As Delivery Gets Even Bigger, Ayro Is Ready to Roll: Q&A

By Richard Stubbe, BloombergNEF. This article first appeared on the Bloomberg Terminal.

Electric vehicles are starting to take off as passenger vehicles but Ayro Inc., a three-year-old company based in Austin, is seeing a place for them in light-duty work – deliveries and short passenger rides – both on the roads and in limited environments like resorts, universities, hospitals and corporate campuses.

“We fill that gap in the center” between electric scooters for rent in the nation’s downtowns and full-size electric vehicles like Teslas, said Rod Keller, president and CEO of Ayro, in an October interview. “Where we do really better is with lower total cost when compared to the traditional gas-powered vehicles.”

Keller also sees a big opportunity for his company’s street-legal vehicles in restaurant delivery, where businesses like DoorDash and Uber Eats have seen significant growth as customers have opted for that during the Covid-19 pandemic.

“We believe that restaurant delivery, or delivery in general, is going to be a huge growing business that will not go back to the way it was even after we get control of Covid,” he said.

Since the October interview, the company has closed a financing deal with a group of investors including Carnegie Hudson Resources, an investment arm of Wanxiang America. Auto-part maker Wanxiang Group, the parent company, owns luxury EV maker Karma Automotive and battery developer A123 Systems. Ayro agreed to enter a manufacturing and design partnership with Karma earlier this year, with the companies aiming to deliver more than 20,000 light-duty trucks and electric delivery vehicles over the next three years.

This interview has been edited for clarity and brevity.

BNEF: What are your target markets?

Keller: We’re exclusively focused on commercial. These are things like property maintenance, universities, hotels, resorts, government entities, hospitals. That’s where all of our success has come so far. If you look at the spectrum of electric vehicles, at one end you see electric scooters all over the downtowns of many of the cities in the U.S., to the other end of the spectrum, where you see electric vehicles like Tesla. We fill that gap in the center.

BNEF: How did you come to Ayro?

Keller: We were founded in 2017. Before coming to Ayro, I was the president of Segway. When I got here three years ago, we had the light-duty electric truck. Four months later, in February 2018, we were at a trade show for commercial equipment for golf courses, and Club Car wanted to know whether we were willing to talk about licensing it to them. We signed the contract a year later.

BNEF: They just put their name on your vehicles?

Keller: They are on the light-duty truck only. In the later part of this quarter, we will launch a next generation light-duty electric truck with them that will expand from North America to Europe, as well, and into the balance of Latin America. So we’re excited about that. I think they are as well.

BNEF: Where do the carts go?

Keller: Historically, Club Car has sold these into hospitals, universities, large business campuses, government entities. But Club Car has one very large dealer named Gallery Carts in Colorado. They’ve been around 40 years, and they are one of the biggest suppliers of hospitality carts. They’ve sold them for a number of years to NFL stadiums, universities, obviously, a lot of professional sports stadiums. When we signed the agreement with Club Car, they moved their hospitality solution off of one platform and exclusively onto our light-duty electric trucks.

The business was good and it’s gone from good to great, because universities were one of their big customers. Many of the food and beverage contracts that universities have are with companies like Aramark and Sodexo and Chartwells.

They own those food and beverage contracts at the universities as well, and with Covid their challenge was to get food and beverages to students without forcing them to go into the dining halls. They place our vehicles around the campus knowing exactly when students are getting out of class, and now they’ve got a grab-and-go food and beverage for students.

We do not believe that the challenge of how to get food and beverage to large groups is going to change, and we think the market is moving toward us.

BNEF: What other markets have you looked at?

Keller: Eighteen months ago, we had some ideas on where we thought we might succeed. The reason we chose three wheels is because three-wheeled it does not require all the crash testing a four-wheel vehicle does. So we created a 100% street-legal three-wheeled electric vehicle.

We thought people on vacation in Florida, Texas or California might be interested in renting one in lieu of a golf cart. It goes faster and you can drive it places you can’t drive a golf cart. We also tested it in retirement communities.

BNEF: How did that go?

Keller: Unfortunately, we failed miserably, and I’ll tell you why. With people on vacation, it was usually a family of four and they needed something that would seat four to six. And if it was only two people, they wanted to sit side by side, not in line. The retirement communities thought it was an interesting idea but they also wanted to sit side by side, whether it was with a significant other or a pet dog. So we learned some valuable lessons.

BNEF: Restaurant delivery looks promising?

Keller: We feel like we’ve hit a home run there. In that first-generation vehicle, through restaurants’ own testing, we found as much as a 49% reduction in operating expense when compared to a typical restaurant gas-powered delivery vehicle like the Nissan Versa.

As the aggregators like DoorDash, Grubhub and Uber Eats began having success and restaurants were seeing about 10% of their total revenue going to delivery, they were OK with that. They liked the top-line growth and they didn’t mind giving up 30% of the ticket on 10% of their business.

