ELECTRAMECCANICA VEHICLES CORP. - Annual Report: 2022 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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Commission file number: 001-38612

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8057 North Fraser Way

Burnaby, British Columbia, Canada, V5J 5M8

(Address of principal executive offices)

Registrant’s telephone number, including area code (604) 428-7656

Securities registered under Section 12(b) of the Exchange Act:

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Securities registered under Section 12(g) of the Exchange Act:

None.

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction or an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recover analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($1.35 on June 30, 2022) was approximately $151,929,386.

The registrant had 119,287,917 common shares outstanding as of April 12, 2023.

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REFERENCES

As used in this Annual Report on Form 10-K (the “Form 10-K” or “Annual Report”): (i) the terms “Registrant”, “we”, “us”, “our”, “ElectraMeccanica” and the “Company” mean Electrameccanica Vehicles Corp. or, as the context requires, collectively with its consolidated subsidiaries; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

We have determined that we have ceased to qualify as a “foreign private issuer”, as such term is defined in Rule 405 under the United States Securities Act of 1933, as amended (the “Securities Act”), and Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2022, being the last business day of our most recently completed second fiscal quarter. We no longer qualify as a foreign private issuer because, as of June 30, 2022, more than 50 percent of our common shares were directly or indirectly owned of record by residents of the United States, and five of our nine directors were either citizens or residents of the United States. Once an issuer fails to qualify for foreign private issuer status it will remain unqualified unless it meets the requirements for foreign private issuer status as of the last business day of its second fiscal quarter. Accordingly, our Company will not be able to use the forms and rules designated for foreign private issuers after December 31, 2022, being the final day of our latest fiscal year end. If our Company subsequently qualifies as a foreign private issuer on the last business day of a subsequent second fiscal quarter, we will immediately be able to use the forms and rules designated for foreign private issuers.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements that constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in several different places in this Annual Report and, in some cases, can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “contemplates”, “intends”, “believes”, “plans”, “may”, “will” or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Form 10-K may include, but are not limited to, statements and/or information related to: strategy, future operations; the projection of timing and delivery of products in the future; projected costs; expected production capacity; expectations regarding demand and acceptance of our products; estimated costs of machinery to equip a new production facility; trends in the market in which we operate; and the plans and objectives of management..

We have based these forward-looking statements on our current expectations about future events on information that is available as of the date of this Annual Report. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual future results may differ materially from those discussed or implied in our forward-looking statements for various reasons. Factors that could contribute to such differences include, but are not limited to:

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Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our Company or persons acting on our Company’s behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws. You should carefully review the cautionary statements and risk factors contained in this Form 10-K and other documents that the Company may file from time to time with the securities regulators.

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PART I

ITEM 1. BUSINESS

Company Overview

ElectraMeccanica designs and manufactures smaller, simpler and purposeful electric vehicles that we believe are a better fit for everyday use in an increasingly crowded, complex world. To date the Company has primarily targeted the U.S. as our commercial market.

We sell these vehicles directly to consumers and small businesses. We think this focus on the daily utility segment - e.g., commuting, errands and food delivery - differentiates us from both legacy and native electric vehicle (“EV”) makers. Our initial product, the innovative, three-wheeled, single-seat SOLO, reflects this unique design philosophy.

In December 2022, we made the decision to also assemble other companies’ electric vehicles to further leverage the resources and capabilities of our recently commissioned and state-of-the-art 235,000 square foot facility located in Mesa, Arizona. We believe this combination of developing our own vehicles and helping to build those of others places ElectraMeccanica in the best position to benefit from the secular growth of the EV category overall. We further believe that to date this growth largely has excluded smaller, simpler and more useful - but still stylish - forms of electric transportation.

Our goal is to expand the market for everyday EVs beyond traditional original equipment manufacturers (“OEM”) categories (e.g., compact, mid-size, large, pickup truck, cross-over, and SUV), many of which emphasize size and power, raising the total cost of ownership. We believe the emerging transition to electric represents an opportunity to not just shift a fuel source for mobility, but also to offer original and innovative vehicles to meet evolving consumer demands.

The Company is headquartered in Burnaby, British Columbia, Canada. In December 2022, we announced the Company would focus its operations in its Mesa, Arizona, facility. We expect to complete this process in 2023.

EV Market Opportunity

The auto industry is in the middle of a transformation from internal combustion engines to electric vehicles.

Most major global automotive OEMs offer either hybrid or fully electric vehicle options in their product lineups, and a combination of both brands (like Lexus) and entire companies (like General Motors) have publicly declared their intent to have fully electrified their offerings within the coming years.

Adoption rates by consumers support this strategy. According to BloombergNEF’s (National Energy Foundation) 2022 Long-Term Electric Vehicle Outlook, under the Economic Transition Scenario (the “ETS”), global EV (battery electric and plug-in hybrid electric passenger vehicles) sales are expected to be approximately 39 million units in 2030, rising to approximately 73 million units in 2040, representing a penetration rate of 40% and 73%, respectively, of all passenger vehicles sold.

Consumer interest in and support for electric vehicles reflects a powerful combination of a heightened awareness of the environmental impact of fossil fuel consumption and a corresponding desire to reduce, where practical, individual carbon footprints. At the same time, increasing gasoline prices lend a practical motivation for consumers to consider zero emissions transportation. In addition, many countries and states are increasing mandating and incentivizing the purchase of EVs, for example, California recently mandated that every new passenger car or truck sold in the state must be zero emissions by 2035.

It is also becoming clear that consumer preferences as they relate to electric mobility options in North America are becoming more nuanced, and sophisticated. For example, increasing electric micromobility options, particularly in cities, is reflective of the growing understanding that simply electrifying existing vehicle designs (e.g., producing an electric SUV that weighs in excess of 9,000 pounds) fail to take into consideration a more complete understanding of managing environmental impact and outcomes (or, as a New York Times article recently headlined, “Just How Good for the Planet Is That Big Electric Pickup Truck?” on February 18, 2023). Additionally, for many consumers, the desire for an electric transportation solution is often constrained by the high purchase price for many current EV models.

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There is also an issue of fundamental utility that remains unaddressed by many current EV transportation options. Increasingly dense and crowded urban environments stand to benefit not just from zero emissions transportation, but from those mobility options that offer meaningful benefits in terms of simplicity of operation, maneuverability in traffic, ease of parking, and present a significantly lower total cost of ownership.

We believe there is a large population of consumers in the U.S. who are willing to adopt an EV mobility solution, but for whom no good option currently exists that meets their day-to-day transportation needs.

Beginning with our very first SOLO concept vehicle, and extending through our current strategic product roadmap, we believe that, just as traditional vehicle markets have segmented themselves across a set of factors that include price, capabilities and utility, the EV market will do the same. Further, we believe that market demand exists for a high quality, high-utility, low-cost and beautifully designed electric transportation option.

Strategy

We seek to grow our Company based on prioritizing disruptive vehicle designs that delight consumers while asking little of them in terms of operating or charging an EV.

Unlike many legacy auto manufacturers that appear to focus on electrifying existing car form factors, most of which can be both oversized and overpowered for the way people use them every day, ElectraMeccanica is focusing on smaller, lower-priced EV models instead of other manufacturers who arguably and often sacrifice design or remain within conventional styling parameters.

We commenced commercial production of SOLO in August 2020 and through the end of 2022 sold over 420 vehicles via our direct-to-consumer sales and marketing initiatives and our retail kiosk operations in the States of California and Arizona. From over 9,000 test drives, as well as feedback from our vehicle owners, we learned that people love driving the SOLO. However, we also learned that beyond the actual driving experience, the experience of purchasing, financing, insuring and servicing a three-wheeled autocycle vehicle in our markets provided significant challenges to both current and prospective owners. The network of traditional institutions that support vehicle ownership is not established for three-wheeled autocycles. Creating our own support ecosystem around just the initial SOLO three-wheeled models would be prohibitively expensive and time consuming. It also does not align with our goal of expanding the market for everyday EVs.

Therefore, to lower these barriers to acceptance and further scale our sales, ElectraMeccanica has decided to focus its efforts and resources on Project E4, a four-wheeled form factor featuring a sleek design and simple features of the SOLO.

Historically, ElectraMeccanica has always contemplated designing and launching vehicles with more than three wheels. Past prototype EVs the Company considered include the four-wheeled eRoadster and Tofino. We expect Project E4 to benefit from our experimentation with these form factors, as well as our extensive learnings from the SOLO. Specifically, we believe E4 unlocks our ability to offer:

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Adapting our designs to a scalable, four-wheeled form factor that preserves the best features of the SOLO, including eye-catching styling and easy charging, will take time - for two reasons.

First, the Company needs to do deeper customer and consumer research than it has historically with respect to product features and design. We believe this will help us avoid consumer and business barriers to broader market acceptance and sales like those limiting the SOLO, as noted above. In turn, this will confirm for us the best possible approach to define the most appealing product.

