Electrameccanica Vehicles Corp

Canada based Electrameccanica Vehicles Corp (NASDAQ: SOLO) manufactures electric vehicles (EV) to deliver a unique, affordable, trendy, and environment-friendly driving experience.

Investment Rationale – Sell at USD 3.93

• From a technical standpoint, 50-day EMA (USD 5.41) indicating a downward trend, and thus, it is not supporting the upside potential.
• SOLO’s stock has fallen nearly 29.02% in the past month, while the benchmark Nasdaq index has surged, reflecting an underperformance.
• The investment in this security carries a significant degree of risk, given the poor fundamentals, insufficient capital and liquidity to fund operations, subdued customer sentiments, and macroeconomic uncertainties.
• The demand in the EV market is highly volatile, while the operational ability is uncertain with the Covid-19 pandemic led restrictions.

Risk Assessments

• The economic downturn led by the Covid-19 pandemic might bring a slowdown in the EV market.
• Skyrocketing production cost in the automotive sector can keep the profitability margins under pressure in the short-term.
• The supply chain disruption and raw material shortage can also hamper the commercialisation potential.

Recent News

13 April 2021: Kevin Pavlov has been appointed by SOLO as its new Chief Operating Officer (COO), effective from 1 May 2021. 

Financial Highlights for the year ended 31 December 2020 (as on 23 March 2021)

 (Source: Company Website)

• During FY20, revenue and gross profit significantly declined year-on-year.
• The production volume decreased below the breakeven point, while the operating expenses increased significantly in FY20 against FY19.
• Consequently, the Company incurred a net loss of US$63,046,905, while the decent cash and cash equivalent balance was maintained at the end of FY20.
• SOLO had US$22,486,630 of negative operating cash flows, while it anticipates negative operating cash flows in FY21 as well.

One Year Share Price Chart    

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

As the Company has begun the commercial production, it expects to incur substantial ramp-up expenses and costs. Therefore, the profitability will be dependent upon the ability to slash the per-unit manufacturing cost. The Company has hired a new COO for enhancing profitability and efficiency. However, the short-term outlook for the EV market seems gloomy considering the skyrocketing production cost and overall sector slowdown led by the economic downturn caused by the Covid-19 pandemic. Moreover, the EV market is confronting intense competition, which may keep the margins under pressure. Consequently, EPS for the Company might remain in the negative territory for the next two years at least. The stock made a 52-week High and Low of USD 13.60 and USD 0.90, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” stance on Electrameccanica Vehicles Corp at the closing price of USD 3.93 (as on 20 April 2021), while we look forward to reinvesting when the due corrections are being done and we have more clarity regarding the profitability and guidance.

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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