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"Drive SOLO" & Reassess Your Driving Habits: Own the Stock Too?

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The electric vehicle (EV) industry was one of the highest-flying ones last year, with almost all the stocks (including startups or stalwarts) in the space shooting up. Investors had been aggressively piling up stocks amid the EV mania, with little regard to valuation and fundamentals. The e-mobility landscape seemed rather invincible till last year.

However, investors’ sentiment for the space appears to be cooling off lately amid inflation woes, valuation concerns, stiff competition in the EV arena and global chip crisis. Investors finally take notice of the chinks in the armor and understand that not all stocks in the space would be able to make it big in this super competitive industry. As such, many EV stocks that enjoyed an epic run on the bourses in 2020 have tumbled on a year-to-date basis.

ElectraMeccanica SOLO is one such stock that generated a huge buzz and rose a whopping 188% in 2020. With lots left to prove, this Canada-based EV maker seemed vulnerable at those euphoric levels, demanding a correction and rightfully so. ElectraMeccanica has dipped 24.5% on a year-to-date basis and is currently hovering around $4 per share, off nearly 65% from its 52-week high levels. Does it make for a compelling entry point? Let’s check out.

The SOLO EV: Too Much Fun to Ignore?

With the aim of revolutionizing commuting experience, ElectraMeccanica is trying to fortify its presence in the green mobility landscape by manufacturing unique all-EVs. Its flagship vehicle is called SOLO and for a reason; it is a single-seater EV. This single-occupant SOLO is a three-wheeled, purpose-built EV for everyday commute, designed for a modern urban environment. 

So, is this three-wheeler a car or a bike? Well, neither exactly; it’s rather an offspring of both. Technically more of a motorcycle, it is fully enclosed and drives like a car. With the company claiming that SOLO will be safer than a motorcycle and cooler than a car, it indeed sounds effective and fun for solo commuters. However, the interiors are not very spacious.

SOLO can run up to 100 miles on a single recharge, with a top speed of 80 miles per hour. Coming with a relatively affordable price point of $18,500, the vehicle is available for pre-orders at the company website.

Well, don’t be mistaken that SOLO is really one of a kind. Oregon-based Arcimoto FUV and California-based Aptera are also building three-wheeler green vehicles. The Polaris Slingshot —built by Polaris Industries PII — is also capturing the attention of car enthusiasts.

But is the cool and quirky SOLO ready to be embraced by the Americans? Lest we forget, many automakers like Morgan Motor, Toyota TM and others have dabbled in three-wheeled automobiles but did not manage to win mass appeal and drivers’ faith for a long period of time. Mostly, as the novelty of the idea began to wear off, most people started viewing the designs as rather impractical.

However, things might be different this time. With the auto industry undergoing a radical makeover, more single-seater three-wheeled EVs are set to hit the roads, promising cheaper costs and thrilling rides. In fact, it makes sense to come to grips with a single-seat vehicle if it’s just you and only you who’s going to need it. Here’s the pitch by ElectraMeccanica:

“Every day, 119 million North Americans commute using personal vehicles— and 105 million of them commute alone. Step into the future of driving. Reduce your gas bill to zero. Eliminate your environmental impact. Turn your commute into the highlight of your day.”

While single-seater three-wheeled EV is an interesting option for sustainable travel, only time will tell if it takes off big this time. 

Is SOLO Stock as Enticing as Its Three-Wheeler EV?

So, what all is working for ElectraMeccanica? Well, we like the SOLO vehicle, which commenced production last August, with an annual production capacity of 20,000 units. Additionally, the firm’s asset-light manufacturing model in partnership with Zongshen Industrial Group significantly reduces production risk and lowers capex requirements. The company also established a U.S. assembly facility in Arizona, which will help it avoid tariff woes and reduce uncertainties in the global supply chain. 

ElectraMeccanica is also playing its marketing cards right, with both traditional and digital marketing mediums as well as effective social media strategies aimed at stirring up brand awareness along with increasing consumer enthusiasm, test-drive list and ultimately the fan fare for the brand. The firm remains focused on expansion of retail footprint and currently owns 20 retail stores in the United States. The company’s three-pronged distribution strategy — direct-to-consumer sales, fleet sales and sharing model — augurs well for top-line growth.

Adding versatility to its product line up, ElectraMeccanica is also set to produce a “utility and fleet” version of the SOLO EV integrated with a cargo “cap” for more space as well as versatility. The company’s clean balance sheet with $149.4 million cash and negligible debt also bodes well.

Not a Bed of Roses Though

ElectraMeccanica has its fair share of challenges. Being in the nascent stages of development, it is yet to generate a profit. Over the trailing four quarters, the company posted wider-than-expected loss thrice and matched the mark once. The firm’s operating costs are on the rise amid high R&D as well as SG&A expenses.

Although the company is revving up production targets, it has no proven track record. Even if ElectraMeccanica succeeds in boosting output, uncertainty remains, as there isn’t an established market for three-wheeled single-seater EV yet. While we can just hope for the best, customers’ preference toward spacious vehicles and safety and rebate concerns may play spoilsport.

For one thing, SOLO EV is not suited for individuals over 6 feet tall or over 200 pounds. Secondly, ElectraMeccanica’s SOLO will not be crash tested by National Highway Traffic Safety Administration as it’s largely classified as a motorcycle. While the company claims that SOLO is absolutely safe and driver friendly, no publicly-available crash-test ratings — especially considering the tiny size of the EV — may remain a concern. Also, the motorcycle classification makes it ineligible for many rebates that other green vehicles can qualify for, for instance, federal $7,500 tax credit or California’s $2,000 EV rebate.

Final Take

Well, you could definitely make a statement driving SOLO, but the stock’s success will largely depend on the mass-adoption of such three-wheeled single-seater EVs. While we like ElectraMeccanica’s flagship model, marketing and distribution strategy as well as no-debt balance sheet, the stock has a lot to prove at this stage. Although this Zacks Rank #3 (Hold) company is ambitiously expanding in the West Coast of the United States, it’s still unclear if Americans are ready to welcome these vehicles with open arms. So, investors who are already holding the stock should stay invested, as now is not the right time to sell the stock, considering its price plunge. But prospective buyers should rather wait for more clarity and encouraging numbers before buying the dip. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Toyota Motor Corporation (TM) : Free Stock Analysis Report
 
Polaris Inc. (PII) : Free Stock Analysis Report
 
Arcimoto, Inc. (FUV) : Free Stock Analysis Report
 
ElectraMeccanica Vehicles Corp. (SOLO) : Free Stock Analysis Report
 
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