Electrameccanica Vehicles Corp

Electrameccanica Vehicles Corp (NASDAQ: SOLO) is a Canada-based development-stage electric vehicle designer and manufacturer Company.

Rationale for Valuation – Speculative Buy at USD 4.88

• As per valuation metrics, Price/Earnings and EV/EBITDA multiples of the SOLO are currently lower as compared to the corresponding multiples of the Automobiles & Auto Parts industry.
• On the liquidity front, the current ratio was 28.52x in September 2020, which was higher than the industry median. Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• The Company's debt/equity ratio in the last period was considerably below the industry median. In September 2020, the debt/equity ratio was 0.01x.
• From the technical standpoint, 90-day RSI stood at around 44.54, which is supporting the upside movement.

Key Risks

• The environment in which the Company operates is subject to several legislative and regulatory requirements. A failure to comply could adversely impact the local environment and manufacturing capability.
• The impact of COVID-19 has reduced customer demand and increased volatility while simultaneously impacting the entire supply chain.
• Fluctuations in exchange rates could impact the profitability and balance sheet position.

Recent News

On 17 February 2021, the Company has expanded its retail footprint with seven additional locations.

Q3 FY20 Trading Update (for the third quarter ended 30 September 2020, as on 10 November 2020)

• Led by an increase in custom-built roadsters, the total revenue increased to CAD$0.3 million as compared with the corresponding period of the last year.
• In Q3 FY20, the net loss surged to CAD$14.9 million against the same year-ago quarter, primarily related to the fair market revaluation of the Company’s warrant derivative liability.
• On 30 September 2020, the cash and cash equivalents and short-term deposits stood at CAD$101.1 million, with cash used in operations increased to CAD$7.2 million.
• Successfully delivered the first shipment of EVs into the U.S. Moreover, it was in line with the Company’s ongoing vehicle rollout strategy.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company has increased its cash position by CAD$50 million in Q3 and anticipated production ramp over the upcoming quarters. The third quarter brought with it several key milestones for SOLO. In September 2020, it started shipping the first production SOLOs and will be dramatically expanding the sales efforts by opening in new seven locations. The Company has a highly experienced management team with significant beneficial insider ownership. By 2040, over 500 million passenger EVs will be on the road globally, accounting for over 30% of all passenger vehicles. Further, it expects that year-over-year 2021 revenue growth will be greater than the previous year. Therefore, it is well-positioned for strong progress and delivers enhanced shareholder value with a renewed focus on costs and efficiency. The stock made a 52-week low and high of USD 0.8901 and USD 13.60, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Electrameccanica Vehicles Corp at the closing market price of USD 4.88 (as on 8 March 2021,), with lower double-digit upside potential based on 33.64x EV/NTM Sales (approx.) on FY21E sales (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

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