The Company also stated in December 2022 that it would seek manufacturing and assembly partners who require ElectraMeccanica’s factory space and expertise to build their vehicles. These partners will allow ElectraMeccanica to accelerate commercialization and use of its 235,000 square-foot facility in Mesa, Arizona. As of the date of this Annual Report we are already leveraging the new Mesa facility in order to act as an assembly partner for other EV manufacturers, as demonstrated by our recently announced agreements with GLV, LLC (“GLV”) to help produce three different electric vehicles for Volcon, Inc. (two e-bikes, including the Grunt EVO and Runt, and Volcon’s premium UTV, the fully-electric STAG).

We commissioned our Mesa facility on December 12, 2022. Located on 18 acres of land near the Phoenix-Mesa Gateway Airport, our new facility, when fully operational, will allow us to produce up to 20,000 vehicles per year, per production line. It has space for three production lines, for a total, fully operational output of up to 60,000 vehicles per year. The new campus includes 22,000 square feet of office space and 19,000 square feet of lab space.

We carefully selected Arizona as the site of our new campus for numerous reasons, including infrastructure, talent, geographic location, proximity to a pre-existing automotive supply chain, concentration of other EV and EV component expertise and continued and dedicated support from state and local governments. The location of the facility also offers space for a larger footprint and potential expansions.

Product

ElectraMeccanica has been assembling and selling a unique, three-wheeled, single-seat commuter vehicle, the SOLO (with the most recent model being the G3). The Company has made a strategic decision to stop the production of the G3 SOLO and commence Project E4. Project E4 plans to leverage the best features and insights derived from the SOLO, following completion of vehicle design, validation and all required testing. The Company will be focusing our resources on Project E4 in the foreseeable future.

Presently, the Company is investigating the cause of an occasional power loss on the SOLO and is, as of February 17, 2023, subject to a self-reported NHTSA recall notice. As a result the Company has now decided to repurchase all 428 SOLO vehicles for the full purchase price paid by the customer, inclusive of the vehicle price, taxes, title and shipping. In addition, the Company has issued a stop drive notice to advise customers not to drive their vehicles because of the safety concern.

The Company has also begun winding down its contract manufacturing relationship with Chongqing Zongshen Automobile Industry Co., Ltd. (“Zongshen”) as a result of the recent commissioning of our Mesa, Arizona, facility and our plans to move into four-wheeled designs produced onshore in the U.S.

Marketing and Sales

Historically, the Company relied on a combination of retail kiosks, direct-to-consumer online marketing and live events to drive the majority of its sales.

With respect to the E4, ElectraMeccanica continues to believe that a combination of marketing, sales efforts and investment will be required to scale sales beyond what we have achieved to date. The Company also expects to define a marketing and sales strategy that flows directly from professionalized consumer market research, which itself reflects careful testing of the actual vehicle during its development process.

Government Regulation and Incentives

Certain of our operations, properties and products are subject to stringent and comprehensive federal, state and local laws and regulations governing matters related to environmental protection, occupational health and safety, and the release or discharge of materials into the environment, including air emissions and wastewater discharges.

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Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations and the issuance of orders enjoining some or all of our operations in affected areas.

We are also subject to permitting, registration and other government approval requirements under environmental, health and safety laws and regulations applicable in the jurisdictions in which we operate. Those requirements obligate us to obtain permits, registrations and other government approvals from one or more governmental agencies to conduct our operations and sell our products. The requirements vary depending on the location where our regulated activities are conducted.

The following summarizes certain existing environmental, health and safety laws and regulations applicable to our operations and current and future products. For additional information, see “Risk Factors” herein.

Motorcycle Regulation

We and our vehicles must meet the applicable parts of the U.S. Code of Federal Regulations Title 49 — Transportation. Since the U.S. regulations do not have a specific class for three-wheeled “autocycles”, the G3 SOLO and Cargo variant fall under the definition of a motorcycle pursuant to Sec. 571.3 of 49 CFR Part 571.

However, currently a motorcycle license is not required to drive them in all but the States of Indiana, Massachusetts, Minnesota, Nebraska, Nevada, New Mexico, North Carolina and New York (New York will no longer require a helmet as of April 20, 2022).

Motorcycle helmets must be worn while operating in the States of Alaska (when operating without a motorcycle license or endorsement), Nebraska, North Carolina and Oregon. Helmets are also required if the driver is under 18 years old in the States of Alaska, Colorado, Indiana, Minnesota, Montana, New Hampshire and New Mexico.

Vehicle Safety and Testing Regulation

The Company’s four-wheel Project E4 will be subject to, and must comply with, numerous regulatory requirements established by the National Highway Traffic Safety Administration (“NHTSA”), including all applicable U.S. Federal Motor Vehicle Safety Standards (“FMVSSs”). As a manufacturer, the Company must self-certify that its vehicles meet all applicable FMVSSs before the vehicles are sold in the U.S.

There are many FMVSSs that will apply to the Company’s Project E4, such as crash-worthiness requirements, crash avoidance requirements and electric vehicle requirements (i.e., limitations on electrolyte spillage, battery retention and avoidance of electric shock after certain crash tests). The Company’s Project E4 must fully comply with all applicable FMVSSs. Additionally, there are regulatory changes being considered for several FMVSSs, and the Company must comply with all such FMVSS regulations.

In addition to FMVSS, the Company will also be required to comply with other federal laws administered by NHTSA, including the Corporate Average Fuel Economy standards, Theft Prevention Act requirements, consumer information labeling requirements, early warning reporting requirements regarding warranty claims, field reports, death and injury reports and foreign recalls and owners’ manual requirements. The Company must also comply with the Automobile Information and Disclosure Act, which requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested retail price, optional equipment and pricing. Further, this law allows inclusion of city and highway fuel economy ratings, as determined by the U.S. Environmental Protection Agency (“EPA”), as well as crash test ratings as determined by NHTSA.

Battery Safety and Testing Regulations

The Company’s battery packs must conform to mandatory regulations governing the transport of “dangerous goods” that may present a risk in transportation, which includes lithium-ion batteries, and are subject to regulations issued by the Pipeline and Hazardous Materials Safety Administration.

These regulations are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations and related UN Manual Tests and Criteria. The regulations vary by mode of transportation when these items are shipped, such as by ocean vessel, rail, truck or air.

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The Company will complete the applicable transportation tests for its battery packs, demonstrating its compliance with applicable regulations. The Company uses lithium-ion cells in its high-voltage battery packs. The use, storage and disposal of the Company’s battery packs is regulated under federal law. The Company will enter into agreements with third-party battery recycling companies to recycle the Company’s battery packs.

EPA Emissions and Certification

The U.S. Clean Air Act requires that the Company obtain a Certificate of Conformity issued by the EPA or a California Executive Order issued by the California Air Resources Board (“CARB”) certifying that the Company’s vehicles comply with all applicable emissions requirements.

A Certificate of Conformity is required for vehicles sold in states covered by the Clean Air Act’s standards. A CARB Executive Order is required for vehicles sold in states that have adopted California’s stricter standards for emissions controls related to new vehicles and engines sold in such states. States that have adopted the California standards as approved by EPA also recognize the CARB Executive Order for sales of vehicles.

In addition to California, there are 14 other states that have either adopted or are in the process of adopting the stricter California standards, including New York, Massachusetts, Vermont, Maine, Pennsylvania, Connecticut, Rhode Island, Washington, Oregon, New Jersey, Maryland, Virginia, Delaware and Colorado.

The Company is required to seek an EPA Certificate of Conformity for vehicles sold in states covered by the Clean Air Act’s standards or a CARB Executive Order for vehicles sold in California or any of the other 14 states identified above that have adopted the stricter California standards.

Automobile Manufacturer and Dealer Regulation

U.S. state laws regulate the manufacture, distribution and sale of automobiles, and generally require motor vehicle manufacturers and dealers to be licensed in order to sell vehicles directly to consumers in the state. The Company will need to secure dealer licenses (or their equivalent) and engage in sales activities for its self-owned sales and service centers, while partners in certain states will support by providing services via partner-owned stores and showrooms.

Incentives

There has been a growing trend for governments as a matter of public policy to favor EVs, such as the U.S. Inflation Reduction Act of 2022. This has taken the form of initiatives aimed at improving transit, financial incentives for the purchase of EVs and financial incentives for the manufacture of EVs. These incentives have been predominately for four-wheel electric passenger vehicles.

Manufacturing Incentives

To promote the manufacture and development of EVs, many federal, state and local governments provide financial incentives to EV companies. These incentives can take the form of tax credits or grants. Several jurisdictions offer similar financial incentives for the purchase and installation of home charging stations for EVs.

Initiatives to Improve Transit

Many localities try to reduce or regulate traffic, and particularly in places where there is high population density, chronic congestion, narrow roads and limited urban space. While these initiatives might be onerous to owners of traditional internal combustion engine vehicles, they often exempt or partially exclude EVs. These initiatives include various forms of congestion charging (which often exempt or provide discounts for EVs), priority lanes for high-occupancy vehicles and EVs, restrictions on new registrations of vehicles (excluding EVs) and subsidies for the installation of public charging stations for EVs.

Environmental Credits

In connection with the production, delivery and placement into service of the Company’s zero-emission vehicles, the Company may earn tradable credits under certain governmental programs designed to incentivize such activities. The Company may sell the Company’s

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future credits to automotive companies and other regulated entities who can use the credits to comply with emission standards and other regulatory requirements.

