Since I last wrote about Electrameccanica Vehicles (NASDAQ:SOLO) the bullish crowd has made my skepticism look positively absurd. SOLO stock is up almost 150% in the last month (as of this writing). That’s a pretty big can of crow investors are putting on my plate. And I’ll admit to a misstatement in my recent article about the company’s fortunes.
In that article, I said that before investors could get excited, consumers would have to get excited. What was I thinking? Investors don’t need much to get excited these days. And if you’re marketing an electric vehicle, that’s even better.
After posting earnings last week, the bullish chatter among traders is real. From the stock’s current price of around $7, I’m reading bullish calls for double digits. Some are speculating it will pass its all-time high of around $15.
But bidding up a stock for a quick exit is different than being willing to stay with a stock for the long haul. And the long-term narrative for SOLO stock, while intriguing, is far from certain.
Who Exactly Is the Target?
It’s not that I don’t think there’s any consumer market, I just think it’s limited. I concede Josh Enomoto’s point that much of the space we have in cars is wasted and many of us do travel solo.
But tiny houses were a fad too. Then people realized that their house may have more space than they need, but it comes in handy.
As it turns out, Solo may be thinking the same way. The company is looking to manufacture a new version of its three-wheeled vehicle. It is purported to have more storage capacity and is being marketed to food delivery services and other last mile delivery services that are not dealing with quantity.
This could turn out to be a great idea. I’ve heard that the urban flight is a positive for SOLO. I see it as a negative from the standpoint of commuting. However, should the business traveler come back, city driving looks like a no-brainer. Why rent a taxi, when you can rent a Solo? Imagine how easy these would be to park?
In fact, I think the business market is a much more natural fit for the company than the consumer market. However, it also puts the company into the niche of other EV manufacturers who are competing in the last mile.
See, I don’t hate the idea. And I think there is a market. I’m just not sure Electrameccanica is going after the right one.
64,000 Customers Can Be Wrong
The company has over 64,000 pre-orders for its vehicles. Each pre-order requires a $250 deposit. That’s over $16 million in revenue right now. And, the company notes that those orders project to revenue of over $2.4 billion.
Once again, I find Electrameccanica’s story to be compelling. I’m just not sure I see the growth. That’s because the deposits are non-binding and refundable. I respect the fact that Solo is not locking consumers into a purchase decision. At the same time, it begins to sound like an infomercial. “But wait, there’s more. If you start feeling buyer’s remorse, we’ll give you your deposit back.”
Cynical? Yep. Accurate. We’ll see.
I’m sure that many of the 64,000 customers will follow through on their orders. But I’ll wait until that potential revenue becomes actual revenue. Particularly when the company is posting massive operational losses that will only increase as they bring a U.S. factory online.
Robinhood Investors Aren’t Buying SOLO Stock
I looked up the “Top Stocks Under $15” on Robinhood and Electrameccanica did not make the cut. At least the stock wasn’t in its top 30 or so. Now that’s far from a scientific analysis. SOLO stock is being marketed as a penny stock to own.
If these investors are not ponying up to buy the stock (yet continue to pour money into cannabis stocks), it gives me pause. Do they not know about the company? Or do they know and just aren’t all that excited about it? If there’s one thing I know about this generation, it’s that they don’t want to be told what to buy. They’ll figure that out for themselves.
As a speculative stock, this looked better to me a month ago. I still wasn’t buying it then, but bulls can drive up a stock longer than I can be skeptical. If you’re willing to accept the risk, SOLO stock may provide a payoff down the road. But if you’re looking to play the electric vehicle market, there are better choices.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.