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Why ElectraMeccanica (SOLO) Stock Is Down Today

By John Rosevear - Nov 30, 2020 at 2:50PM

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There's a lot of smoke, but is there any fire here?

What happened

Shares of Canadian electric-vehicle maker ElectraMeccanica Vehicles ( SOLO -6.45% ) were trading down on Monday, as investors continued to unload shares after a prominent short-seller called the company's business and valuation into question.

As of 2:30 p.m. EST, ElectraMeccanica's shares were down about 7.8% from Friday's closing price. 

So what

ElectraMeccanica's shares, like the stocks of quite a few other companies in the electric-vehicle space, have drawn considerable interest from auto investors hoping to profit from the widespread adoption of electric vehicles in coming years -- and those who are mindful of the huge run-ups we've seen over the last couple of years from companies like Tesla ( TSLA -6.42% ) and NIO ( NIO -11.19% ). 

Both Tesla and NIO, however, are considerably more established than ElectraMeccanica, which offers a quirky three-wheeler called the Solo. 

A red ElectraMeccanica Solo, a tiny 3-wheel electric car.

ElectraMeccanica's Solo is a single-seat 3-wheel electric vehicle. Image source: ElectraMeccanica Vehicles.

As prominent short-selling firm Citron Research bluntly pointed out on Twitter on Nov. 20, ElectraMeccanica has a tiny research and development budget and so far has only delivered a few vehicles. 

While it's true that short-sellers have an interest in presenting the companies they short in the worst possible light, it's also true that there doesn't seem to be much fire behind ElectraMeccanica's smoke.

That's why the stock chart over the last week looks like this.

SOLO Chart

SOLO data by YCharts.

Now what

My take is that auto investors are absolutely right to be looking for opportunities among the many upstart electric-vehicle companies that have come to our attention in 2020. I have little doubt that some of these companies will succeed in staking out sizable niches in the global market for electric vehicles that's now emerging.

I do see reasons to doubt, however, that ElectraMeccanica will be among 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.

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Stocks Mentioned

Electrameccanica Vehicles Corp. Stock Quote
Electrameccanica Vehicles Corp.
SOLO
$2.61 (-6.45%) $0.18
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,014.97 (-6.42%) $-69.63
NIO Inc. Stock Quote
NIO Inc.
NIO
$32.15 (-11.19%) $-4.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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