For example, under California’s Zero Emission Vehicle (“ZEV”) Regulation and those of states that have adopted California’s standards, vehicle manufacturers are required to earn or purchase credits, referred to as ZEV credits, for compliance with their annual regulatory requirements. These laws provide that automakers may bank or sell to other regulated parties their excess credits if they earn more credits than the minimum quantity required by those laws. The Company may also earn other types of salable regulatory credits in the U.S. and abroad, including greenhouse gas, fuel economy, and clean fuels credits.

Competition

The Company has experienced, and expects to continue to experience, intense competition from numerous companies, particularly as the transportation sector increasingly shifts towards low-emission, zero-emission or carbon neutral solutions.

Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel and electric vehicle market. Many major automobile manufacturers, such as Tesla, General Motors, Ford, and Rivian, have electric vehicles available today. Other current and prospective automobile manufacturers are also developing electric vehicles, for example Faraday Future, Nio, xPeng, Li Auto and Fisker, among others.

In addition, several manufacturers offer hybrid vehicles, including plug-in versions. The Company directly competes with other pure-play electric vehicle companies targeting the high-end segment, while also competing to a lesser extent with new energy vehicles and internal combustion engine vehicles offered by traditional OEMs.

The Company believes the primary competitive factors in the electric vehicle market include, but are not limited to:

The Company believes that it is possible to successfully compete with its peers on the basis of a number of these factors, particularly as they relate to vehicles themselves. However, most of the Company’s current and potential competitors have greater financial, technical, supply chain, manufacturing, marketing and other resources than the Company. They may be able to deploy greater resources to the design, development, manufacturing, supply chain, distribution, promotion, sales, marketing and support of their electric vehicles. Additionally, the Company’s competitors may also have greater name recognition, longer operating histories, lower cost of materials, larger sales forces, broader customer and industry relationships and other resources than the Company does.

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Intellectual Property and Trademarks

ElectraMeccanica’s intellectual property is an asset of our Company, and a tool to drive value and differentiation in our products and services. We protect, use and defend our intellectual property in support of our business objectives to increase our return on investment, enhance our competitive position and create shareholder value.

Through strategic and business assessments of our intellectual property, we rely on a combination of patents, trade secrets, copyrights, service marks, trademarks, domains, contractual terms and enforcement mechanisms across various international jurisdictions to establish and protect intellectual property rights related to our current and future business and operations.

We have filed patent and design applications for inventions and designs that our legal counsel deems necessary to protect our products. We do not rely on any licenses from third-party vendors at this time.

We will pursue intellectual property protection to the extent we believe it would be advantageous to our business objectives. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented or challenged. As our business evolves, we may also choose to abandon certain intellectual property rights that we consider no longer core to our go-forward business.

Human Capital

As of April 12, 2023, we employed a total of 104 full-time people and one part-time person. None of our employees are covered by a collective bargaining agreement. We believe that our employee relations are good. Our human capital objectives center around identifying, recruiting, retaining, incentivizing, integrating our existing and new employees.

The breakdown of full-time employees by main category of activity is as follows:

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Impact of COVID-19

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. and European governments in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes. During 2020, 2021, and 2022, this had negatively affected the U.S. and global economies, disrupted global supply chains and resulted in significant transport restrictions and disruption of global financial markets.

An outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic has had and may continue to have, a significant impact on the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage and shipping costs. Any of these disruptions and delays may strain domestic and international supply chains, which could negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon.

We expect that an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic may continue to have, an impact on the Company’s ability to design, develop and commercialize its stated vehicle objectives which may further adversely affect sales and profitability in future periods. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Item 1A. “Risk Factors”.

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Inter-Corporate Relationships

The following is a list of each of our five subsidiaries and the corresponding date of jurisdiction of incorporation or organization and the ownership interest of each. All of our subsidiaries are directly or indirectly owned or controlled by us:

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Corporate Information

We were incorporated on February 16, 2015, under the laws of the Province of British Columbia, Canada, and our principal activity is the development and manufacturing of electric vehicles (each, an EV).

Our head office is located at, and our principal address is, 8057 North Fraser Way, Burnaby, British Columbia, Canada, V5J 5M8.

Our registered and records office is located at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada, V6E 4N7.

Additional information related to us is available on SEDAR at www.sedar.com and on our website at www.electrameccanica.com. We do not incorporate the contents of our website or of sedar.com into this Annual Report. Information on our website does not constitute part of this Annual Report.

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ITEM 1A. RISK FACTORS

In addition to the information contained in this Annual Report on Form 10-K, we have identified the following material risks and uncertainties which reflect our outlook and conditions known to us as of the date of this Form 10-K. These material risks and uncertainties should be carefully reviewed by our stockholders and any potential investors in evaluating the Company, our business, and the market value of our common stock. Furthermore, any one of these material risks and uncertainties has the potential to cause actual results, performance, achievements or events to be materially different from any future results, performance, achievements or events implied, suggested or expressed by any forward-looking statements made by us or by persons acting on our behalf. Refer to “Cautionary Note Regarding Forward-looking Statements”.

There is no assurance that we will be successful in preventing the material adverse effects that any one or more of the following material risks and uncertainties may cause on our business, prospects, financial condition and operating results, which may result in a significant decrease in the market price of our common stock. Furthermore, there is no assurance that these material risks and uncertainties represent a complete list of the material risks and uncertainties facing us. There may be additional risks and uncertainties of a material nature that, as of the date of this Form 10-K, we are unaware of or that we consider immaterial that may become material in the future, any one or more of which may result in a material adverse effect on us. You could lose all or a significant portion of your investment due to any one of these material risks and uncertainties.

Risks Related to the Business and Industry

We will require a significant amount of capital to carry out our proposed business plan to develop, manufacture, sell and service electric vehicles. As at the date of this Annual Report the Company is not able to finance day-to-day activities through operations; and there is no assurance that any amount raised will be sufficient to continue to fund operations of our Company.

If we are to achieve profitability, we must have a successful commercial introduction and acceptance of our vehicles, which may not occur. We expect that we will incur operating losses in 2023, and thereafter, and we also expect to continue to experience negative cash flows for the next several years.

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We have a limited operating history and have generated minimal revenues.

Our limited operating history makes evaluating our business and future prospects difficult. We were formed in February 2015, and in 2020, we started production and deliveries of our first electric vehicle the SOLO. We intend to derive revenues from our planned E4 vehicle and from current and anticipated contract assembly and/or manufacturing using our Mesa, Arizona, facility. Our vehicles require significant investment prior to commercial introduction and may never be successfully developed or commercially successful.

We have a history of operating losses and we expect our operating losses to accelerate and materially increase for the foreseeable future.

For the fiscal year ended December 31, 2022, we generated a net loss of $123.7 million. If we are to ever achieve profitability, we must have a successful commercial introduction and acceptance of our vehicles, which may not occur. We expect that our operating losses will continue in 2023 and thereafter, and we also expect to continue to incur operating losses and to experience negative cash flows for the next several years.

Our ability to achieve profitability will depend, in part, on our ability to manage the bill of materials and per unit manufacturing cost and ability to commercialize Project E4.

Product development is subject to feasibility and engineering risks. Any increase in manufacturing volumes is dependent upon a corresponding increase in sales. The occurrence of one or more factors that negatively impact manufacturing, or reduce our manufacturing efficiency, may prevent us from achieving our desired reduction in manufacturing costs, which would negatively affect our operating results and may prevent us from attaining profitability.

We currently have negative operating cash flows, and if we are unable to generate positive operating cash flows in the future our viability as an operating business will be adversely affected.

We have made significant up-front investments in research and development, sales and marketing and general and administrative expenses to rapidly develop and expand our business. We are currently incurring expenditures related to our operations that have generated a negative operating cash flow. Operating cash flow may decline in certain circumstances, many of which are beyond our control. We might not generate sufficient revenues in the near future. Because we continue to incur future expenditures for research and development, sales and marketing and general and administrative expenses, we continue to experience negative cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses. An inability to generate positive cash flow until we reach a sufficient level of sales with positive gross margins to cover operating expenses or raise additional capital on reasonable terms will adversely affect our viability as an operating business.

We may require additional capital to carry out our proposed business plan for the next 24 months if our cash on hand and revenues from the sale of our vehicles and contract assembly and manufacturing services provided to third-parties are not sufficient to cover our cash requirements.

If our cash on hand, revenues, if any, and cash received upon the exercise of outstanding warrants, if any are exercised, are not sufficient to cover our cash requirements, we will need to raise additional funds through the sale of our equity securities, in either private placements or registered offerings and/or debt instruments. If we are unsuccessful in raising enough funds through such capital-raising efforts, we may review other financing possibilities such as bank loans. Financing might not be available to us or, if available, may not be available on terms that are acceptable to us.

