ElectraMeccanica Vehicles (NASDAQ:SOLO) has had an up and down year. SOLO stock dropped 50% this spring in the broader market crash, falling from $2 to $1 per share. In June, as part of the broader excitement around electric vehicle (EV) companies, ElectraMeccanica soared to $5. Since then, shares have dipped significantly, and are now trading around $2.65.
However, while SOLO stock has slid a bit in recent weeks, the company hasn’t had any major bad news hit. In fact, the company is progressing nicely on its timeline toward commercial revenues.
Production of the company’s novel three-wheeled vehicles has kicked off recently, and deliveries should start around year-end.
ElectraMeccanica probably isn’t going to be the next Tesla (NASDAQ:TSLA) or Nikola (NASDAQ:NKLA), at least not yet. With its three-wheeled vehicles, ElectraMeccanica is going after what is likely to be a niche market.
But niches can be profitable, particularly with a high-priced quality product. SOLO stock only has a market capitalization of $170 million, so if the firm’s flagship vehicle finds any commercial success, there could be a trade here. With that in mind, is this a big buying opportunity, or should traders take a wait and see approach?
Commercial Revenues Are Fast Approaching
The ElectraMeccanica story is closer to playing out than many of its EV rivals.
For one thing, ElectraMeccanica has already launched production of its vehicles through its third-party manufacturer, Zongshen Industrial Group. In this way, ElectraMeccanica can get vehicles to market quickly without having to spend a ton of capital on its own factory facilities. And for Zongshen’s part, it already manufactures more than 100 different two- and three-wheeled vehicle types and produces more than 2 million units annually in total. It’s a solid partner for ElectraMeccanica.
Zongshen started production of the Solo on Aug. 26. As such, ElectraMeccanica envisions getting deliveries going around the end of the year. It will prioritize orders to three American cities first. Assuming success there, it should be able to broaden its reach in coming months.
As far as the bullish case goes, also consider that insiders own around a quarter of the company, substantially aligning their interests with those of outside investors.
The Vehicle Might Just Be Too Small
Our Matt McCall recently gave a compelling argument for the bear case, however. McCall labeled ElectraMeccanica’s prototype a glorified motorcycle and pointed out how it just might not be a good product fit for the market. Taking 10 seconds to accelerate to 60 miles per hour of driving speed is slow in a modern urban environment and could pose a safety risk.
The vehicle’s tiny size and nearly complete lack of cargo space is another drawback. The 100-mile charge range makes it impractical for long-distance trips that are so appealing on a traditional motorcycle. And there’s also the pandemic factor. In an ideal world, a top use for ElectraMeccanica’s vehicles would be a single person commuting to their job. That use case is on the back burner for now.
SOLO Stock Verdict
I’m not convinced that there is going to be a ton of consumer demand for this product. Enclosed motorcycle-type vehicles have been tried before and generally haven’t achieved significant adoption. Is it going to be any different this time? Let’s give the company some credit though; the electric angle is definitely a big selling point at the moment.
Still, at $18,500 each, I’m skeptical that these things are going to be in high demand. I’d be happy to be proven wrong, though. And let me say this: The electric vehicle space is filled with a lot of promotional companies and folks just trying to cash in on a profitable trend. I don’t think ElectraMeccanica is that. From what I can tell, CEO Paul Rivera seems like a straight shooter and he’s intent on delivering a cool and novel concept to consumers.
Is it going to work? Pre-orders are live now, if you’re interested in checking one out. Within a few months, we’ll start seeing sales numbers, and figure out whether this idea will be a commercial success or not. Given that this is a highly uncertain business, don’t mistake SOLO stock for being a blue-chip holding.
For a speculative name in the electric vehicle space, however, this one carries some appeal.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.