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ElectraMeccanica Vehicles Corp. (NASDAQ:SOLO) is the type of company that one wants to believe in because of its unique vehicle that differentiates itself in an increasingly crowded EV space.
Yet, it seems to always be just one step away from success when it takes two steps backwards.
Having watched the company for some time, I think it’s floundering because it continues to struggle to really define its niche. They’ve been trying to target the college market where there’s plenty of single people around that need transportation, and there are those that think it could be a good option to make deliveries at the local level, among other possibilities.
I think the company really needs to define its target market at this time, and if it successfully grabs market share there, use the capital to expand into other niche markets.
With the recent announcement that the CEO and COO decided to step down in order “to pursue other opportunities,” especially after its latest earnings call where they were touting their confidence in the future of SOLO, it makes one wonder if they really had any belief in the success of the company going forward.
After all, with an interesting company that has the potential to disrupt some aspects of the transportation market, you would think it would be a place where creative people would want to be. Yet they stepped aside at the same time to pursue other interests, suggests something may be missing in the company, or something under the hood that brought them to the decision to leave.
In this article we’ll look at the recent numbers of SOLO and what the future may hold for it in light of the unknown factors causing its management team to leave.
Some of the recent numbers
Revenue in the third quarter was $1.44 million, up over 12 times what it was in the third quarter of 2021 but missing by $565,870. It was down 6.9 percent sequentially. The lower revenue came from a drop in SOLO deliveries from 68 to 64.
Earnings per share in the reporting period was (-0.18), missing by $0.02.
Gross margin in the third quarter was negative 66.3 percent, a 55 percent improvement from the prior quarter. Management said that gross margin will remain volatile from quarter to quarter.
Operating expenses in the quarter were $20.9 million, up 14.2 percent sequentially.
The CFO stated that the company will remain disciplined with spending even as it continues to invest in R&D and marketing. My thought there is the company already has a product it is manufacturing and should focus most of its spend on marketing the SOLO. Investing in R&D at this stage of the company’s development doesn’t make a lot of sense when it’s delivering under 100 vehicles per quarter with its only product.
One strong point of the company is it does have approximately $173 million in working capital, providing it with enough funding to implement its strategy, whatever that may be.
Finding its niche
I think the most important thing SOLO needs to do is to find its niche. We already know it is targeting individual drivers, but what specific demand within that target market does its vehicle meet? What problem is it solving? I don’t think the company has answered that question yet, and until it does, it’s going to continue to struggle.
For anyone that follows SOLO they know it has a unique vehicle with an interesting and compelling look that would seem to be attractive to end users, but outside of being a novelty at this time, it hasn’t yet been able to find a home for the product.
I think management may be afraid to target any one segment of the market in fears it’ll lower the number of segments for the company to sell into. But it needs to lay a foundation to work from in my opinion, and once it gains market share in a specific market, to work out from there by expanding to other verticals.
Again, until it achieves this by solving a particular problem for end users, it’s going to remain a quaint and novel vehicle that has no practical application.
Here’s how the company described it in a recent announcement concerning obtaining a license to sell the SOLO in Arizona:
“The SOLO is the mobility solution for what people and businesses actually need every day to run errands, manage deliveries, commute to work and more.”
My immediate response when reading it is this: “Don’t we already have vehicles to do that?” Why would a potential customer want to buy an additional vehicle when they can use their current vehicle to do the same thing?
I’m aware the company is attempting to position itself as a solution for individual mobility, but again, it must do so by targeting a specific need, not offering something that any other vehicle can do.
For example, I know of lake communities that run around with their golf carts and similar vehicles while keeping their regular vehicles parked at their lake homes. Something like that could fit nicely with the SOLO.
And of course, we already know about the delivery potential for the SOLO. The point is the company must start somewhere and not attempt to be all things to all people at this stage of its business.
With the nice-looking vehicles being designed in the EV space, it seems to me the SOLO must be positioned as a work horse of some type, or as a secondary option for travel once a person reaches a specific destination, such as the aforementioned lake communities or maybe mobile destinations where people park their motor homes.
And last, just like the EV market in general, there will have to be the ability to charge the vehicle, which remains a problem that must be solved in the EV market in general, let alone a specialized EV like SOLO offers.
Management change
As mentioned earlier, over the last several months SOLO has completely changed its top management team, with a new CEO and CFO, with the new CEO being the interim COO until a replacement is found.
What’s troubling about that to me is former CEO Kevin Pavlov was talking very optimistically about the company and its future on the latest earnings call, and along with COO Joe Mitchell, stepped down.
This isn’t a good sign for the company in my view because if SOLO is a cutting-edge EV company like it has positioned itself to be, why would its management team step down? Companies operating in the EV sector are places where creative people want to work. For the top leaders to step down is a sign that things aren’t right at the company, in my opinion, and by that, I mean it’s simply not finding a market for its unique vehicle yet.
And with it spending a lot of capital, it has to find a niche it can sell into in order to generate a revenue stream. Selling a SOLO here and there isn’t enough.
While the company has made a good decision to move to Mesa, Arizona to build a manufacturing facility, it still must find a market to sell to if it has any chance at success.
Conclusion
SOLO is an interesting company that has what appears to be a good idea, but it has struggled for a long time in gaining any traction, even as it continues to spend on R&D and marketing.
My belief is it must focus primarily on marketing now that is seems to be solving most of its issues on the manufacturing side by bringing it to North America.
On the other hand, I think marketing should be the primary focus of its spend, especially in establishing an initial market it can successfully grab share from. If it isn’t able to do that, I don’t see how it’ll be able to survive for a prolonged period of time, no matter who is running the company.
I think SOLO is going to remain under pressure for a prolonged period of time. More than likely, it’s going to drop below the $1.00 per share mark indefinitely until it finds a market to sell its vehicle to on a consistent basis.
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