Our ability to obtain the necessary financing to carry out our business plan is subject to several factors, including general market conditions and investor acceptance of our business plan. These factors may make the timing, amount, terms, and conditions of such financing unattractive or unavailable to us. If we are unable to raise sufficient funds, we will have to significantly reduce our spending, delay, or cancel our planned activities or substantially change our current corporate structure. We might not be able to obtain any funding, and we might not have sufficient resources to conduct our business as projected, both of which could mean that we would be forced to curtail or discontinue our operations.

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Terms of future financings may adversely impact your investment.

We may have to engage in common equity, debt, or preferred stock financing in the future. Your rights and the value of your investment in our securities could be reduced. Interest on debt securities could increase costs and negatively impacts operating results. Preferred stock could be issued in series from time to time with such designation, rights, preferences, and limitations as needed to raise capital. The terms of preferred stock could be more advantageous to those investors than to the holders of common shares. In addition, if we need to raise equity capital from the sale of common shares, institutional or other investors may negotiate terms at least as, and possibly more, favorable than the terms of your investment. Common shares which we sell could be sold into any market which develops, which could adversely affect the market price.

If we are unable to successfully and profitably assemble third-party products under assembly agreements with such third-parties, our business and operating results will most likely face material adverse effects.

In addition to manufacturing the proposed E4 in our Mesa, Arizona, facility in the future, we have entered into an assembly agreement with a third-party and plan to enter into similar assembly and/or manufacturing agreements with other third-parties to generate revenue. If we are not able to successfully and profitably assemble third-party products at our Mesa facility, this will affect our ability to satisfy our current assembly client and affect our ability to attract new clients, which will most likely have a material adverse effect on our business and operating results.

If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.

We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in electric vehicle technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results, and financial condition. Our research and development efforts may not be sufficient to adapt to changes in electric vehicle technology. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models to continue to provide vehicles with the latest technology, in particular battery cell technology. However, our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our vehicles. For example, we do not manufacture battery cells which makes us depend upon other suppliers of battery cell technology for our battery packs.

If we are unable to design, develop, market, and sell new electric vehicles and services that address additional market opportunities, our business, prospects, and operating results will suffer.

We may not be able to successfully develop new electric vehicles and services, address new market segments or develop a significantly broader customer base. To date, we have focused our business on the sale of the SOLO, a three-wheeled single seat electric vehicle, and have targeted mainly urban residents of modest means and fleets. We will need to address additional markets and expand our customer demographic to further grow our business as we look to pivot to Project E4. Our failure to address additional market opportunities would harm our business, financial condition, operating results, and prospects.

Demand in the vehicle industry is highly volatile.

Volatility of demand in the vehicle industry may materially and adversely affect our business, prospects, operating results, and financial condition. The markets in which we will be competing have been subject to considerable volatility in demand in recent periods. Demand for automobile sales depends to a large extent on general, economic, political, and social conditions in a given market and the introduction of new vehicles and technologies. As a new start-up manufacturer, we will have fewer financial resources than more established vehicle manufacturers to withstand changes in the market and disruptions in demand.

We do not currently have all arrangements in place that are required to allow us to fully execute our business plan.

To sell our vehicles across the U.S., each State has its own set of rules and regulations that we will need to comply with. This means that we will need to enter into additional agreements and arrangements that are not currently in place. These include obtaining dealership licenses, lease financing, implementing a nation wide servicing arrangement, etc.  If we are unable to enter into such agreements, or are only able to do so on terms that are unfavorable to us, we may not be able to fully carry out our business plans.

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We depend on certain key personnel, and our success will depend on our continued ability to retain and attract such qualified personnel.

Our success depends on the efforts, abilities, and continued service of our executive leadership team: Susan Docherty, our Chief Executive Officer (or “CEO”) and interim Chief Operating Officer, Mark Orsmond, our Chief Financial Officer (or “CFO”),  Michael Bridge, our General Counsel, and Kim Brink, our Chief Revenue Officer (or “CRO”). A number of these key employees have significant experience in the automobile manufacturing and technology industries. A loss of service from any one of these individuals may adversely affect our operations, and we may have difficulty or may not be able to locate and hire suitable replacements.

We are subject to numerous environmental, and health and safety laws and any breach of such laws may have a material adverse effect on our business and operating results.

We are subject to numerous environmental and health and safety laws, including statutes, regulations, bylaws, and other legal requirements. These laws relate to the generation, use, handling, storage, transportation, and disposal of regulated substances, including hazardous substances (such as batteries), dangerous goods and waste, emissions or discharges into soil, water, and air, including noise and odors (which could result in remediation obligations), and occupational health and safety matters, including indoor air quality. These legal requirements vary by location and can arise under federal, provincial, state, or municipal laws. Any breach of such laws and/or requirements would have a material adverse effect on our Company and its operating results.

Our vehicles are subject to motor vehicle standards and the failure to satisfy such mandated safety standards would have a material adverse effect on our business and operating results.

All vehicles sold must comply with federal, state, and provincial motor vehicle safety standards. In both Canada and the United States vehicles that meet or exceed all federally mandated safety standards are certified under the federal regulations. In this regard, Canadian and U.S. motor vehicle safety standards are substantially the same. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure by us to have any future model EV satisfy motor vehicle standards would have a material adverse effect on our business and operating results.

If we are unable to reduce and adequately control the costs associated with operating our business, including costs associated with manufacturing, sales, materials, transportation and logistics, our business, financial condition, operating results, and prospects will suffer.

If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling, transporting, distributing, and servicing our electric vehicles relative to their selling prices, or if we experience significant increases in these costs and are unable to raise our prices to offset such increases, our operating results, gross margins, business and prospects could be materially and adversely impacted. Further, since our preorder vehicles are at fixed sales prices, if we experience significant increases in costs associated with operating our business, our profitability from these pre-order vehicles may be negatively impacted absent the flexibility to increase such sales prices.

If our vehicles fail to perform as expected our ability to develop, market and sell our electric vehicles could be harmed.

Our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our vehicles use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced. We have experienced some of these risks with our current recall.

We may not succeed in establishing, maintaining, and strengthening the ElectraMeccanica brand, which would materially and adversely affect customer acceptance of our vehicles and components and our business, revenues and prospects.

Our business and prospects depend in part on our ability to develop, maintain and strengthen the ElectraMeccanica brand. Any failure to develop, maintain and strengthen our brand may materially and adversely affect our ability to sell our planned electric vehicles. If we are not able to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality electric vehicles and maintenance and repair services, and we have very limited experience in these areas. In addition, we expect that our ability to develop, maintain and strengthen the ElectraMeccanica brand will also depend heavily on the success of our marketing efforts. To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the

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need to use traditional media such as television, radio and print. Many of our current and potential competitors, particularly automobile OEMs headquartered in the U.S., Japan and the European Union, have greater name recognition, broader customer relationships and substantially greater marketing resources than we do.

Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.

We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business, including aluminum, steel, carbon fiber and non-ferrous metals such as copper and cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include: the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases; disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.

Our business depends on the continued supply of battery cells for our vehicles. We do not currently have any agreements for the supply of batteries and depend upon the open market for their procurement. Any disruption in the supply of battery cells from our supplier could temporarily disrupt the planned production of our vehicles until such time as a different supplier is fully qualified. Moreover, battery cell manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase our operating costs and could reduce our margins if we cannot recoup the increased costs through increased electric vehicle prices. We might not be able to recoup increasing costs of raw materials by increasing vehicle prices.

The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results, and prospects.

Any reduction, elimination or discriminatory application of government subsidies and economic incentives that are offered to purchasers of EVs or persons installing home charging stations, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles. This could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition, and operating results.

If we fail to manage future growth effectively, we may not be able to market and sell our vehicles successfully.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results, and financial condition. We may expand our operations in the near future in connection with the planned development and production of our vehicles. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

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We intend to continue to hire a number of additional personnel, including design and manufacturing personnel and service technicians, for our electric vehicles programs and assembly operations. Competition for individuals with experience in designing, manufacturing, and servicing electric vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.

Our business may be adversely affected by labor and union activities.

Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. We also directly and indirectly depend upon other companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition, or operating results. If a work stoppage occurs within our business, or that of our key suppliers, it could delay the manufacture and sale of our electric vehicles and have a material adverse effect on our business, prospects, operating results, or financial condition. Additionally, if we expand our business to include full in-house manufacturing of our vehicles, our employees might join or form a labor union and we may be required to become a union signatory.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

We may become subject to product liability claims, which could harm our business, prospects, operating results, and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced given we have limited field experience of our vehicles. A successful product liability claim against us could require us to pay a substantial monetary award . Moreover, a product liability claim could generate substantial negative publicity about our vehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have a material adverse effect on our brand, business, prospects, and operating results. We plan to maintain product liability insurance for all our vehicles on a claims-made basis, but any such insurance might not be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either more than our coverage or outside of our coverage may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy.

Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from interfering with our commercialization of our products.

The registration and enforcement of patents involves complex legal and factual questions and the breadth and effectiveness of patented claims is uncertain. We cannot be certain that we are the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford sufficient protection against someone creating competing products, or as a defensive portfolio against a competitor who claims that we are infringing its patents. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the U.S., and thus we cannot be certain that foreign patent applications, if any, will result in issued patents in those foreign jurisdictions or that such patents can be effectively enforced, even if they relate to patents issued in the U.S.

