ElectraMeccanica Vehicles Capital Needs Will Keep Shares Range Bound For Now
ElectraMeccanica Vehicles (NASDAQ:SOLO) still hasn’t raised the additional capital it needs. Until it does, SOLO stock is likely to be range-bound for a while.
As I argued in my last article, the company still needs to raise at least $75 million to $150 million more. That will result in a significant dilution for the company — from 14% to 27% of the company’s shares.
Moreover, the company now says that it plans on building a U.S. assembly plant. The two finalist states are Arizona and Tennessee. Much of the capital will be used to build the assembly plant here instead of importing the three-wheeled electric vehicles from China.
I suspect that Arizona, where I live, might have the edge on this. For one, the Canadian company already has a Scottsdale office and it recently set up other showroom offices in Tucson (an hour and half south of Scottsdale) and Southern California. Tennessee would be way too far away to produce these cars if most of its clients are going to be in California and Arizona.
Nevertheless, I am surprised that the company has not yet closed $100 million, especially after it signed up Stifel, Nicolaus and Roth Capital Partners on Dec. 21. I suspect that the company will update investors on this by the time it releases its Q4 earnings report.
SOLO stock has been slowly moving up over the past month. For example, year-to-date it was up 39.4%, as of Jan. 27. Perhaps the underwriters are waiting for the share price to drift higher before they set the underwriting price.
I had previously pointed out that this capital raise was going to be highly dilutive at these prices.
Limited Launch Time Frame Looms Over SOLO Stock
The fact remains that ElectraMeccanica had better get its EVs out to the market fairly soon. This is because Tesla (NASDAQ:TSLA) keeps on saying that it is coming out with a $25,000 car within a few years.
ElectraMeccanica says its one-seater, three-wheel EV will be priced at $18,500. It can only accelerate to 80 MPH and has a limited travel range of just 100 miles.
That is not going to be competitive against a low-priced Tesla model priced at $25,000. This is especially the case if the Trump tariffs remain on Chinese imports. That could raise the price significantly. For example, the quarterly it filed on Nov. 10 says the extra cost could be up to 27.5%, including a 25% surcharge. That could put a damper on demand for the Solo EV.
Unless the Solo can gain some sort of niche clientele before Tesla enters the $25,000 market level, it could get clobbered.
What To Do With SOLO Stock
SOLO stock investors have not yet received an update on its forecast financials for the next several years. I have to believe that’s because management doesn’t yet know how to gauge potential interest in its EVs.
An astute investor will wait until the company can raise the capital it needs to bring production into the U.S. This will allow it to lower the overall cost of the Solo EV and allow it to maintain some sort of market share.
In a previous article, I estimated that ElectraMeccanica would need up to $347 million. And let’s assume that even half of that could come from customers through deposits and advance sales. That still means that the company has to fund half of $347 million, or $173.4 million.
The problem is, as of Sept. 30, the company had just $101 million. Therefore, the $100 million that the company says it will raise with Stifel and Roth may not be enough.
For example, ElectraMeccanica is planning on making a new sportscar, a two-seater EV called the Tofino, sometime in the next two years. That will put an extra load on its cash flow and finances.
A major rule on Wall Street is “raise cash when you can, not when you have to.” It doesn’t matter that the company just had a secondary equity offering earlier this year.
At this point, the market will want to see that the company has enough cash in the bank before SOLO stock moves substantially higher.
On the date of publication, Mark R. Hake held a long position in Tesla (TSLA) stock.
Mark Hake writes articles on personal investing at mrhake.medium.com and runs the Total Yield Value Guide which you can review here.