The electric car industry is booming, and industry stalwarts like Tesla (NASDAQ:TSLA) are reaping the benefits. Meanwhile, gimmicky companies like Electrameccanica Vehicles (NASDAQ:SOLO) have only enjoyed a fraction of the success. While EV stocks like Tesla and Nikola (NASDAQ:NKLA) have powered higher this year, SOLO stock is far less glamorous.
The company’s superfluous business model and its inability to stand out from the pack makes it a bad bet.
The stock market typically rewards the first mover. Electric cars are synonymous with Tesla, with its competition looking to constantly emulate it. With the promise of battery-powered trucks, Nikola has also garnered the interest of the stock market.
Meanwhile, the initial buzz surrounding SOLO stock has worn off. Now investors are looking at the nitty-gritty, accessing its fundamentals and the long-term case. While its status as an EV stock might have justified the initial interest, that’s not enough to keep pushing it higher in the long run.
Worrying Second Quarter Results
Electrameccanica recently reported dismal second-quarter results, which further supports the dreary outlook. Revenues dropped from 0.02 million CAD to 0.2 million CAD in the prior-year period. The massive decline is attributable to the slowdown in demand for custom-built roadsters. Its Q2 net loss amounted to 12.9 million CAD, in contrast to the net income of 3.3 million CAD it generated in the same period last year. Additionally, stock-based compensation. selling and general administrative expenses rose significantly.
But not all of it was necessarily bad news. Perhaps the most significant positive for the company was its ability to strengthen its balance sheet. Cash and cash equivalents and short-term deposits increased by 360% to 51.3 million CAD from December 31, 2019. CFO Bal Bhullar stated, “As a result of the various capital markets activities we conducted in the quarter, our financial position has been strengthened substantially.”
SOLO’s management team is hopeful that it can execute its plans by continuing to streamline its capital structure in the future.
Flawed Business Model
Electrameccanica’s business model revolves around its three-wheeled SOLO electric car, a single-passenger plug-in vehicle. The idea behind the SOLO car is to enhance efficiency. “So many vehicles are being driven by one person … Why does everybody think they need to drive around and leave three or four empty seats?” said Paul Rivera, chief executive of Electrameccanica. Three-wheeled electric cars aren’t necessarily a bad idea. Its vehicles also include power steering, air conditioning and a small trunk.
However, Electrameccanica is not the first company to try its hand at a three-wheeled smart car. The Bond Bug was an angular British three-wheeler that was the first to introduction to the concept. But it went out of production after four years in 1974. Established brands such as Mercedes (OTCMKTS:DMLRY) and Toyota (NYSE:TM) have also struggled to make a mark with their iterations of a smart car.
Although the idea could still potentially be viable, many have criticized its execution. It’s unclear what the company hopes to accomplish with the SOLO’s puzzling design. It is essentially a motorcycle without the convenience. Additionally, it lacks the basic features of a car, including extra passenger capacity and cargo space. On top of that, it comes with a relatively hefty price tag of $18,500. Customers could easily opt for a Tesla or any other entry-level electric vehicle instead.
Final Word on SOLO Stock
There are hardly any incentives to invest in SOLO stock at this point. The stock is down 18.3% this month, whereas its competitors are rallying. Perhaps what’s more important, though, is its flawed business plan and questionable vehicle designs. Perhaps changing its pricing model could create some incentive for its investors. But until there’s a clear path to success, I’d suggest avoiding SOLO stock.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.