The electric vehicle space has been dominated by Tesla, Inc. (TSLA) over the last couple of years. However, many companies are emerging in this industry to capitalize on the recent trend in the automobile industry, given its fast-paced growth. According to data released by Deloitte, EV sales are expected to reach 21 million by 2030, from 4 million in 2020. While TSLA is currently venturing into similar industries after dominating the electric vehicle industry, companies such as Electrameccanica Vehicles Corp (SOLO) are focused on building cost efficient EVs.

Both companies have generated significant returns over the past year. While TSLA generated 479.4% over this period, SOLO has returned 213.6%. However, in terms of six-month performance, SOLO is the clear winner with a 514.9% gain versus TSLA’s 155.3% return.

But which stock is a better buy now? Let’s find out.

Latest Developments

The S&P 500 has announced the inclusion of TSLA in the index effective December 21^st. The stock gained 13.2% after hours following the news. TSLA CEO Elon Musk’s wealth increased $15 billion following the news, making him the third richest person in the world.

TSLA is currently planning to launch three new electric vehicles in the near future, including the Tesla Cybertruck and 2 electric cars. It is planning to invest up to $12 billion in electric vehicles and battery factories over the next two years, with manufacturing facilities in three continents. The company raised $4.97 billion through an at-the-market stock offering in September to fund its capital-intensive projects in the near future.

Moreover, TSLA is reportedly planning to launch its products in India in 2021. With a huge population and thereby market base, this expansion is expected to ramp up profits for the company.

After successfully dominating the electric vehicle industry, TSLA is currently venturing into other sectors. The company’s prior acquisition of SolarCity in 2016 has given it a smooth entry point into the solar panel manufacturing industry. CEO Elon musk expects this segment to become the next “killer product” by 2021. Total solar deployments in the third quarter that ended September 2020 more than doubled sequentially to 57 MV, while solar roof deployments tripled over this period.

TSLA also entered into the tequila business on November 7^th, launching its uniquely shaped tequila bottles through its official website, which sold out within hours.

Following the positive news release of the Pfizer (PFE) and BioNTech (BNTX) vaccine, Musk confirmed that TSLA became the manufacturing partner for German biotech firm CureVac (CVAC), and is currently in the process of developing RNA micro-factories and version 3 vaccine printers.

SOLO began commercial production of its flagship three wheeled SOLO EV for single riders in August this year. The company is also planning to launch a utility and fleet version of SOLO EV, expected to be available by early 2021.

SOLO selected Arizona and Tennessee as two sites for SOLO EV US assembly facility and engineering technical center. This allows the company direct access to the United States EV markets without any trade barriers such as tariff expenses, ensuring higher returns for shareholders.

On October 29^th, SOLO announced the opening of six retail showrooms across the country within November. This is in addition to the four showrooms already operating in the country. The first batch of SOLO EVs were presented in the Los Angeles Ride and Drive press event. The vehicles are expected to be available for commercial sale by next year.

Recent Financial Results

TSLA reported impressive results for the third quarter that ended September 2020, surpassing analyst expectations. Its EV deliveries increased 7% year-over-year (subject to operating lease accounting) over this period. Revenue increased 39% year-over-year to $8.77 billion, while gross profit rose 73% from the same period last year to $2.06 billion. Its net income and EPS rose 131% and 69%, respectively. TSLA’s EPS for this period beat the consensus estimate by 33.3%.

SOLO’s revenue increased 50% year-over-year to C$0.30 million in the third quarter that ended September 2020. Cash and cash equivalents balance improved 810.8% over the last two quarters to $101.10 million.

Past and Expected Financial Performance

SOLO’s total assets and tangible book value increased at CAGRs 193.2% and 250.7%, respectively, over the past three years. Comparatively, TSLA’s total assets and tangible book value rose at CAGRs 17.6% and 53.4% over the same period. SOLO’s revenue rose 28.5% year-over-year, while TSLA’s revenue increased 15.4% year-over-year.

SOLO’s EPS is expected to rise 18.3% in the current year, and 8.2% next year. The company’s revenue is expected to increase 1,854.6% in the next quarter ending March 2021, and 2,761.4% next year.

On the other hand, analysts expect TSLA’s EPS to rise 5,650% in the current year, and 70.4% next year. The consensus revenue estimate indicates a 56.5% rise in the next quarter ending March 2021, and 45.3% growth next year.

Profitability

TSLA’s trailing 12-month revenue is 4,840.51 times what SOLO generates. TSLA is also more profitable with a gross margin of 21.1% compared to SOLO’s 0.4%.

TSLA’s ROE and ROA of 5.6% and 2.7% compare favorably with SOLO’s negative values.

Thus, TSLA is a more profitable stock here.

Valuation

In terms of trailing 12-month Price/Sales, SOLO is currently trading at 507.44x, 97.4% more expensive than TSLA, which is currently trading at 13.31x. SOLO is also more expensive in terms of trailing 12-month EV/Sales (701.23x versus 13.80x).

However, TSLA’s price to book ratio of 24.13x is 75.3% more expensive than SOLO’s 5.97x.

POWR Ratings

TSLA is rated “Neutral” in our proprietary POWR Ratings system, while SOLO is rated a “Buy.” Here’s how the four components the POWR Ratings are graded for both these stocks:

SOLO has an “A” for Industry Rank, a “B” for Trade Grade, and a “C” for Buy & Hold Grade and Peer Grade. It is currently ranked #23 out of 33 stocks in the Auto & Vehicle Manufacturers industry.

TSLA has an “A” for Industry Rank, a “B” for Trade Grade, a “C” for Buy & Hold Grade and a “D” for Peer Grade. It is currently ranked #17 in the same industry.

The Verdict

TSLA has been dominating the EV market for quite some time now as the largest producer of EVs across the world. However, the TSLA frenzy among investors has led to sky high valuations, despite the 5-for-1 stock split carried out earlier this year. The company has a forward P/E ratio of 329.45x, indicating significant overvaluation. TSLA has a relatively high debt to equity ratio of 1.71 as of September 30^th, labelling the stock as a risky investment bet at the moment.

While SOLO seems to be in a better position, it should be noted that the company is yet to commercially launch its vehicles in the market. Also, given SOLO’s current size and market share, it has a long way to go to reach TSLA’s level. Market perception of SOLO’s unique three-wheeled EVs also plays into the company’s long-term success. Thus, investors should wait for SOLO to roll out its products commercially before betting on the stock.

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TSLA shares were trading at $433.94 per share on Tuesday morning, up $25.85 (+6.33%). Year-to-date, TSLA has gained 418.66%, versus a 13.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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