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As we get ready to welcome September, investors in shares of electric vehicles (EVs), such as Electrameccanica Vehicles (NASDAQ:SOLO), wonder what may be next for the burgeoning industry. Year-to-date, SOLO stock is up almost 40%. By comparison, the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL) posted a 23% gain.
According to recent research led by Lew Fulton of the University of California at Davis, “The emergence of ‘3 Revolutions’ in transportation (automation, electrification, and shared mobility) presents a range of questions regarding how consumers will travel in the future, and under what conditions there may be rapid adoption of various services.”
2020 made several sectors of the economy clear winners. One of them is manufacturers of EVs, which use electricity stored in rechargeable batteries to power the motor of the vehicle. Shares of Tesla (NASDAQ:TSLA), Nikola Motors (NASDAQ:NKLA), and Nio (NYSE:NIO), three of the most-followed companies, are up about 380%, 280%, and 340%, respectively, year-to-date.
Given the momentum in the industry, I’ll take a closer look at whether SOLO stock deserves to be in long-term portfolios. ElectraMeccanica, which currently has minimal revenue, is potentially a high risk/high return investment.
How Q2 Results Came
Canada-based Electrameccanica Vehicles sells a vehicle somewhat different than the ones offered by other EV manufacturers. If you have seen its flagship car, the Solo EV, you’d have noticed that the front looks like a regular car. But at the back, you’d see only one wheel. In effect, it is a reverse trike. Aug.26 was the official date for starting production.
ElectraMeccanica reported second-quarter financial results in August. Revenue was 0.02 million CAD, compared to 0.2 million CAD in the same year-ago quarter. The decrease in revenue was primarily due to a decrease in custom-built roadsters that were produced. Net loss was 12.9 million CAD, compared to a net income of 3.3 million CAD in the same year-ago quarter.
“As we enter full-scale production in the coming days, we will continue to leverage our asset-light manufacturing model to most effectively manage our cash usage and scale our operations,” CFO Bal Bhullar said.
The company’s results were far from inspiring confidence in a long-term investment.
What Could Derail SOLO Stock?
SOLO is a penny stock. Its short-term price action is typically news-based. Retail investors have mostly been behind the frenzied-trading we are witnessing in shares of electric cars.
The flagship car, the Solo, is a single-occupant three-wheeled, battery-powered electric vehicle. Management markets it as a short-range vehicle for commuting. It has a range of 100 miles and a charge time of 2.5 hours. The retail price tag stands at $18,500. According to ElectraMeccanica, “119 million North Americans commute using personal vehicles – and 105 million of them commute alone.” Management would like to capture a big portion of those commuters.
The compactness as well as the price tag of the vehicle may be appealing. Yet, the company warns drivers, “Its rear wheel drive system operates best when driving above 5ºC, in dry (or damp) conditions. If there is ice, heavy snow or very heavy rainfall out there, let your Solo take a break!” That warning may mean a great number of U.S. and especially Canadian drivers should think twice before purchasing the car.
ElectraMeccanica Vehicles plans to build a manufacturing site in the U.S. In early June, management announced it “has narrowed its list to the following five states (in no particular order): Arizona, Colorado, Florida, North Carolina and Tennessee.”
However, if the company’s proposed expansion plans do not materialize, investors may sell the stock as fast as they invested.
The Bottom Line
With increased interest in alternative energy sources and vehicles, retail investors are focusing on shares of electric car makers. If you believe EVs will continue to gather drivers’ attention, then you may want to keep ElectraMeccanica on your radar.
However, the share price is likely to be choppy and could go in either direction quite fast. Therefore, I’d urge you to invest in SOLO stock only if you have risk capital to share.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.