Why Did Electra Meccanica and Arcimoto Stocks Soar?
One of the problems that we face when talking about “green technology” and the environment is that it’s nearly impossible not to step on a political landmine these days. Because United States politics have become so divisive now, even caring for Mother Nature has been commandeered into a political talking point. Some publications that cover green technology exclusively have pretty much thrown all bipartisanship out the window now and consider anyone who doesn’t accept every word of their narrative to have a double-digit IQ. Still, they have great content and we do learn lots of things from them, so we accept their decision to alienate half their American audience.
One green tech publication that may or may not fit our aforementioned description penned an article a few days ago titled “Electric Cars Are About To Absolutely Demolish Gasmobiles” in which the author goes off on a lengthy diatribe that leads to the following conclusion (we’re paraphrasing here); “electric cars will become cheaper to own than gas vehicles at which point only a sucker would buy a gas vehicle.”
That may be the case for poor people like us, but for people with money, the biblical sound of a Jaguar F Type S V6 (a car that actually gets pretty decent gas mileage) is worth every damn penny, no matter how cheap you make a Prius. Still, it’s headlines like these that are making investors pay attention. And they should. Even Amazon was making news last week when they announced a $700 million investment in electric truck maker Rivian. All this excitement has also caused a few stocks to skyrocket, and that’s what we’re going to take a closer look at today.
Electra Meccanica Stock
Founded in 2015, Canadian company Electra Meccanica (SOLO) traded as an over-the-counter (OTC) stock for a while before graduating to the 13th grade and listing on the Nasdaq Capital Market. (Listing requirements for companies on the Nasdaq Capital Market are less stringent than for other Nasdaq market tiers.) Between February 12th and February 13th – in just one day – the stock price soared +221%. Anyone with a basic understanding of how the markets work would assume that new information was made available to justify this tremendous jump in price. So, we decided to take a look.
What the company plans to sell – and they’ve managed to produce 45 units of, so far – is the below contraption that frankly looks like something you’d get your ass kicked for driving in some of the neighborhoods we’ve spent time growing up in.
Nonetheless, this is the year 2019 and bullying has been outlawed, so these vehicles ought to be selling like hotcakes given their $15,500 price tag. Right? Well, according to the company, that’s exactly what’s happening. However, this isn’t exactly news.
It’s Not News, It’s Olds
According to the 2017 annual report, in October of 2017, the Company announced that it had signed a manufacturing agreement with Zongshen Industrial Group to produce 75,000 SOLO all-electric vehicles over the next three years. Details were stated as follows:
Under the agreement, the Company agreed that the minimum purchase commitments for units of the Solo vehicle are to be as follows: in calendar 2018, 5,000; in 2019, 20,000; and in 2020, 50,000, and which shall be payable following issue of Company’s purchase orders as follows: 30% after Zongshen schedules production, and 70% after accepted vehicle delivery.
The schedule apparently slipped because now the plan is to deliver 5,000 vehicles in 2019 to their 23,030 pre-order customers (in January of this year this number was given in a letter to shareholders.) In that same letter, they also claim 41,000 reservations for their Tofino two-seat electric sports car which actually looks like something you might want to be seen driving.
Back of the napkin math tells us that 5,000 orders for 2019 multiplied by a $15,500 price tag makes for 2019 revenues of $77.5 million. We’re going to make a note of that and check back at the end of the year to see if that milestone has been hit.
So far, we’ve learned nothing new about the company that would have taken place on or after February 12th based on what we can see in their filings and company news. However, there was a Bloomberg article on the company which was published on February 13th titled “Canada’s Answer to Tesla Is a $15,500 Electric Three-Wheeler.” The stock price opened that day at $1.68 and closed at $4.33. If the impetus for SOLO shares to skyrocket was an article that was published and nothing else, then the shares should be worth no more than what they were trading for the day prior to the article being published – $1.35 per share – based on the efficient market hypothesis. (Note that the Bloomberg article mentions the stock price rise – but was also edited on February 14th – so we have no way of telling if that comment was added after the fact. What the article does say is that it was published on the morning of February 13th, the day the shares of SOLO had their rapid rise.)
Another sign that this stock is moving based on hype rather than something tangible could be the whole notion of “birds of a feather flocking together.” Another company with a similar profile has also been having some strange share price movements.
Founded in 2007, Oregon company Arcimoto (FUV) is also working on a three-wheeled vehicle for electric driving and they’re about half the size of Electra Meccanica with a market cap of around $64 million. We first came across this company back in November of 2017 when we wrote about “Why Regulation A+ IPOs Should Be Avoided.” Arcimoto is also developing a three-wheel contraption that they describe as “the world’s first fun utility vehicle,” and to be fair it does look like fun – until someone sideswipes you because your future ex-wife wasn’t watching where she was going.
Safety matters aside, just one day after SOLO shares were sent skyrocketing, Arcimoto shares did the same thing more than doubling in a single day. According to an article by Portland Business Journal, this wasn’t the case of any new information being made available. Indeed, looking at Arcimoto’s SEC filings shows nothing that would account for this rise in share price. Same thing for press releases. But digging a bit deeper, we’re led to believe that Arcimoto shares were also driven by exposure from Bloomberg – just not the aforementioned article.
Turns out that Bloomberg did a video feature which involved an Elon Musk bio author, Ashlee Vance, tooling around Eugene in one of Arcimoto’s electric vehicles with founder in tow. “It’s a Bird. It’s a Tesla. No, it’s an Arcimoto,” was the title of the six-minute feature which involved some good banter and a visit to a head shop followed by a trip to Taco Bell for a “cravings box.” While the Bloomberg video is dated February 15th, it appears to have been first published on February 14th. On the evening of February 14th – the day Arcimoto’s share price rocketed +109% – the Portland Business Journal spoke with Arcimoto’s founder, Mark Frohnmayer, who had the following to say about the sudden share price rise:
In an interview late Thursday, Frohnmayer said he thought the Vance piece helped “draw some people in who had been standing on the sidelines, by letting them know that we are getting closer to production and deliveries.” Frohnmayer went on to say that he tries not to fixate on the stock price, realizing it can go up and down on a seeming whim. “But it is gratifying to see it rise above its initial offering price,” he added. “Our shareholders have put a lot of faith in us and they deserve this.”
Those are paper gains, so shareholders don’t have squat unless they bought shares and then sold them for more than what they paid. Still, you can’t help but root for this small Eugene company with a founder who seems like a genuinely good lad, trying to struggle to get his business off the ground in the face of some really tough competition. We’ll be rooting for sure, just without a dog in the race.
Over the past decade, we haven’t been able to accurately predict which technologies will go VHS and which will go Betamax, but we can accurately predict that there will be no shortage of stocks that will be driven at some point by technology hype. Electric cars are likely to be pervasive soon, and all the major auto manufacturers are getting in on the action – like these 14 companies that control 54 brands in the auto industry.
You can be sure that these major auto manufacturers – and we haven’t even mentioned Tesla yet – are developing electric vehicles with better quality and better price points than the companies we’ve talked about in this article – Electra Meccanica and Arcimoto – which are small companies that want a piece of the action and need to compete with the above names.
It’s a David and Goliath story, and as prudent investors, we’re not interested in it whatsoever. We’re more than happy to stick with conservative investment strategies like dividend growth investing in favor of high-risk speculative stocks that are easily whipsawed by a single Bloomberg feature. That sort of stock price movement is called volatility, and volatility is the textbook definition of risk. And no matter what end of the political spectrum you happen to sit on, risky stocks will be much more difficult to profit from when all is said and done.
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