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop, sell or market our vehicles or components, which could make it more difficult for us to operate our business. From time to time we may receive communications from third parties that allege our products are covered by their patents or trademarks or other intellectual property rights. Companies holding patents or other

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intellectual property rights may bring suits alleging infringement of such rights or otherwise assert their rights. If we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do things that include one or more of the following:

In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology or other intellectual property right, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.

Global economic conditions could materially adversely impact demand for our products and services.

Our operations and performance depend significantly on economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

Uncertainties in the interpretation and enforcement of Hong Kong laws and regulations could limit the legal protections available to you and us.

From time to time we may have to resort to arbitration proceedings to enforce our legal rights, or Zongshen may resort to arbitration proceedings, under our Manufacturing Agreement with Zongshen, dated September 29, 2017, as amended pursuant to an extension agreement dated June 23, 2021 (collectively, the “Manufacturing Agreement”), which we are in the process of concluding. The Manufacturing Agreement is governed by Hong Kong law with the venue for arbitration in Hong Kong. Hong Kong has historically had a separate system of laws, including common law. However, the People’s Republic of China has increasingly sought to exert its control over Hong Kong, including over its laws. Because of the unpredictable nature of the application of Hong Kong law in a Hong Kong arbitration, it may be more difficult to evaluate the outcome of such proceedings and the level of legal protection we enjoy, which may result in higher than expected costs to exit the Manufacturing Agreement.

A global pandemic could materially adversely impact our ability to manufacture and deliver products.

An outbreak of disease or similar public health threat, such as the COVID-19 pandemic, could have, and in the case of the COVID-19 pandemic has had and may continue to have, a significant impact on the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage and shipping costs. Any of these disruptions and delays may strain domestic and international supply chains, which could negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon.

We face risks associated with security breaches through cyber-attacks, cyber intrusions, or otherwise, which could pose a risk to our systems, networks and services.

We face risks associated with cyber-attacks, including hacking, viruses, malware, denial of service attacks, ransomware or other data security breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions around the world have increased. Our business requires the continued operation of information systems

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and network infrastructure. In the event of a cyber-attack that we were unable to defend against or mitigate, we could have our operations and the operations of our customers and others disrupted. We could also have our financial and other information systems and network infrastructure impaired, property damaged and customer and employee information stolen, and experience substantial loss of revenues, response costs and other financial loss and be subject to increased regulation, litigation, penalties and damage to their reputation. A security breach or other significant disruption involving computer networks and related systems could cause substantial costs and other negative effects, including litigation, remediation costs, costs to deploy additional protection strategies, compromising of confidential information and reputational damage adversely affecting investor confidence. As a result, in the event of a material cyber security breach, our results of operations could be materially, adversely affected.

Risks Related to Our Securities

Our common shares are listed on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common shares, which could make it more difficult for us to sell securities in a financing and for you to sell your common shares.

Our common shares are listed on the Nasdaq Capital Market. As such, we are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common shares of $1.00 per share. If we do not meet these continued listing requirements, our common shares could be delisted. Delisting of our common shares from the Nasdaq Capital Market would cause us to pursue eligibility for trading on other markets or exchanges, or on the pink sheets. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, our common shares would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that our common shares, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service, the Over-The-Counter Markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our common shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence. Additionally, the threat of delisting or a delisting of our common shares from the Nasdaq Capital Market could reduce the number of investors willing to hold or acquire our common shares, thereby further restricting our ability to obtain equity financing, and it could reduce our ability to retain, attract and motivate our directors, officers and employees. In addition, as a consequence of any such delisting, our share price could be negatively affected and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, our common shares.

As described in a Current Report on Form 8-K filed with the SEC on March 28, 2023, we received a deficiency letter from Nasdaq’s Listing Qualifications Department (the “Staff”) notifying us that, for the last 30 consecutive business days, the bid price for our common shares had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until September 25, 2023 (the “Compliance Date”), to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price for our common stock must remain above $1.00 for 10 consecutive business days.

If we do not regain compliance with the Minimum Bid Price Requirement by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period, provided that we meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and notify the Staff of our intention to cure the deficiency during the additional compliance period. If we do not regain compliance with the Minimum Bid Price Requirement by the Compliance Date and are not eligible for an additional compliance period at that time, the Staff will provide written notification to us that our common shares will be subject to delisting. At that time, we may appeal the Staff’s delisting determination to a Nasdaq Hearing Panel. There can be no assurance that we will regain compliance with the Minimum Bid Price Requirement or otherwise maintain compliance with any of the other Nasdaq listing requirements.

Our executive officers and directors beneficially own approximately 7.7% of our common shares.

As of April 12, 2023, our executive officers and directors beneficially owned, in the aggregate, approximately 7.7% of our common shares, which includes shares that our executive officers and directors have the right to acquire pursuant to warrants, stock options, restricted stock units (“RSU”s) and deferred stock units (“DSU”s) which have vested. As a result, they will be able to exercise a

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significant level of control over all matters requiring shareholder approval, including the election of directors, amendments to our Articles and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our Company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders.

The continued sale of our equity securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our common shares.

Our Notice of Articles authorize the issuance of an unlimited number of common shares and the issuance of preferred shares. Our Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and designate the rights of the preferred shares, which may include voting, dividend, distribution, or other rights that are preferential to those held by the common shareholders. The issuance of any such common or preferred shares may result in a reduction of the book value or market price, if one exists at the time, of our outstanding common shares. Given our lack of revenues, we will likely have to issue additional equity securities to obtain working capital we require in the future. Our efforts to fund our intended business plans will therefore result in dilution to our existing shareholders. If we do issue any such additional common shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. As a result of such dilution, if you acquire common shares your proportionate ownership interest and voting power could be decreased. Furthermore, any such issuances could result in a change of control or a reduction in the market price for our common shares.

Additionally, we had 14,721,998 options and 5,395,481 warrants outstanding as of April 12, 2023. The exercise price of some of these options and warrants is below our current market price, and you could purchase shares in the market at a price in excess of the exercise price of our outstanding warrants or options. If the holders of these options and warrants elect to exercise them, your ownership position will be diluted and the per share value of the common shares you have or acquire could be diluted as well. As a result, the market value of our common shares could significantly decrease as well.

Issuances of our preferred stock may adversely affect the rights of the holders of our common shares and reduce the value of our common shares.

Our Notice of Articles authorize the issuance of an unlimited number of shares of preferred stock. Our Board of Directors has the authority to create one or more series of preferred stock and, without shareholder approval, issue shares of preferred stock with rights superior to the rights of the holders of common shares. As a result, shares of preferred stock could be issued quickly and easily, adversely affecting the rights of holder of common shares and could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult. Although we currently have no plans to create any series of preferred stock and have no present plans to issue any shares of preferred stock, any creation and issuance of preferred stock in the future could adversely affect the rights of the holders of common shares and reduce the value of our common shares.

The market price of our common shares may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

Our common shares began trading on the Nasdaq Capital Market (“Nasdaq”) in August 2018, and before that it had been trading on the OTCQB starting in September 2017. The historical volume of trading has been low (within the past fiscal year, the fewest number of our shares that were traded on Nasdaq was 176,000 shares daily), and the share price has fluctuated significantly (since trading began on Nasdaq our closing price has been as low as US$0.45 on March 28, 2023, and as high as US$10.81 on October 20, 2020). The share price for our common shares could decline due to the impact of any of the following factors:

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Many of these factors are beyond our control. The stock markets in general, and the market for automobile companies, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common shares regardless of our actual operating performance.

We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.

We have never paid any cash or stock dividends and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of any dividends. Because we do not intend to declare dividends, any gain on your investment will need to result from an appreciation in the price of our common shares. There will therefore be fewer ways in which you are able to make a gain on your investment.

FINRA sales practice requirements may limit your ability to buy and sell our common shares, which could depress the price of our shares.

Financial Industry Regulation Authority (“FINRA”) rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our common shares, have an adverse effect on the market for our common shares and, thereby, depress their market prices.

Our common shares have been thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your common shares to raise money or otherwise desire to liquidate your shares.

From October 2017 until August 2018, our common shares were quoted on the OTCQB where they were “thinly-traded”, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time was relatively small or non-existent. Since we listed on the Nasdaq Capital Market in August 2018, the volume of our common shares traded has increased, but that volume could decrease until we are thinly traded again. That could occur due to a number of factors, including that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our common shares until such time as we became more seasoned. Consequently, there may be periods of several days or more when trading activity in our common shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our common shares may not develop or be sustained.

Volatility in our common shares or warrant price may subject us to securities litigation.

The market for our common shares may have, when compared to seasoned issuers, significant price volatility, and we expect that our share or warrant prices may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

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We incur significant costs as a result of being a public company.

We incur significant legal, accounting, and other expenses as a public company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Capital Market, impose various requirements on the corporate governance practices of public companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. Since we are no longer an “emerging growth company”, as defined in the JOBS Act, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our Board of Directors or as executive officers. We cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

Risks Related to Government Laws and Regulations

Increased safety, emissions, fuel economy, or other regulations may result in higher costs, cash expenditures, and/or sales restrictions.

