What happened

Shares of Canadian electric-vehicle maker ElectraMeccanica Vehicles (NASDAQ:SOLO) were trading lower on Tuesday, declining for a second day after a prominent short-seller called its business and valuation into question.

As of 11:15 a.m. EST, ElectraMeccanica's shares were trading at $9.16, down about 10.2% from Monday's closing price.

So what

Investors excited about the potential for electric vehicles -- and mindful of the huge run-up in Tesla's shares over the last couple of years -- have bid up the stocks of quite a few electric-vehicle-related companies in 2020, ElectraMeccanica among them.

But on Friday, famed short-selling firm Citron Research lit into ElectraMeccanica, calling it a "complete joke" and setting a price target of just $2.

In a series of tweets blasting the company, which it characterized as "run out of an apartment building," Citron said that ElectraMeccanica's spending on research and development (just $6 million over the last year, it said) and tiny number of vehicles delivered will make it the "first to trade back to $2" when the electric-vehicle "frenzy" subsides. 

Why was the stock down on Tuesday morning? Because, to be blunt, there's a lot of truth in what Citron said.

A white ElectraMeccanica Solo

This is what ElectraMeccanica investors are betting on: the Solo, a three-wheel electric car with just one seat. Image source: ElectraMeccanica.

Now what

Here's my take: Auto investors looking for the next Tesla are probably wise to look elsewhere. ElectraMeccanica's product is a quirky three-wheel, single-seat car called the Solo; it's not exactly serious competition for a Tesla (or a Chevrolet Bolt, for that matter), and it's not likely to lead the company to the kind of sales implied by its market cap. 

I realize that won't dissuade some of you. As my fellow Fool Rich Smith pointed out when ElectraMeccanica reported third-quarter earnings earlier this month, the company lost three times as much money as it did in the year-ago period -- but the stock surged anyway, because it "beat estimates" with its pro forma numbers.

There are companies in the emerging electric-vehicle space that could emerge as long-term winners. As of right now, I don't see anything to make me think this will be one of them. Trade carefully. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.