Don’t Hit the Brakes on Electrameccanica Vehicles, But Tread Carefully

Will Electrameccanica Vehicles (NASDAQ:SOLO) head even higher? It’s possible. After its blowout third-quarter results, investors are diving into this “also ran” electric vehicle (EV) play. Shares of SOLO stock surged more than 30% on Nov. 13 alone.

SOLO stock
Source: Luis War /

But, while it seems smart to take profits now, after shares have gone parabolic, the recent strong performance of this stock doesn’t mean the party’s over just yet. How so? There are many reasons why shares in this development-stage EV play could head even higher in the coming months.

Firstly, the potential for massive federal support of EVs just around the corner. Secondly, the continuation of the EV bubble into 2021. Thirdly (and most importantly), the upcoming commercial launch of its flagship SOLO electric vehicle.

But, while it has many factors on its side, the recent strong performance could change course if the vehicle launch falls short of expectations. And, even it does meet expectations, that doesn’t mean shares are destined to keep crushing it long-term. There’s a major reason why this company has little chance of reaching Tesla’s (NASDAQ:TSLA) level of success.

In short, there’s no reason why this stock can’t keep on climbing in the near term. But, with its long-term prospects uncertain, tread carefully as shares head toward new highs.

Many Factors Could Move SOLO Stock Above $10

As our own William White discussed Nov. 12, blockbuster third-quarter results put this stock back into hyperdrive. Sales surged 50% from the prior year’s quarter. And, while losses widened, optimistic statements from CFO Bal Bhullar may have been enough to get speculators further excited over the company’s prospects in the coming year.

Yet, even if the excitement from this recent quarterly release cools, there’s plenty in motion to help send shares into the double-digits. As I highlighted above, a major factor in this stock’s corner is the upcoming Joe Biden presidency. The president-elect’s pledge to invest $2 trillion into EVs and other green initiatives could mean a faster acceleration for this fast-growing industry.

That being said, the future success of this Canada-based company doesn’t hinge 100% on U.S. political changes. Another major factor that could keep shares trending higher is the continuation of the EV bubble. Granted, eventually the bubble will burst, and we will see a massive sell-off in this too-hot-to-touch sector. But, as the good news continues for this industry, a reversal doesn’t look likely in the next few months.

But, again, this isn’t the only factor that could drive SOLO stock higher in the near-term. Finally, and most importantly, the company’s upcoming launch of its flagship electric vehicle. As InvestorPlace’s Muslim Farooque wrote Nov. 9, the company has had this vehicle in production since August. In contrast, many of the other development-stage EV companies are years away from even starting production.

With the SOLO set to launch by year’s end, better-than-expected sales could be what keeps this stock trending higher as we enter 2021. Yet, while there’s much in this EV stock’s favor, future share performance is far from a slam dunk.

Strong Prospects, But Still High-Risk

There’s plenty in Electrameccanica’s corner. But, while it’s (to some extent) ahead of its development-stage peers, there’s a big reason why this EV name have more limited runway than its rivals.

Namely, due to the specs of its upcoming SOLO vehicle. This company isn’t building an EV truck, like rivals Lordstown (NASDAQ:RIDE) or Nikola (NASDAQ:NKLA). Nor is it building passenger vehicles like SUVs, as Tesla currently does, and Fisker (NYSE:FSR) plans to do.

No, this EV upstart’s flagship vehicle only seats one. And, it has only three-wheels. Sure, the oddity of this vehicle doesn’t mean it can’t become a success. But, its clear this will remain a niche vehicle at best. Don’t count on this company to ever reach Tesla-level sales.

Sure, that doesn’t mean this stock can’t still deliver for investors. But, even crushing it in its niche isn’t exactly guaranteed. Even with the car scoring 23,000 pre-orders ahead of its launch. While the SOLO flopping doesn’t mean the end of this company, failure to deliver on expectation could send shares back to prior price levels (less than $3 per share).

Don’t Go Short, But Be Careful If You Go Long

As speculation in EV stocks remains, it’s far too dangerous to go short any name in this space. This includes Electrameccanica shares. But, while this stock could keep heading higher in the coming months, keep in mind its long-term prospects remain uncertain.

Any sort of hiccup with regards to its upcoming vehicle launch could send shares back below $3 per share.

So, at today’s prices (around $7 per share), what’s the verdict? If you have a healthy risk appetite, there’s no issue with SOLO stock at today’s prices. Just tread carefully, as the long-term bull case could easily reverse.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.

Article printed from InvestorPlace Media,

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