The motorized vehicle industry is governed by a substantial amount of government regulation, which often differs by state and region. Government regulation has arisen, and proposals for additional regulation are advanced, primarily out of concern for the environment, vehicle safety, and energy independence. In addition, many governments regulate local product content and/or impose import requirements as a means of creating jobs, protecting domestic producers, and influencing the balance of payments. The cost to comply with existing government regulations is substantial, and future, additional regulations could have a substantial adverse impact on our financial condition.

Our vehicles are subject to multi-jurisdictional motor vehicle standards.

All vehicles sold must comply with federal, state and country-specific motor vehicle safety standards. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Failure of the E4 vehicle or future vehicle models to satisfy motor vehicle standards would have a material adverse effect on our business and operating results.

Demand for our products and services may be impacted by the status of government and economic incentives supporting the development and adoption of such products.

Government and economic incentives that support the development and adoption of electric vehicles in the U.S., including certain tax exemptions, tax credits and rebates, may be reduced, eliminated or exhausted from time to time. Previously available incentives favoring electric vehicles may expire or be cancelled or temporarily unavailable, and in some cases not replaced or reinstituted, which may have negatively impacted sales. Certain government and economic incentives, similar to the ones in the U.S. Inflation Reduction Act of 2022, may also be implemented that provide benefits to manufacturers who assemble domestically, have local suppliers or have other characteristics that may not apply to our future vehicle programs. Such developments could negatively impact demand for our vehicles, and we and our customers may have to adjust to them, including through pricing modifications.

Any failure by us to comply with a variety of U.S. and international privacy and consumer protection laws may harm us.

Any failure by us or our vendor or other business partners to comply with our public privacy notice or with federal, or state privacy, data protection or security laws or regulations relating to the processing, collection, use, retention, security and transfer of personally identifiable information could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements and other significant costs. Substantial expenses and operational changes may be required in connection with maintaining compliance with such laws, and even an unsuccessful challenge by customers or regulatory authorities of our activities could result in adverse publicity and could require a costly response from and defense by us. In addition, certain emerging privacy laws are still subject to a high degree of uncertainty as to their interpretation, application and impact, and may require extensive system and operational changes, be difficult to implement, increase our operating costs, adversely impact the cost or attractiveness of the products or services

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we offer, or result in adverse publicity and harm our reputation. For example, the California Consumer Privacy Act imposes certain legal obligations on our use and processing of personal information related to California residents. Notwithstanding our efforts to protect the security and integrity of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if, for example, third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal information. A major breach of our network security and systems may result in fines, penalties and damages and harm our brand, prospects and operating results.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Our head office is located in Burnaby, British Columbia, Canada. We have commissioned a new manufacturing facility in Mesa, Arizona, which will be used for engineering, manufacturing, and administrative activities. We do not own any real property. We have leased the following properties:

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Note: The Mesa, Arizona facility lease included a rent-free period for 2022. On a go-forward basis, the Company expects to incur $187,000 per month which escalates over the duration of the lease. Additionally, subsequent to year-end, the Company negotiated the expiration of its Burnaby headquarters lease to end June 2023. The Company will relocate its headquarter operations to a WeWork Workplace LLC office in Burnaby, B.C., Canada. Refer to Note 21 “Subsequent Events” in the financial statements included herein for more details.

We believe that our current facilities are adequate to meet our ongoing needs and that, if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms.

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ITEM 3. LEGAL PROCEEDINGS

As of the date of this Form 10-K, other than as disclosed below, there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which our Company or any of our subsidiaries is a party or of which any of their property is subject, and no director, officer, affiliate or record or beneficial owner of more than 5% of our common stock, or any associate or any such director, officer, affiliate or security holder, is: (i) a party adverse to us or any of our subsidiaries in any legal proceeding; or (ii) has an adverse interest to us or any of our subsidiaries in any legal proceeding. Other than as disclosed below, management is not aware of any other material legal proceedings pending or that have been threatened against us or our properties.

In the ordinary course of business, we may from time to time become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, financial condition, or cash flows. In addition, regardless of the outcome, litigation could have an adverse impact on us as a result of legal fees, the diversion of management’s time and attention and other factors.

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Zongshen, our Chinese manufacturer of the SOLO, has made various claims for fees owed by us under the Manufacturing Agreement arising from our plans to conclude the Manufacturing Agreement. We also have raised potential claims against Zongshen related to various defects in the SOLO vehicles manufactured for us by Zongshen. The Manufacturing Agreement is governed by Hong Kong law with mandatory arbitration in Hong Kong. No legal proceedings have been initiated by either party. Therefore, the Company is unable to forecast a resolution of the conclusion of the Manufacturing Agreement

Other than as disclosed above, there are no legal proceedings as of the date of this Annual Report that in the opinion of management might have a material adverse effect on our results of operations, financial condition or cash flows, or that are required to be disclosed under the rules of the SEC.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Shares

Our common shares are traded on Nasdaq Capital Market under the symbol “SOLO”. Volume in our shares may be sporadic and the price could experience volatility.

Transfer Agent for Common Shares

Our shares of common stock are recorded in registered form on the books of our transfer agent, VStock Transfer, LLC, located 18 Lafayette Place, Woodmere, New York 11598.

Holders of Common Shares

As at April 12, 2023, there were 294 holders of record of our common shares, which does not include shareholders whose shares are held in street or nominee names.

Dividends

We have not paid any dividends on our common shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the Board of Directors’ discretion, subject to applicable law, after taking into account many factors including our operating results, financial condition and current and anticipated cash needs.

Recent Sales of Unregistered Securities

None.

Issuer Repurchases of Equity Securities

None.

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ITEM 6. SELECTED FINANCIAL DATA

The following tables provide selected financial data for each of the past two years, and should be read in conjunction with, and are qualified in their entirety be reference to, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes for the fiscal year ended December 31, 2022, as presented under Item 8. Financial Statements and Supplementary Data. These historical results are not necessarily indicative of the results to be expected for any future period.

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes included in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. “Risk Factors” or in other parts of this Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

General

The following management’s discussion and analysis, prepared for the year ended December 31, 2022, is a review of our operations, current financial position and outlook and should be read in conjunction with our annual audited financial statements for the year ended December 31, 2022 and the notes thereto. Amounts are reported in United States dollars (“USD”) based upon financial statements prepared in accordance with U.S. generally accepted accounting principles or (“U.S. GAAP”).

Overview and Highlights

ElectraMeccanica designs and assembles smaller, simpler, purposeful electric vehicles that we believe are a better fit for everyday use in an increasingly crowded, technically complex world.

Our goal is to expand the market for everyday EVs beyond traditional OEM categories (pickup trucks, SUVs and large sedans), many of which emphasize size and power, raising the total cost of ownership. We believe the emerging transition to electric represents an opportunity to not just shift a fuel source for mobility, but also to offer consumers and businesses new styles and types of vehicles.

ElectraMeccanica has been assembling and selling a unique, three-wheeled, single-seat commuter vehicle, the SOLO (the G3 SOLO being the most recent model). We commenced commercial production of the G3 SOLO in August 2020 and through the end of 2022 sold over 420 vehicles via our direct-to-consumer sales and marketing initiatives and our retail store operations in the States of California, Arizona and Oregon.

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However, given the significant challenges experienced by both our current customers as well as prospective customers in purchasing, financing, insuring and after-sale servicing of a three-wheel autocyle such as the SOLO, the Company has made a strategic decision to stop the production of the SOLO and commence Project E4, which is the next four-wheel evolution of the SOLO. Project E4 plans to leverage the best features and insights derived from the SOLO, following completion of vehicle design, validation and all required testing. Pending development of the E4, the Company has paused production plans for all other prototype models. As at December 31, 2022, as a result of the Company incurring gross losses and anticipating future gross losses on the sale of SOLOs, the Company’s notice to Zongshen to immediately cease production of SOLO vehicles in December 2022, and the identified defects in the SOLOs that lead to the recall announced on February 17, 2023, the Company identified indicators of impairment for its long-lived assets. For the year ended December 31, 2022, the Company recorded an impairment of approximately $6.6 million reflecting an impairment of dedicated SOLO production tooling and molds, service and sales demo vehicles and other dedicated equipment of approximately $3.8 million, and approximately $2.8 million of SOLO dedicated batteries that were prepaid as at December 31, 2022.

The Company has also begun winding down its contract manufacturing relationship with Zongshen as a result of the recent commissioning of our Mesa, Arizona, facility and our plans to move into four-wheeled designs produced onshore in the U.S. For the year ended December 31, 2022, the Company recorded an estimated contract termination liability of approximately $15.7 million associated with the winding down of this manufacturing contract relationship.

Presently, the Company is investigating the cause of an occasional power loss on the SOLO and is, as of February 17, 2023, subject to a self-reported NHTSA recall notice. As a result the Company has now decided to repurchase all 429 SOLO vehicles for the full purchase price paid by the customer, inclusive of the vehicle price, taxes, title and shipping. In addition, the Company has issued a stop drive notice to advise customers not to drive their vehicles because of the safety concern. For the year ended December 31, 2022, the Company has recorded a recall provision of approximately $8.9 million as an estimate of the cost to buy back all retailed vehicles.

