In the last one year, there has been a rapid increase in the number of listed electric vehicle companies. Electrameccanica Vehicles (NASDAQ:SOLO) is another electric vehicle manufacturer that has grabbed investor attention. SOLO stock has outperformed, having surged by 365% in six months.
As we see more players in the market, there also seems to be a feeling that the EV space is overcrowded. It’s true that not all EV companies will survive. However, the EV industry is poised for multi-decade growth.
For fiscal year 2019, EV sales accounted for just 2.5% of the global light-vehicle market. Just for China, the government target is to quadruple EV sales by 2025. Similarly, it’s expected that 25% of new cars in Europe will be EV by 2025. This is an indication of the impending demand.
I therefore expect multiple players to survive and grow in the coming decade. Electrameccanica Vehicles is one name that’s worth keeping in the investment radar. This column will discuss the company’s differentiating factor that makes SOLO stock attractive.
A Portfolio Within A Portfolio
Given the growth potential for electric vehicles, it makes sense to have a portfolio within a portfolio for EV stocks.
If I had to create such a portfolio, Tesla (NASDAQ:TSLA) would undoubtedly be the largest holding. Tesla is an innovator and with manufacturing facilities in the United States, China and Europe (upcoming), the company is well positioned for sustained growth.
I will also consider Nio (NYSE:NIO), which is moving towards being the Tesla equivalent in China. Nio is possibly among the best when it comes to premium electric cars in China. The company is also launching sedans in 2021 along with expansion in Europe.
Workhorse Group (NASDAQ:WKHS) is interesting for the portfolio as it caters to a different market (last-mile delivery vehicles). The company’s customers are not direct consumers. Instead, they are companies like FedEx (NYSE:FDX), United Parcel Service (NYSE:UPS) and the U.S. Postal Service, among others.
Electrameccanica is different from the pack. The company has designed a single seat EV called the Solo. I believe that the company’s model is likely to work.
Reasons To Be Bullish On SOLO Stock
Solo comes with a unique design and affordable price tag. The company claims that the true cost of ownership for its Solo model is $38,783. The true cost of ownership for Tesla Model 3 is $74,600. The price factor is likely to help SOLO stock to capture market share.
Electrameccanica also cites U.S. Census, which states that 76% of people travel to work in a personal vehicle. Besides several seats left open during commute, fuel consumption is higher in these larger vehicles. This is one challenge that Solo aims to address, being an environment friendly modern urban vehicle.
I also like the fact that Electrameccanica is pursuing an asset-light model. The Solo EV is being manufactured in Chongqing, China by a strategic partner. The advantage is that significant capital investment is not needed. Once sales gain traction, it’s likely that the company will establish its own manufacturing facility. With the Solo likely to be available for consumers early next year, the stock can trend higher.
In addition to the Solo model, the company has another EV candidate in the design and development stage. Tofino will be an all-electric two-seater roadster. Tofino is likely to be priced in the range of $50,000 to $60,000. If the company’s second model is launched towards the end of the next year or early next year, the initial growth momentum can sustain.
Concluding Thoughts On SOLO Stock
With a unique market positioning coupled with an attractive price tag, the Solo model is likely to attract attention. The company is accelerating its marketing efforts and it will yield results once the Solo model is launched.
I am therefore bullish on SOLO stock. The stock has already corrected considerably from an all-time-high of $10.80. I believe that $5 to $6 is a good range to accumulate the stock with a 12-to-24-month investment horizon. I will not be surprised if SOLO stock doubles during this period.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
