Many stock columnists still believe that Electrameccanica’s (NASDAQ:SOLO) Solo vehicle will be a niche product that will generate very little demand. I believe, however, that multiple data points, along with common sense, strongly indicate that sales of the vehicle will be strong enough to propel SOLO stock higher.
Meanwhile, the company could easily get a big boost from the incoming Biden administration.
Among the skeptics are Seeking Alpha writer Bill Maurer and a short-seller, Citron Research.
In a Nov. 16 column, Maurer contended that Electrameccanica is targeting a different segment of the market and is not likely to be selling high volumes anytime soon.
For its part, Citron called SOLO stock “a complete joke,” saying the shares should be worth just $2 each.
Important Data Points for SOLO Stock
One very important, mostly overlooked data point is the fact that in October 2018, before most Americans had ever heard the term “coronavirus,” Electrameccanica announced that it had obtained over 23,000 pre-orders for the Solo, along with over 41,000 pre-orders for its upcoming two-seat sports car, the Tofino.
Consumers who pre-ordered had to put down a refundable $250 deposit, while dealers who did so had to provide “a letter of credit or letters of interest.”
So more than two years ago, before the coronavirus crisis and before the electric-vehicle trend had peaked, there was enough interest in the Solo to enable the company to obtain more than than 23,000 pre-orders for it.
Analyzing the Data
In the 25 months since then, as I’ve predicted and then pointed out many times previously, Americans have become much more reluctant to ride on mass transit due to the coronavirus. Meanwhile, the interest in and demand for electric vehicles have soared, while the Solo has gotten a ton of free publicity in news outlets.
Given all of these points, I’d be very surprised if pre-orders for the Solo have not at least quadrupled over the last 25 months, while pre-orders for the Tofino have probably at least doubled.
Thus, I believe that the Solo is closing in on 100,000 pre-orders, while there are likely around 80,000 pre-orders for the Tofino.
At the average selling price of $18,500 for the Solo, 100,000 sales works out to $1.85 billion. With the Tofino’s reported price of $50,000, 80,000 sales would result in $4 billion of revenue for Electrameccanica.
Of course, many of the pre-orders will not convert into sales. But even if only 50% of the pre-orders do convert, Electrameccanica would generate nearly $3 billion of revenue if my estimates prove to be accurate. Suddenly, even if the revenue takes three years to materialize, the $665 million market capitalization of SOLO stock doesn’t look expensive at all.
A Biden Administration and Electrameccanica
The Solo does not qualify for the $7,500 federal tax credit for EVs because it’s technically viewed as a motorcycle. But either through facilitating a change in the law or using a regulation change, the Biden administration, which will likely be quite friendly to EVs, could enable the Solo to qualify for the tax break.
Further, according to Seeking Alpha’s Maurer, Electrameccanica has to pay a 27.5% tariff on the Solos because they’re made in China.
Given Joe Biden’s stance in favor of cooperating with instead of confronting China, I think it’s highly likely that he will greatly reduce the tariffs on Chinese import.
In light of these points, the price that consumers pay for the Solo is likely to drop sharply during a Biden administration without reducing Electrameccanica’s profits. If that scenario materializes, the demand for the vehicle should jump.
The Bottom Line on SOLO Stock
Given the high pre-orders for Electrameccanica’s vehicles in 2018 and the favorable trends since then, I believe that many pundits continue to underestimate the company.
Further, I think that the shares remain undervalued, and I recommend that longer-term investors buy the stock.
On the date of publication, Larry Ramer held a long position in Solo stock.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.