In December, 2022, we made the decision to also help build other companies’ electric vehicles to further leverage the resources of our state-of-the-art 235,000 square foot facility located in Mesa, Arizona. We believe this combination of manufacturing our own vehicles and helping to build those of others puts ElectraMeccanica in the best position to benefit from the secular growth of the EV category overall. We further believe that to date this growth largely has excluded smaller, simpler and more useful - but still stylish - forms of electric transportation.

During fiscal 2022, we delivered 339 vehicles - resulting in revenues of $6,812,446 and a net loss of $123,698,513.

Ability to Finance Our Growth

Our long-term ability to continue operations will depend on our continued ability to raise capital on acceptable terms. We incurred losses of $123,698,513 in 2022 and $38,779,496 in 2021 and anticipate incurring losses in our 2023 fiscal year.

We had negative operating cash flows of $84,410,328 for the year ended December 31, 2022 and anticipate negative operating cash flows during 2023. Although we had working capital surplus of $113,956,510, including cash and cash equivalents of $134,255,538, as at December 31, 2022, and while we believe our cash on hand will finance our operations over at least the 12 month period following the issuance of our consolidated financial statements, we believe that we will need additional financing to continue and expand operations in the future. If we are unable to continue to access private and public capital on terms that are acceptable to us, we may be forced to curtail or cease operations.

Ability to Develop and Launch New Offerings

We have concluded that the three-wheeled SOLO, despite positive responses from owners and thousands of people who experienced test drives, ultimately posed significant challenges to the Company’s ability to scale revenue profitably in the foreseeable future. Our future ability to generate revenue and profitability will also depend on our ability in designing, developing and launching  new vehicle platforms and programs with broader marketability and consumer acceptance commencing with Project E4, as well as successfully building our capability and portfolio of third party contract assembly and/or manufacturing arrangements.

Ability to Attract New Customers

Our growth will depend in large part on our ability to attract new customers for our vehicles and commercial customers for contract assembly and/or manufacturing. We remain in the early stages of growth in our existing markets, and we expect to strengthen brand

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awareness and engagement, following further development of the E4 as well as related consumer research. An inability to attract new customers would substantially impact our ability to generate revenue and profitability in the future.

Operating Results - Results of Operations for the Year ended December 31, 2022 as Compared to the Year Ended December 30, 2021

Revenue

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The revenue of the Company principally represents sales of the SOLO. Revenue for the SOLO is recognized when the Company has transferred control to the customer which generally occurs upon shipment. The first commercially produced SOLOs were delivered to customers on October 4, 2021.

Revenue for the year ended December 31, 2022 was $6,812,446 compared to $2,100,770 for the corresponding period in 2021, primarily reflecting an increase in SOLO unit deliveries in 2022 to 339 compared with 61 unit deliveries in the prior year.

Cost of Revenue and Gross Loss

Cost of revenue was $33,067,782 compared to $4,334,681 for the year ended December 31, 2021 providing a gross loss of $26,255,336 for the year ended December 31, 2022, compared to the gross loss of $2,233,911 for the corresponding period in 2021 or -385.4% compared to -106.3% for 2021. The increased cost of revenue and increased gross loss from 2021 to 2022 was primarily attributable to:

Net Loss

During the year ended December 31, 2022, the Company incurred a net loss of $123,698,513, compared to a net loss of $38,779,496 for the corresponding period in 2021. The increase in net loss from 2021 to 2022 was primarily attributable to the increase in gross loss, increase in operating expenses, and asset impairments and contract termination liabilities associated with the Company’s decision to stop production of the G3 SOLO.

General and administrative expenses

For the year ended December 31, 2022, general and administrative expenses were $39,755,257, compared to $28,187,657 for the year ended December 31, 2021. The increase of $11,567,600 was principally a result of the following:

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Research and development expenses

Research and development expenses related to scaling engineering teams associated with the continued launch of the SOLO increased to $22,031,212 for the year ended December 31, 2022, from $17,090,282 for the corresponding year ended December 31, 2021. The increase in research and development expenses from 2021 to 2022 was primarily attributable to increases in headcount during 2022 to support both SOLO production as well as development of future product programs.

Sales and marketing expenses

Sales and marketing expenses increased to $14,663,968 for the year ended December 31, 2022, from $10,773,938 for the corresponding year ended December 31, 2021. The increase in sales and marketing expenses from 2021 to 2022 was primarily the result of ongoing ramping during the year of professionalized sales efforts, ElectraMeccanica’s web presence, expanded digital marketing efforts and continued growth in the Company’s sales and marketing headcount. and growing its sales team.

Impairment

The Company recorded an impairment loss of $7,592,641 for the year ended December 31, 2022 ($nil for prior year), mainly attributable to $3,819,519 for impairment of property and equipment and $2,804,032 for impairment of prepaid batteries dedicated to the SOLO, and $549,760 impairment of goodwill and $400,628 impairment of intangible assets associated with the Company’s previous acquisition of Intermeccanica International Inc.

Other Items

Contract termination loss

In December 2022, the Company provided written notice to Zongshen to cease production of the G3 SOLO in accordance with the terms of the Manufacturing Agreement. Subsequent to December 31, 2022, Zongshen provided written notice to the Company of certain monetary claims related to the cease production notice and an estimate of costs associated with concluding the Manufacturing Agreement. The Company does not agree with Zongshen’s calculation of monetary claims; however, as of December 31, 2022, the Company has accrued a liability of $15.7 million in termination provisions under the Manufacturing Agreement including the purchase of excess parts, production molds and payment for an additional 174 completed vehicles. The parties are presently in discussions to conclude the Manufacturing Agreement. Currently there are no formal legal claims by either party.

Changes in fair values of warrant derivative

The Company incurred a gain relating to changes in the fair value of warrant derivatives of $191,202 (2021: gain of $18,920,428) mainly caused by the decrease of our share price from $2.28 at December 31, 2021 to $0.60 at December 31, 2022.

Liquidity and Capital Resources

Liquidity

The Company’s financial success depends upon its ability to market and sell its electric vehicles and to continue to raise sufficient working capital to enable us to execute against business and product development plans. The Company’s historical capital needs have been met by the sale of the Company’s stock. Additional equity financing may not be possible on acceptable terms at the times required by the Company.

As of December 31, 2022, the Company had 119,287,917 issued and outstanding shares and 142,038,854 shares on a fully-diluted basis.

The Company had $113,956,510 of working capital surplus as at December 31, 2022, compared to $232,990,899 of working capital surplus as at December 31, 2021. The decrease in working capital resulted from cash used in operations of $84,410,328 (2021: $60,721,233) and cash used in investing activities of $3,398,974 (2021: $4,638,821) related to additions to property and equipment, offset by cash generated from financing activities of $380,868 (2021: $157,984,675).

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These financial statements have been prepared on a basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

If additional future financing is not available and revenue from the sale of the Company’s electric vehicles and contract assembly and/or manufacturing activities do not produce sufficient net cash flow, then the Company may require a significant curtailing of operations to ensure its survival or may be required to cease operations. As at December 31, 2022, the Company has $134,255,538 of cash and cash equivalents on hand, and the Company believes that it has sufficient cash to carry on operations for at least the next 12 month period following issuance of this Annual Report.

Summary of Cash Flows

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Operating Activities

During the year ended December 31, 2022, we used $84,410,328 cash in operating activities, compared with $60,721,233 for the year ended December 31, 2021. Cash used in operating activities increased in 2022 principally as a result an increase in cash based losses, increases in pre-paid expenses and other assets of $5,594,460 and an increase in inventory of $14,664,270.

Investing Activities

During the year ended December 31, 2022, we used $3,398,974 cash used in investing activities compared with $4,638,821 for the year ended December 31, 2021. Cash in investing activities slightly decreased and was related to additions to property and equipment.

Financing Activities

During the year ended December 31, 2022, we received net proceeds of $380,868 in cash from the issuance of common shares for stock options exercised and RSUs exercised, as compared to $157,984,675 for the same period last year from proceeds on issuance of common shares and warrants and stock options exercised.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Capital Resources

As at December 31, 2022, the Company had cash and cash equivalents of $134,255,538 (2021: $221,928,008).

Accounting Policies

The preparation of the Company’s financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenue and expenses. These are based on the best information available at the time utilizing generally accepted industry standards.

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Critical Accounting Policies and Significant Judgements and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. Preparation of the financial statements requires us to make judgments, estimates and assumptions that impact the reported amount of net sales and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when the estimate or assumption is complex in nature or requires a high degree of judgment and when the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. While our significant accounting policies are described in more detail in Note 2 of our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Product Recall: The estimate related to product recall is established using historical information and is established by applying a paid loss approach which considers the following:

Actual expenses incurred could differ from the estimated amount in future periods.

