AYRO, Inc. (NASDAQ:AYRO) is a designer and manufacturer of electric, purpose-built delivery vehicles and solutions for micro-distribution, micro-mobility, and last-mile delivery. The company has undergone a transformative journey, navigating challenges and positioning itself for long-term success in the rapidly evolving electric vehicle (EV) market.
Business Overview and History
AYRO was founded on May 17, 2016 as Austin PRT Vehicle, Inc. and later changed its name to Austin EV, Inc. in March 2017. In July 2019, the company underwent a corporate restructuring, changing its name to AYRO, Inc. and converting its corporate domicile to Delaware. AYRO's mission is to promote resource sustainability by offering environmentally conscious, minimal-footprint electric vehicles.
For several years, AYRO's primary supplier for the AYRO 411x model was Cenntro Automotive Group, Ltd., which operates a large electric vehicle factory in China. However, due to rising shipping costs, quality issues, and persistent delays, AYRO made the strategic decision to cease production of the AYRO 411x from Cenntro in September 2022. This move allowed the company to shift its focus towards the development and launch of its new 411.00 fleet vehicle model year 2023, the Vanish.
AYRO began the design and development of the Vanish in December 2021, including updates to its supply chain, manufacturing strategy, and the offshoring/onshoring mix. The company commenced low-rate initial production of the Vanish in the second quarter of 2023 and began initial sales and delivery in the third quarter of the same year.
On January 31, 2024, AYRO implemented an internal restructuring to achieve greater efficiency. As part of this restructuring, the company eliminated a substantial number of positions and re-evaluated its sales, marketing, and manufacturing functions. Additionally, on August 21, 2024, AYRO appointed Gilbert Villarreal as President of its subsidiary, Ayro Operating Company, Inc., to lead a thorough review of the Vanish. Villarreal is working closely with third-party consultants to achieve the company's objectives of lowering the bill of materials (BOM) and overall manufacturing expenses.
Financial Performance and Liquidity
AYRO's financial performance has been impacted by the challenges it has faced, as evidenced by its recent financial results. For the fiscal year ended December 31, 2023, the company reported total revenue of $499,000, a significant decline from the previous year's revenue of $2.99 million. This decrease was primarily due to the reduction in product sales.
The company's net loss for the fiscal year ended December 31, 2023, was $34.16 million, compared to a loss of $22.94 million in the prior year. The increase in net loss was mainly driven by higher operating expenses and impairment charges related to the Vanish product.
For the nine months ended September 30, 2024, AYRO reported total revenue of $63,780, down 81% year-over-year. This decline was primarily due to a significant reduction in vehicle product sales, which amounted to $43,200, representing an 86.8% decrease compared to the same period in 2023. The company's service and other revenue, including non-warranty after-sales vehicle services and miscellaneous income from late fees, contributed $19,510 during this period.
Despite the revenue challenges, AYRO reported net income of $3.83 million for the nine months ended September 30, 2024, compared to a net loss of $24.07 million in the prior-year period. This improvement was largely due to non-cash gains of $9.14 million and $5.04 million related to changes in the fair value of the company's warrant liability and derivative liability, respectively.
AYRO's operating expenses have decreased significantly during the first nine months of 2024. Research and development expenses were down 76% to $1.40 million, sales and marketing expenses decreased by 50% to $0.77 million, and general and administrative expenses reduced by 38% to $6.45 million. These reductions are primarily attributable to headcount decreases and other cost-saving measures implemented as part of the company's internal restructuring efforts.
The cost of goods sold for the vehicle products segment increased by 225% year-over-year during the nine-month period, reaching $2.54 million. This was largely driven by a $1.71 million increase in inventory adjustments and allowances related to the Vanish model, as well as a $300,000 increase in freight charges to bring in materials from outside vendors. Gross loss for the vehicle products segment was $2.48 million for the nine months ended September 30, 2024, compared to a gross loss of $443,000 in the prior-year period.
Despite these financial challenges, AYRO maintains a strong balance sheet. As of December 31, 2023, the company had $33.44 million in cash and cash equivalents. As of September 30, 2024, AYRO reported $2.73 million in cash and cash equivalents, $10.02 million in restricted cash, and $16.13 million in marketable securities, with a working capital position of $28.28 million.
The company's liquidity position is further reflected in its financial ratios. As of the most recent reporting period, AYRO's debt-to-equity ratio stood at 0.025, indicating a low level of debt relative to equity. The company's current ratio of 11.37 and quick ratio of 10.57 suggest a strong ability to meet short-term obligations.
Management believes that the existing cash as of September 30, 2024, will be sufficient to fund operations for at least the next twelve months following the issuance of the unaudited condensed consolidated financial statements. However, the company's long-term capital requirements are subject to numerous risks and uncertainties, including the success of its strategic initiatives and the market acceptance of its products.
