Despite the Recent Activity, Electrameccanica is Still as Risky as Ever

In August, I wrote about how gimmicky electric vehicle company Electrameccanica Vehicles (NASDAQ:SOLO) is likely to struggle in the competitive EV space. Fast forward to November, and the Canadian EV producer is planning to launch its SOLO EV this fall in Los Angeles, CA, and Scottsdale, Arizona.

a charging station for an electric vehicle
Source: Shutterstock

It recently released photos and videos of the SOLO car in production. Hence, these developments have helped SOLO stock grow 13.8% this month. However, with these positive developments, one should not ignore the company’s array of risks. It’s tough to go long with the stock, but speculative investors may find SOLO stock interesting for the time being.

Production began on August 26th, and with the November/December deadline insight, the company is selecting members on its pre-order list. It claims that it has pre-orders worth over $2 billion; hence, it would have to speed up production in meeting its targets effectively. It will be interesting to see how it will manage to fulfill its targets with the pandemic’s challenges.

Getting Ready for Launch

After months of speculation, Electrameccanica finally began production of its hotly anticipated SOLO EVs in late August. Additionally, the company has also announced a couple of assembly facilities and technical engineering centers in Arizona and Tennessee.

The site inspection and proposal reviews are in the final stages and should conclude by November. The distribution will begin in areas where the company already has a substantial retail footprint, such as Southern California. The company has a substantial waiting list, which should encourage customers to place their pre-orders earliest.

Electrameccanica is targeting the November/December window for the commercial launch of the SOLO. However, it is also essential to factor in the pandemic’s impact on logistics and other elements of the supply chain. Therefore, it would be interesting to see what percentage of its targeted deliveries the company can achieve.

The Downside Risk is Exceptionally High 

Regardless of the increase in activity over the past few months, Electrameccanica problems are still the same. I argued at length about the company’s flawed business model, which would potentially limit long-term investors’ interest. Its key elements’ weak business model include the SOLO’s puzzling design and its relatively high price tag.

The concept of the SOLO EV isn’t all that bad. Three-wheeled single passenger smart cars have failed in the past, but Electrameccanica feels it has the combination to make the project a success. Time will tell how it fairs, but it’s a rocky road ahead. On the face of it, its $18,500 price tag seems highly economical, especially for the younger demographic. However, established brands such as Tesla (NASDAQ:TSLA) have similar price points for their entry-level cars with flexible financing options. Electrameccanica could lower the price point for the SOLO EV, but it is likely to impact its margins severely.

Its stock price is trading at a massive discount from its recent highs. SOLO Stock was priced as high as $5 per share but is now down to $2.9. Hence it is trading at more than a 40% discount, which should interest speculative investors. With the SOLO EV release, the stock price should reach new heights, crossing double digits. Even with a bit of dilution, SOLO Stock’s price should grow at least 3-4 times its current price.

Final Word On SOLO Stock

Electrameccanica has picked up the pace in the past few months. Manufacturing is under-way with a tentative commercial release this fall. Investors looking at a broad time horizon though understand the flaws in the company’s business model.  The sustainability of its operations in the long term is a significant cause for concern. Therefore, my stance on SOLO Stock remains unchanged and that it’s best to avoid it at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article

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