, the Vanish. As we had anticipated in our initiation report on March 29, the company’s first quarter revenues were minimal (representing runoff of old inventory) and investments in the new product line continue. We are encouraged by the company’s inventory buildup in anticipation of the commercial launch of the Vanish and continued R&D spending which bodes well for future launches of the Valet (a low-speed shuttle) and the Vapor (a premium golf cart).
We caution investors not to be thrown off by the apparent steep decline in year-over-year revenues (down 89%) as this was anticipated as the company shifts from its old product line to the new Vanish. The company appears to be investing in sales and marketing at a faster than anticipated rate which we view as a positive sign that they are receiving good feedback on the Vanish.
AYRO reported cash and equivalents of $41.8 million as of 3/31/23 which is still roughly $1.10 per share based on the current share count. We still believe that the current cash balances will be sufficient to see the company through to a point where cash flows turn positive, but if early demand indications convert into orders, the company could be cash flow positive much sooner than we have forecast currently.
In summary, AYRO is currently trading at roughly half the value of cash on the balance sheet, the company will start booking sales of their new product in the third or fourth quarter of 2023 and early indications seem to suggest that demand could significantly outstrip their current production capacity. While we are not updating our revenue forecast yet, we think that our conservative revenue estimates for 2023 and 2024 will likely have to be revised higher if early interest converts to orders. We have lowered our operating costs slightly in our model as the company continues to focus on cost controls. As a result, our 2023 EPS goes from ($0.66)/share to ($0.58)/share and our 2024 forecast changes from ($0.58)/share to ($0.57)/share.
Outlook
AYRO’s CEO, Tom Wittenschlaeger, indicated that the company’s first new product – the AYRO Vanish – will enter the homologation process (certification) this week. This process can take up to 12 weeks, so we expect to hear an update by mid-August around the time of the second quarter earnings release at the latest. The homologation process will likely involve an evaluation of all components, a fit analysis, a vehicle systems review (braking, engine, suspension, steering) and will offer the necessary certifications for sales of the Vanish to begin shortly thereafter.
The company also announced plans to begin a Low Rate Initial Production (or LRIP) of the Vanish in mid-June. The company will use this time to work on the production schedule and manufacturing process so that when they shift full-scale commercial production there are fewer delays. AYRO’s management indicated that they will produce up to 50 vehicles in this LRIP to be sent to dealers as demo models. While management was careful not to disclose actual dealership numbers, they did indicate that their current number of signed dealer locations exceeds the number of dealers that sold units of their previous model under the Club Car distribution agreement (42 dealers). It can be inferred from these two data points – 50 demo vehicles and more than 42 dealers – that the company likely has signed up close to 50 dealer locations as of today.
Importantly, the management team indicated fleet dealer interest has been very high which is a good sign as fleet sales will likely lead to higher unit orders.
Following the initial build of 50 demo models and completion of the homologation process, the company anticipates entering full-scale production. As we noted at the time of our initiation the company believes they can manufacture 9 units per day in the current facility with a single shift. If full-scale production were to commence on September 1, 2023, for example, we believe that the company would be capable of of producing over 650 vehicles by the end of 2023.
Management indicated that they believe demand could be “strong enough to consider moving to a double-shift operation as soon as practical”. This is an incredibly important point because it seems to indicate that the company is seeing enough demand that it could exceed a production rate of over 650 vehicles in the second half of 2023. For reference, our current model only projects 58 Vanishes sold in 2023 and 235 in all of 2024, so we believe there is significant upside potential to our current revenue forecast. For the moment, we are maintaining our revenue estimates until orders are realized but we are very encouraged by the early feedback from dealers.
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