If any company belongs in the distinct category of don’t judge a book by its cover, but maybe you should have, it’s Electrameccanica Vehicles (NASDAQ:SOLO). At first glance, you can’t help but laugh at the company’s flagship Solo electric vehicle. Certainly, EVs are hot but three-wheeled ones that carry only the driver? Such purpose-driven vehicles have never taken off here due to their impracticality, which is why many investors are skeptical about Solo stock.
At the same time, you may want to consider the entire narrative. For many of us during the pre-pandemic paradigm, we would not make good use of our traditional personal vehicles. A five-seater SUV would only be utilizing 20% of its capacity in a normal commuting situation. Thus, the case for SOLO stock was straightforward – why pay for those extra seats you don’t usually use and get a commuter vehicle instead?
Now, that story took a hit thanks to the novel coronavirus pandemic. But even here, Electrameccanica still makes a (bullish) case for itself. According to data from the Transportation Security Administration, air passenger volume is still just under 40% against the year-ago level. This demonstrates that even with people getting “used to” the coronavirus, fear is keeping a good chunk of people away from public transportation.
A Facility in the U.S.
In this case, having a cheap commuter car will be incredibly beneficial. As well, the environmentally friendly profile of EVs, along with their cheaper maintenance (thanks to fewer moving parts) should make SOLO stock a buy, albeit a speculative one.
If these weren’t enough reasons to consider Electrameccanica, InvestorPlace contributor David Moadel brought up a compelling economic factor. As Moadel said, the company is planning to build a “U.S.-based assembly facility and engineering technical center,” with two finalist locations being “Phoenix, Arizona metro area and the Nashville, Tennessee region.”
Obviously, this is great for jobs, something that we desperately need. However, when you drill into the details, Electrameccanica Vehicles is a bit of a Manchurian candidate. That’s because its Zongshen Industrial Group facility, located in Chongqing, China, “will continue to manufacture SOLO EVs for the global market, while also supplying knock-down kits for assembly in the United States.”
As you might imagine, China isn’t a popular country right now.
Why China Is a Headache for SOLO Stock
According to a 2015 Nielsen poll, 73% of global millennial consumers (along with 66% of consumers overall) were willing to pay more for sustainable goods. Further, Inc.com contributor Melanie Curtin makes an interesting point:
I can attest to the fact that sustainability isn’t just something I “sorta kinda” consider –it’s one of the primary reasons I either buy or don’t buy from consumer brands.
When browsing beauty products, my first question is, “Is it cruelty-free?” not how pretty the blush is. When looking at food items like coffee, I want to know first that it’s Fair Trade. I don’t want to support companies that don’t care about how the animals and/or workers are treated, and I do want to support those that do.
Using this logic then, I would assume that Curtin and those that think like her would be opposed to locking up minorities in concentration camps. Yet that’s what the Chinese Communist Party does and many other ugly actions well before the pandemic.
Pandemic Influences Opinions
To be fair, such problematic issues may not have impacted SOLO stock had the pandemic not occurred. But because of the coronavirus, more people and institutions are casting a deeply critical eye on China. And that’s not an anecdotal observation. According to a Pew Research Center report earlier this month, unfavorable views of China has reached “historic highs in many countries.”
It’s now no longer unusual to go to any country and find that around two-thirds of the population has an unfavorable view of China. Thus, the idea of buying a Chinese-manufactured EV (an expensive purchase no matter how you look at it) is anathema to consumers. Not only that, there is no age demographic in any of Pew’s analyzed countries where China favorability was positive.
In other words, consumers will have to make a choice: is their penchant for environmentalism greater in magnitude than their dislike for China? No matter what, it’s an ugly situation that casts a dark cloud on SOLO stock.
A Negative Factor?
Furthermore, the increasing diversity of America may actually be a net negative for Electrameccanica Vehicles. In another Pew report from 2015, 73% of white Americans had a favorable view of Japan. But what might shock many of you is that only 56% of non-white Americans had such favorability. So much for the stereotypical idea that non-whites are a monolithic benchmark for tolerance and acceptance!
To be clear, the Pew data indicates that education plays a pivotal role regarding Japan’s perception. Since whites generally seek higher education more so than non-Asian communities of color, this factor must be taken into account.
Yet even accounting for that, I believe it’s worrisome (for Electrameccanica) that non-whites hold a rather ambivalent opinion about Asian countries that aren’t doing anything overtly bad (and are actually doing much good, such as creating American jobs). Thus, with the coronavirus originating from China, along with the communists’ attempt at covering it up, a diverse America is not necessarily a panacea for SOLO stock.
Economic Concerns May Drag Down Electrameccanica
Let’s just set aside the China headwind. Even then, economic concerns may weigh down SOLO stock. After all, the coronavirus isn’t just a health threat. As you can tell from the steep job losses, many of which are permanent, what millennials are concerned about now is cash flow.
Yes, the Solo is a cheap EV. But its value proposition is awfully costly for millennials looking for a multi-purpose vehicle. For them, it’s not just about commuting to work (once we return to somewhat normal); it’s also about running errands and carpooling (an environmentally friendly action in and of itself) and other activities. In those cases, a one-seater is a real drag.
Plus, with so many compelling vehicles in the secondhand market, it’s going to be hard to justify buying the Solo. Furthermore, regarding SOLO stock, the speculative potential of riding the broader EV sentiment just hasn’t panned out.
For the gambler, I suppose that the cheapened price of SOLO may be attractive. But for long-term investors, the multiple headwinds working against the niche EV maker represent huge concerns.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.