Electrameccanica: Differentiated Product Offering In The Electric Vehicle Industry

Despite a robust growth outlook, the consumer electric vehicle (EV) industry seems to be getting overcrowded.

Bloomberg estimates that by FY2022, there will be 500 different EV models available globally. The addressable market is certainly large, but for companies to be able to stand-out in the crowd, they will need to have a distinct differentiating factor.

Niu Technologies (NIU), for example, is involved in the manufacturing and sales of electric scooters and has a global presence. Niu stock has surged by over 400% over the last year.

Another name worth discussing from an investment perspective is Electrameccanica Vehicles (SOLO), a Canada-based, single-seat electric vehicle manufacturer.

Let’s look at some of the factors that might make SOLO stock worth considering.

The SOLO Electric Vehicle

Electrameccanica’s first single-seat electric vehicle is called the SOLO. Last year, the company’s EV was in its pre-production stage with full scale production expected this year.

So, what is the differentiating factor?

First and foremost, the company cites U.S. census 2016, which estimates that 76% of people travel to work themselves in their personal vehicles. This leaves 3-5 seats open during commute. Electrameccanica intends targeting this market with a single-seat electric vehicle that’s environmentally friendly.

Furthermore, the SOLO is expected at a base price of $18,500, compared to Tesla’s Model 3 which has a base price of $38,990. Therefore, the pricing is attractive and the model could serve the needs of relatively low-income households.

Asset-Light Manufacturing

Electrameccanica is currently pursuing an asset-light model with the SOLO being manufactured in Chongqing, China, by Zongshen Industrial Group.

The key advantage here is that outsourced production lowers the company’s capital expenditure. It’s very likely that Electrameccanica will consider setting-up its own manufacturing unit if sales growth gains traction.

The company has already decided to set-up an assembly facility and engineering technical center in Arizona. The facility will have the capability of assembling 20,000 SOLOs on an annual basis which is likely to cater to the near-term demand.

Expanding Presence In The United States

Over the last few months, Electrameccanica has gradually been expanding its retail footprint. The company currently operates 10 retail stores, with the number expected to increase to 20 by June 2021.

Furthermore, the company already has 60 SOLOs deployed in the U.S. and Canada for final on-road validation testing. The key point here is that the Electrameccanica is positioned for a strong launch of its first model during the year.

Therefore, the next few quarters are likely to be exciting in terms of the launch and market response. If initial sales are encouraging, the stock is likely to trend higher. It’s worth noting that Electrameccanica stock currently trades at a market capitalization of just $505 million.

Additionally, the company’s long-term target is to expand into Europe and Southeast Asia and 2021 might mark the beginning of a long-term growth story.

Wall Street Weighs In

SOLO has a Strong Buy consensus analyst rating based on 3 unanimous Buy recommendations. The average analyst price target of $8.92 per share implies around 81% upside potential for the stock over the next 12 months. (See Electrameccanica stock analysis on TipRanks)

Concluding Analysis

From a financial perspective, the company ended FY2020 with a cash balance of $129 million which will help it pursue an aggressive retail expansion coupled with the construction of the U.S. assembly facility.

In terms of risk, cash burn is likely to remain for the foreseeable future. Equity dilution is a possibility over the next few quarters which could possibly drag the stock price lower, however, a strong market response to SOLO’s EV could offset any dilution concerns.

Overall, SOLO has seen a meaningful correction from its recent highs of $13.60 and at current price levels of around $4.93 per share, the stock may present an attractive opportunity to investors as the company prepares to launch its first model.

Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.