Should You Go Along For the Ride With ElectraMeccanica Vehicles?

ElectraMeccanica Vehicles (NASDAQ:SOLO) stock price is continuing its year-long descent after it released its fourth-quarter earnings report. In early morning trading, SOLO stock is down over 5%. For the year, ElectraMeccanica stock has lost over 25%.

Some of this is because the electric vehicle (EV) bubble is starting to deflate. 2020 was the year that brought many companies public, many by way of a special purpose acquisition company (SPAC). This has led to a certain fatigue among retail investors. And for institutional investors there are only so many companies that they want to place a bet on. With only about 5% institutional ownership, the big banks and hedge funds are looking elsewhere.

The Electric Vehicle Space is Getting Crowded

 For most of 2020 being different was a benefit to ElectraMeccanica Vehicles. The company’s autocycle, the Solo, was offering something truly differentiated. I use the word autocycle intentionally. The Solo is a three-wheeled vehicle. In some states it’s classified as a car. In others, it’s classified as a motorcycle. And still others have created this hybrid definition, the autocycle, to describe the product.

What seems to be universal is that to drive one does not require anything more than a standard driver’s license. However, the price tag of $18,500 may be inexpensive for a car, but it’s hefty for a motorcycle, especially one that will limit the size of the biker.

What is the Company’s Addressable Market?

When I look at a picture of a Solo autocycle, I immediately think that I could never be comfortable in it. It turns out I’m right. The car is not designed for individuals taller than 6 feet and for those who weigh more than 200 pounds. I don’t qualify on either of those metrics.

That limits the addressable market substantially. But that’s only if the company continues to market this as a commuter’s dream car. That argument seemed to get a lift during the pandemic when optimistic traders began imagining that many commuters would embrace the idea of a car that redefined personal space and social distancing.

But in looking at ElectraMeccanica for the last year, I’ve felt the company is miscasting itself as a commuter’s dream. I think the long-term appeal of the Solo is as a last-mile delivery vehicle. And sure enough the company does have plans in the works for modified versions of the Solo with slightly more cargo room.

This wouldn’t be something that would take the place of FedEx (NYSE:FDX) or UPS (NYSE:UPS) or even Amazon (NASDAQ:AMZN). However, it could be something that Uber (NYSE:UBER) partners with or even a chain like Kroger (NYSE:KR). And if that were the case, institutional investors may get more excited.

Earnings Were Mixed

The company reported revenue of $224,000 for the quarter which was lower than the $238,000 it earned in the same quarter in 2019. For the full year, revenue came in at $59,000 which was less than the $586,000 the company generated in 2019.

On the earnings front, the news was the same. For the quarter, the company’s earnings adjusted for non-recurring items came in at a negative 19 cents per share. This was lower than the consensus estimate of negative 11 cents per share. And it was slightly more than the loss of 17 cents per share in the same quarter in 2019.

ElectraMeccanica has managed to beat revenue estimates in three of the past four quarters, but it has missed on earnings estimates for all four quarters. Since the company is not yet profitable, investors may be willing to overlook this. However, the company will have to start showing revenue.

It’s All About the Production

The bullish case for SOLO stock centers on the company’s build out of production facilities in the United States. After an extensive search the company recently announced the facility will be built in Mesa, Arizona.

When operational, the plant is expected to produce up to 20,000 vehicles per year. And ElectraMeccanica does have an order book of over 23,000 preorders with a refundable deposit of $250.

However as the company’s earnings report showed, production can’t begin too soon.  The company managed to raise cash through a secondary offering. Investors may remain patient while ElectraMeccanica gets its production facility built. But that’s not a sustainable long-term strategy