Nasdaq Compliance and Delisting Risks
On July 18, 2024, AYRO received a letter from the Nasdaq Stock Market indicating that the company did not meet the minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market. AYRO was provided with a compliance period of 180 calendar days, or until January 14, 2025, to regain compliance.
If AYRO is unable to maintain compliance with the Nasdaq's listing requirements, its common stock could be delisted from the exchange. A delisting could have a material adverse effect on the company, including the potential loss of confidence by investors, suppliers, customers, and employees, as well as fewer business development opportunities.
Strategic Initiatives and Partnerships
In response to the challenges it has faced, AYRO has implemented several strategic initiatives to improve its operations and financial performance. In January 2024, the company began implementing an internal restructuring to achieve greater efficiency, which included the elimination of a substantial number of positions and a re-evaluation of its sales, marketing, and manufacturing functions.
As part of the restructuring, AYRO appointed Gilbert Villarreal as President of its subsidiary, Ayro Operating Company, Inc., to lead a thorough review of the Vanish. Villarreal is working closely with third-party consultants to achieve the company's objectives of lowering the bill of materials (BOM) and overall manufacturing expenses, with the goal of reducing the Manufacturers Suggested Retail Price (MSRP) of the Vanish.
In addition to the internal restructuring, AYRO has also formed strategic partnerships to support its growth and manufacturing efforts. In December 2024, the company announced a partnership with GLV Ventures, a Canadian manufacturer, to provide certain sub-assembly and assembly parts for the Vanish. This partnership is expected to leverage GLV's lower-cost manufacturing footprint in the United States to support the re-engineering and manufacturing of the Vanish.
Risks and Uncertainties
AYRO's business is subject to a variety of risks and uncertainties, including:
1. Supply chain disruptions and component shortages: The company continues to face challenges with obtaining certain production-ready components, including lithium-ion battery cells, integrated circuits, vehicle control chips, and displays. These shortages have caused delays in validation and testing, ultimately impacting the availability of saleable vehicles.
2. Inventory obsolescence: During the first nine months of 2024, AYRO recorded $1.71 million in impairment charges related to the Vanish product, including $476,340 in physical inventory stock adjustments.
3. Reliance on a single supplier: The company's partnership with Linamar Corporation for the Vanish's sub-assembly and assembly parts was a critical component of its manufacturing strategy. However, AYRO recently notified Linamar of its intention not to renew the manufacturing agreement, which will result in the termination of the partnership in July 2025.
4. Potential Nasdaq delisting: As previously mentioned, AYRO's failure to regain compliance with the Nasdaq's minimum bid price requirement could result in the delisting of its common stock, which would have a material adverse effect on the company.
5. Ongoing operational and financial challenges: AYRO's history of losses and negative cash flows from operations, as well as the uncertainty surrounding the success of its strategic initiatives, pose significant risks to the company's long-term viability.
Management Changes and Corporate Governance
AYRO has experienced several changes in its management team in recent years. On March 1, 2024, the previous CFO David E. Hollingsworth resigned, not due to any disagreement with the company. Subsequently, on August 21, 2024, AYRO appointed Joseph Ramelli as the new CFO. These changes in leadership are part of the company's efforts to streamline operations and improve financial performance.
Outlook and Conclusion
AYRO's journey has been marked by both challenges and opportunities. The company's decision to cease production of the AYRO 411x and focus on the development and launch of the Vanish was a strategic move to address the issues it faced with its previous model. However, the transition has not been without its own set of obstacles, as evidenced by the inventory obsolescence and supply chain disruptions.
As AYRO navigates the ongoing operational and financial challenges, its success will depend on the effectiveness of its internal restructuring efforts, the ability to secure new strategic partnerships, and the market acceptance of the Vanish. The company's relatively strong cash position provides a degree of financial flexibility, but its long-term capital requirements remain subject to significant risks and uncertainties.
The company continues to evaluate its strategic options and capital deployment to support the development and commercialization of its electric vehicle products. AYRO's focus on compact, sustainable electric vehicles for closed campus mobility, low-speed urban and community transport, last-mile delivery, and government use positions it in a growing market segment. However, the company must overcome its current challenges to capitalize on this potential.
Investors in AYRO should closely monitor the company's progress in executing its strategic initiatives, managing its supply chain, and achieving cost reductions. The outcome of AYRO's efforts to regain compliance with the Nasdaq's listing requirements will also be a critical factor in determining the company's future. Overall, AYRO's ability to overcome its current challenges and capitalize on the growing demand for electric vehicles will be key to its long-term success in the competitive and rapidly evolving electric vehicle market.