In the past, I’ve been upbeat on Electrameccanica (NASDAQ:SOLO) stock. One of the reasons for my bullishness has been the likely high appeal of its Solo vehicle at a time when many American consumers are fleeing cities, abandoning mass transit, looking to help the environment, and struggling economically.
Further, I’ve noted that the company has been making cars for several decades, while Solo has gotten some good reviews from impartial journalists.
More recently, there have been multiple signs that demand for the Solo has been quite strong. Additionally, I remain convinced that the key arguments of the SOLO stock bears are incorrect. On a negative note, though, I have learned that the Solo is not eligible for the federal tax credit for electric vehicles (EVs).
Demand and SOLO Stock
In a recent interview with The San Diego Union Tribune, Electrameccanica CEO Paul Rivera said that “the waiting list is pretty long” for the Solo, and that anyone who ordered the vehicle likely would not receive his or her vehicle until “well into the middle of next year.”
Further, the company is launching new versions of the Solo with more room for cargo than the original vehicle. According to the Union Tribune, the new versions are targeted at “commercial customers for food delivery, security guards, mechanics going to job sites that don’t require a lot of tools, etc.” Rivera said that the company thinks those vehicles will be “a home run.”
It’s very difficult for me to believe that the automaker would spend a great deal of money on developing new versions of the Solo if it was not fairly certain that there is meaningful demand for them.
Similarly, Electrameccanica plans to open six new stores in two states, California and Arizona, bringing its total number of stores to ten. Again, it seems doubtful that the company would spend a meaningful amount of time and money on opening so many new locations if the productivity of its existing locations was not high.
Unfortunately, though, it turns out that the Solo will not be eligible for the $7,500 federal tax credit for EVs because its three wheels technically make it a motorcycle. For the same reason, it will only be eligible for a $750 state tax credit in California, versus $2,000 for other electric cars.
Refuting Bears’ Arguments
The most prevalent bear argument is that history shows that tiny cars like the Solo don’t sell well in America.
I believe that this contention ignores two important factors that have arisen only recently in the U.S. Specifically, EVs have become very popular as hundreds of thousands of Americans look to reduce their carbon footprints, while EVs remain very expensive.
In most cases, it’s not possible to buy a new EV for much less than nearly $30,000. Due to those new factors, I think that demand for the Solo will likely be much higher than for other tiny vehicles in the past.
Another point, raised by Ivan Drury of Edmunds.com, is that consumers will prefer to buy used EVs that are cheaper than the Solo. I agree that many, maybe even most, consumers will prefer to buy cheaper, used, full-sized EVs.
But I believe that a significant number of them would rather have a brand new Solo, particularly if the positive reviews are accurate and if Rivera’s statement that the vehicle is “really cool” proves to be true.
The Bottom Line on SOLO Stock
There are multiple reasons why the Solo looks poised to be successful in the current environment. Further, there are several signs that demand for the vehicle is strong.
Given these points, along with the strength of EV stocks and the fact that SOLO stock has a reasonable market capitalization of $269 million, I continue to recommend that risk-tolerant investors buy the shares.
On the date of publication, Larry Ramer held a long position in Electrameccanica.
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.
