What happened
Shares of electric-vehicle maker ElectraMeccanica Vehicles (SOLO +0.00%) were sharply higher on Friday, moving up with other electric-vehicle stocks despite a bearish take from a widely followed short-seller.
As of 1:45 p.m. EST, ElectraMeccanica's shares were up about 19.6% from Thursday's closing price.
So what
Investors eager to participate in the world's transition to electric vehicles have flocked to shares of companies like ElectraMeccanica in recent months. But a prominent short-seller, Andrew Left of Citron Research, isn't a fan of ElectraMeccanica -- to say the least.
Here's what Citron had to say about the company on Twitter around noon EST on Friday:
$SOLO is a COMPLETE JOKE. tgt $2 Where other EV might be overvalued, this is laughable. Under $6 mil R&D last 12 months and 6 cars delivered in 2 years this stock will be the first to trade back to $2 when frenzy over. Nothing here..company run out of an apartment building.
— Citron Research (@CitronResearch) November 20, 2020
$SOLO is the EV trade for the real sucker..not one real institutional investor here....they had a going concern just a few weeks ago. OMG..over $1 bil mkt cap
— Citron Research (@CitronResearch) November 20, 2020
What should we make of this?
On the one hand, auto investors' excitement around electric-vehicle start-ups is easy to understand: Everyone's looking for the next Tesla, following the meteoric rise of that company's stock over the last couple of years.
On the other hand, ElectraMeccanica, which makes a curious little electric three-wheeler called the Solo, doesn't yet seem like the kind of company that will rise to anything resembling market dominance over the next few years. In fact, as Citron pointed out, the company has been operating on a shoestring and has sold only a few vehicles -- not exactly what we expect of a company with a billion-dollar valuation.
Is ElectraMeccanica's single-seat electric Solo the foundation of a billion-dollar business? Image source: ElectraMeccanica.
Now what
As regular readers know, I've long been skeptical of Tesla's valuation, given the gritty low-margin realities of the auto business. But Tesla will make roughly half a million cars this year: Love it or hate it, it's a real company that has successfully staked out a place for itself in the auto industry. It's going to be around for a while.
I can't yet say the same about ElectraMeccanica.
Of course, that doesn't mean the stock won't do well over the near term, as eager retail investors continue to snap up shares. But investors eyeing this company -- long or short -- might do well to be mindful of the old adage attributed to John Maynard Keynes: Markets can remain irrational longer than you can stay solvent.