Then Covid came along. Now delivery is a much bigger piece of most restaurants’ business, the aggregators keep 30% of the ticket, and the restaurant loses control of the experience for the customer. Restaurateurs are scrambling to figure out how to reduce operating expenses and how to take control of the experience because the driver works for a third party. They’re losing the opportunity to be a rolling billboard as well.

BNEF: How is that going?

Keller: The first generation was not successful in restaurants for three reasons. It needed to go faster than 50 mph, it needed more range than 50 miles, and it needed air conditioning.

So we decided to build a food delivery vehicle, not to adapt a generic electric vehicle for food delivery. We believe that restaurant delivery, or delivery in general, is going to be a huge growing business that will not go back to the way it was even after we get control of Covid.

So we’ve started working with some of the largest restaurant brands or quick-service restaurants, and we’re building an advisory council to help us understand the needs so that when we launch our next-generation delivery vehicle in the latter part of 2021, it will truly address their needs.

BNEF: Most deliveries, as you said, are by third parties. How have you accounted for that?

Keller: Jimmy John’s has 2,300 stores and 43,000 drivers, and they spent a lot of money to announce they will not outsource delivery. Their concern is they lose control of their own destiny. They lose control of the experience, they lose control of the expense, and what happens the day that Grubhub comes to you and raises their take to 35% or 40%?

We’re going to go talk to the aggregators, too. We have no issue with helping them lower their expenses by using our vehicles. We’re going to talk to anybody that we think we can help in the application of delivery.

BNEF: How do you deal with the challenge of keeping the food at the right temperature?

Keller: Probably one of the most important contributions that quick-service restaurant leadership is working with us on is exactly that. How do they want to transport hot and cold food? We expect the National Restaurant Associationis going to work with the federal government about sanitary minimums for restaurant delivery.

So we’re working from the ground up to build solutions that don’t just meet operational efficiencies and economic savings, but also address food safety.

BNEF: How big is the business?

Keller: Food delivery is the fastest-growing segment in the restaurant industry. U.S. domestic delivery represents about 5% of total U.S. food sales. That’s $40 billion. Delivery represents about 7% of total global food sales, and that’s $130 billion. This is pre-Covid.

Restaurant delivery is expected to grow to $200 billion by 2025. All you can expect is that this is going to accelerate much faster and get bigger faster, and we feel like we’re better positioned than anybody else to take advantage.

BNEF: Where is the bulk of your business now?

Keller: Today all of my business is the light-duty electric truck that we sell through Club Car. It’s a combination of hotels and resorts, hospitals are growing very quickly, and universities, which have slowed a bit because of Covid. The Sodexo-Aramark-Chartwells business could be our largest light-duty electric truck business next year.

BNEF: You mentioned that you had a particular type of battery in these that had only a 50-mile range. What kind of batteries are you using now, and how is the changing technology of batteries affecting your business?

Keller: Originally we were only using what’s called VRLA, which is a lead acid maintenance-free battery. We just recently moved to lithium. In our light-duty truck, the range went from 50 miles to 85 miles, and the time to charge dropped to three hours from six to eight with lead acid. And with lithium, the performance doesn’t degrade as the battery charge drops. Also, a lead-acid battery can last about 700 recycles, and it’s 5,000 for a lithium battery.

Until there is cost parity between lithium and lead acid, we will continue to offer a lead-acid version because there are some people that don’t need to drive more than eight or nine miles a day. I still think it’s a couple of years.

BNEF: What does one of your vehicles cost?

Keller: We sell the light-duty electric truck in three configurations – flatbed, pickup, and van box. Club Car will sell for anywhere from the high $18,000s to $22,000.

BNEF: How long do they last?

Keller: It is very long, and an electric vehicle is a simpler device. The average gasoline-powered vehicle purchased in the U.S. today has about 30,000 parts. An electric vehicle like ours has 3,000 parts.

When Club Car sells one of our trucks, it is most typically replacing a small gas- or diesel-powered pickup truck or a van. There are three distinct advantages: the 49% reduction in operating expense, a 100% reduction in CO2 emissions, and it has about a 38% improvement in turning radius and it’s only about half the weight of a typical gas-powered truck. And it’s street-legal. In some cases on college campuses, they want to jump the curb and drive up somewhere closer, for instance to deliver food to students.

Q: How big a factor is the reduction in CO2 emissions when it comes to making sales?

Keller: There are 1,800 universities in the U.S. that have at least 10,000 students and that have at least 400 vehicles. They have published sustainability initiatives, and the total number of vehicles across those 1,800 universities is 537,000 vehicles with the expectation that they’re going to move 20% a year from gas to electric.

I would love to say that the No. 1 reason people are doing that is the 100% reduction in CO2 emissions, and I know that plays a big part of it, but it’s hard to ignore the economic savings.

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