From late May to early July, SOLO stock surged by more than six-fold, from less than a buck, to over $6.
The stock has since cooled down, dropping back towards the $2.50 level.
But recent weakness is more a reflection of SOLO stock taking a breather after a too-hot-to-sustain rally, rather than a change in the fundamental growth narrative. Instead, the fundamentals underlying ElectraMeccanica are only improving.
To that extent, SOLO stock looks compelling on this sell-off. Near-term turbulence will pass. When it does, long-term EV demand tailwinds will carry SOLO stock to new highs.
Here’s a deeper look.
Times Are Changing
ElectraMeccanica is the maker of a small, single-seater, three-wheel EV dubbed the Solo.
Bears are quick to point out that America historically doesn’t like small cars. They’re absolutely right. Every small car that has ever launched in the U.S. to-date has been a failure.
Suzuki in the early 2010s. The Toyota Scion iQ in 2015. Mercedes’ mini-Smart Car in 2019. None of them sold more than a few hundred units. None of them are still for sale in the U.S. today.
But times are changing, and ElectraMeccanica has a unique opportunity to buck this decade-old trend.
Making the Perfect Vehicle for the Perfect Audience
The U.S. auto market has historically been driven by older folks and families, who live in spacious suburban neighborhoods, with sizable incomes and good credit.
That crowd likes — and can afford — bigger cars.
But, in the 2020s, the U.S. auto market will increasingly be driven by an entirely different demographic: young, single folks, who live in jam-packed cities, with lower incomes and worse credit.
Long story short, due to the widespread availability of shared mobility services, Millennials have long shunned car ownership, with U.S. Millennial car ownership rates up at 80% today, versus 90%+ for older demographics.
But Covid-19 is changing that, because it has eroded the attractiveness of ride-sharing, and prompted these young, single folks — who before relied exclusively on Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) to get around — to finally get a car.
A recent Capgemini survey found that 45% of individuals under the age of 35 are considering buying a car in the wake of the pandemic, with a majority of that intent coming from people who have never owned a car before.
These young folks don’t have the space or disposable income for a big, fancy car. Plus, they do most of their driving alone (commuting to work accounts for the biggest portion of automobile miles, and 76% of people who commute to work, do so alone). And they are all hyper-concerned with saving the environment.
Connecting the Dots
It becomes obvious what this new wave of young prospective car buyers is going to do: Buy a bunch of small, cheap electric cars.
Which, as it turns out, is ElectraMeccanica’s specialty.
The Solo car is tiny. There’s only one seat. It’s electric. It retail for less than $20,000. It can fit anywhere. Plus, it looks pretty cool.
It is, for all intents and purposes, the perfect car the perfect audience at the perfect time.
To that end, ElectraMeccanica will sell a lot of Solo cars to young, urban consumers over the next 5 to 10 years. The company will also sell a lot of these cars to local food and package delivery companies. And to travel/entertainment companies who will rent them out as “fun” vehicles like an ATV.
Add it all up, and there’s a ton of opportunity for ElectraMeccanica to grow Solo into a big brand.
Executing Strongly on Growth Road Map
Over the past few months, management has executed strongly on their long-term growth road map.
Most importantly, ElectraMeccanica has begun mass scale production of its Solo cars in China, and expects to deliver them to current customers on the wait-list by November or December of this year.
That’s a huge step because it basically means the Solo car is finally transitioning out of the concept phase, and into the reality phase.
At the same time, ElectraMeccanica just opened up a new U.S. retail location in Portland, giving the company three retail locations on the West Coast (LA, Phoenix and Portland).
Thus, ElectraMeccanica seems to be an optimal position from a consumer reach and manufacturing perspective to, over the next few months, establish proof-of-concept and proof-of-demand for its Solo cars in LA, Phoenix and Portland.
Assuming that early roll-out goes well, ElectraMeccanica will likely leverage early success to raise a bunch of capital, and subsequently increase manufacturing capacity and expand geographic reach, thereby truly beginning the multi-year ElectraMeccanica growth narrative.
Huge Upside Potential for ElectraMeccanica Stock
At the current SOLO stock price, ElectraMeccanica is being valued at just $160 million.
Assuming the company sells upwards of 50,000 Solo cars by 2030 — a fairly reasonable assumption, considering Tesla is on track to sell 500,000-plus cars this year — then at a $20,000 price point, you’re talking $1 billion in revenues.
A market-average 2X sales multiple on that gets you to a $2 billion market cap.
And that’s before factoring in any sales from the company’s two-seat EV concept, the Tofino, which is set to launch in 2023, and could turn into a niche EV sports car with healthy demand.
Overall, then, SOLO stock appears to have significant upside potential in the EV boom of the 2020s.
Bottom Line on SOLO Stock
SOLO stock is down. But not out. Mass production of the Solo cars has begun. The third retail location in Portland has opened up. Everything is trending in the right direction for ElectraMeccanica to prove in early 2021 whether or not its novel three-wheel EV concept is a hit… or a dud.
I think it’ll be a hit. If it is a hit, SOLO stock will soar over the next 12 months.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm.