Why Electrameccanica Vehicles Stock Just Popped 9.5%

The Motley Fool

Electrameccanica lost three times as much money in the third quarter as it did last year — and its stock put-putted higher anyway.

What happened
Shares of Electrameccanica Vehicles (NASDAQ:SOLO), a maker of three-wheeled electric passenger cars, popped a wheelie this morning, soaring 9.5% as of 10:55 a.m. EST, and posting its second day in the green since reporting stronger-than-expected third-quarter 2020 earnings on Tuesday.

Analysts had forecast that Electrameccanica would lose $0.11 per share in the quarter. In fact, the company posted a $0.19 per share pro forma profit.

So what
That’s the good news. The bad news is that under generally accepted accounting principles (GAAP), Electrameccanica did in fact lose money: 14.9 million Canadian dollars, or nearly three times its year-ago loss of CA$5.3 million.

That loss is not surprising. As management explained, it only just “commenced production and [delivery of its] first shipment of SOLO EVs into the U.S.” in Q3, so this is a business still getting its wheels under it. Moreover, Electrameccanica noted that this first shipment isn’t even going to consumers, but rather will “be used specifically for high ROI activities, including press events, marketing, retail distribution, test drives, corporate and advertising purposes as well as fleet demonstrations.”

Now what
Ultimately, the hope is that these marketing activities will create corporate and consumer demand for the SOLO EV, growing sales going forward.

Management did not provide guidance for how it expects sales to progress, but for what it’s worth, analysts polled by Yahoo! Finance are forecasting that the company will lose $0.13 (presumably pro forma) in Q4, on sales of about $370,000. The real growth is only expected to arrive next year, when Wall Street is forecasting a veritable explosion of demand — and sales up more than 2,700%.


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