Inventory Valuation: We review our inventory to ensure that the carrying value does not exceed net realizable value (“NRV”), with NRV based on the estimated selling price of inventory, less disposal and transportation costs. When the carrying value of inventory exceeds its NRV, we perform an exercise to calculate the approximate amount by which carrying value is greater than NRV and record additional cost of the revenue for the difference. Once a write-off occurs, a new, lower cost basis is established. In estimating the net realizable value of the vehicle inventory at December 31, 2022, the Company has concluded that it is able to recover the inventory value through exporting vehicles outside of the U.S. to recover tariffs already paid.  The vehicle inventory’s net realizable value recognized at December 31, 2022 represents the amount that can be recovered from claiming the tariff.  In estimating the net realizable value of vehicle inventory at December 31, 2021, the Company considered the selling price information for sales near the balance sheet date.

Contract Termination: In December 2022, the Company provided written notice to Zongshen to cease production of the G3 SOLO in accordance with the terms of the Manufacturing Agreement. Subsequent to December 31, 2022, Zongshen provided written notice to the Company estimating costs of $22.8 million related to the cease production notice and an estimate of costs associated with concluding the Manufacturing Agreement. The Company does not agree with Zongshen’s calculation of monetary claims; however, as of December 31, 2022, the Company has accrued an estimate of liability of $15.7 million in termination provisions under the Manufacturing Agreement including the purchase of excess parts, production molds and payment for an additional 174 completed vehicles.

Impairment of Assets: Long-lived assets, such as plant, and equipment, finite-lived intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Estimates are used in the execution of such impairment testing. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount exceeds the fair value. Fair value can be determined through various valuation techniques including estimated discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment loss recognized is not reversed in future periods.

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For the purpose of impairment testing at December 31, 2022, all held-and-used long-lived assets, including plant and equipment, operating lease right-of-use assets, and other assets were grouped in one asset group – the SOLO asset group. The carrying amount of the SOLO asset group was higher than the recoverable amount on an undiscounted cash flow basis, and therefore the Company compared the carrying amount of the SOLO asset group to its fair value, being the aggregate of the fair values of the individual assets within the asset group.

The Company estimated the fair values of the individual assets comprising the SOLO asset group using a combination of methods. The fair values of right-of-use assets and leasehold improvements were determined using a discounted cash flows approach, where the significant inputs included the estimated market rent and discount rate for each leased property. The Company used a combination of a market approach and cost approach to determine the fair values of the other plant and equipment and other assets. The significant input in the determination of the fair value of the cloud computing assets was the obsolescence factor applied to determine the depreciated replacement cost. For the year ended December 31, 2022, the Company recorded $Nil impairment charge for the SOLO asset group as the asset group’s estimated fair value exceeded its carrying value.

Changes in Accounting Policies and Future Accounting Changes

None.

Conversion from IFRS to U.S. GAAP

As the Company no longer qualifies as a foreign private issuer, its consolidated financial statements have been retroactively converted from IFRS to U.S. GAAP.

The significant differences between IFRS and U.S. GAAP as they relate to the Company are as follows:

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company as defined in Rule 12b-2 under the Exchange Act, the Company is not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

The consolidated financial statements and related information as listed below for the fiscal year ended December 31, 2022, are included in this Annual Report beginning on page F-1:

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ElectraMeccanica Vehicles Corp.

Consolidated Financial Statements

Years Ended December 31, 2022 and 2021

Expressed in United States Dollars

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KPMG LLP

PO Box 10426 777 Dunsmuir Street

Vancouver BC V7Y 1K3

Canada

Telephone (604) 691-3000

Fax (604) 691-3031

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

ElectraMeccanica Vehicles Corp.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of ElectraMeccanica Vehicles Corp. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Change in Comprehensive Basis of Accounting

As discussed in Note 2 to the consolidated financial statements, the Company changed its comprehensive basis of accounting from International Financial Reporting Standards as issued by the International Accounting Standards Board to U.S. generally accepted accounting principles effective with the preparation of the consolidated financial statements as of and for the year ended December 31, 2022. As a result, U.S. generally accepted accounting principles were applied retrospectively to the consolidated balance sheet as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of long-lived assets

As discussed in Note 2 to the consolidated financial statements, the Company assesses long-lived assets, such as plant and equipment, finite-lived intangible assets, and operating lease right-of-use assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for impairment and the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount of the assets exceeds their fair value. As discussed in Note 8 to the consolidated financial statements, for the purpose of impairment testing as at December 31, 2022, all held-and-used long-lived assets, including plant and equipment, operating lease right-of-use assets, and other assets were grouped in one asset group – the SOLO asset group. As of December 31, 2022, the assets in the SOLO asset group included a portion of the $16,452,477 in plant and equipment related to leasehold improvements, $9,031,277 in operating lease right-of-use assets, and $3,920,869 and $1,234,039 in cloud computing assets included in other assets, and prepaid expenses and other current assets, respectively.

We identified the assessment of the valuation of certain assets within the SOLO asset group as a critical audit matter. Subjective auditor judgment was required to evaluate the selection of the market rent and discount rate inputs used in determining the fair values of the operating lease right-of-use assets and leasehold improvements included in the Company’s plant and equipment. Subjective auditor judgment was also required to evaluate the selection of the method applied and the obsolescence factor used in determining the fair value of the cloud computing assets. The estimation of market rents, discount rates, and obsolescence factor is subject to significant measurement uncertainty. Changes in these assumptions or the use of a different valuation method to value the cloud computing assets could have had a significant impact on the fair values of the leasehold improvements, operating lease right-of-use assets, and cloud computing assets within the SOLO asset group.

The following are the primary procedures we performed to address this critical audit matter. We performed sensitivity analysis and assessed the impact of possible changes to the market rents and discount rates on the fair values of the right-of-use assets and leasehold improvements. With the assistance of valuation professionals with specialized skills and knowledge, we:

/s/ KPMG LLP

Chartered Professional Accountants

We have served as the Company’s auditor since 2018.

Vancouver, Canada

April 17, 2023.

​

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Consolidated Balance Sheets

(Expressed in United States dollars)

​

​

The accompanying notes are an integral part of these consolidated financial statements

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Consolidated Statements of Operations and Comprehensive Loss

(Expressed in United States dollars)

​

​

​

The accompanying notes are an integral part of these consolidated financial statements

​

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Consolidated Statements of Cash Flows

(Expressed in United States dollars)

​

​

​

The accompanying notes are an integral part of these consolidated financial statements

​

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Consolidated Statements of Changes in Stockholders’ Equity

(Expressed in United States dollars)
​

​

​

The accompanying notes are an integral part of these consolidated financial statements

​

​

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

1.Nature and continuance of operations

ElectraMeccanica Vehicles Corp. (the “Company”) was incorporated on February 16, 2015, under the laws of the Province of British Columbia, Canada, and its principal activity is the development and manufacturing of electric vehicles (“EV”s).

The head office and principal address of the Company are located at 8057 North Fraser Way, British Columbia, Canada, V5J 5M8.

These consolidated financial statements have been prepared on the assumption that the Company will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. The Company’s principal activity is the design, development, and manufacturing of electric vehicles. As at December 31, 2022, although the Company has commenced commercial sales of the purpose-built single seat SOLO, it is not able to finance day-to-day activities through operations. The Company’s continuation is dependent upon the successful results from its electric vehicle manufacturing activities and its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations.

The Company commenced commercial deliveries of its first SOLO in October 2021. For the year ended December 31, 2022, the Company recognized $6,812,446 (December 31, 2021 - $1,174,310) in revenues from the sale of these electric vehicles.

It is anticipated that additional funding will be required in the future. Management primarily intends to finance its operations over the next 12 months principally using existing cash on hand, and may supplement by additional funding through private placements and/or public offerings of equity capital or debt.

​

2.Summary of significant accounting policies

Basis of presentation and consolidation

As a non-U.S. company listed on the NASDAQ, the United States Securities and Exchange Commission (“SEC”) requires the Company to perform a test on the last business day of the second quarter of each fiscal year to determine whether the Company continues to meet the definition of a foreign private issuer (“FPI”). Historically, the Company met the definition of an FPI, and as such, prepared consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), reported with the SEC on FPI forms, and complied with SEC rules and regulations applicable to FPIs.

On June 30, 2022, the Company performed the test and determined that the Company no longer met the definition of an FPI. As such, the Company is required to prepare consolidated financial statements in accordance with United States Generally Accepted Accounting Principles (“US GAAP”), report with the SEC on domestic forms, and comply with SEC rules and regulations applicable to domestic issuers.

In the year ended December 31, 2022, the Company has therefore retrospectively adopted U.S. GAAP. The consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP for all periods presented. Comparative figures, which were previously prepared in accordance with IFRS, have been adjusted as required to be compliant with the Corporation’s accounting policies under US GAAP.

These consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated from the Company’s consolidated financial statements.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

Use of estimates

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management.

Estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimates include the following:

The Covid-19 outbreak brings significant uncertainty as to the potential impact on our operations, supply chains for parts and sales channels for our products, and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. Therefore, the Company has not changed any estimates and assumptions in the preparation of the consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks with original maturities of ninety days or less and overdrafts to the extent there is a legal right of offset and practice of net settlement with cash balances.

Inventory

Inventory consists of vehicles and parts held for resale or for use in fixed fee contracts and is valued at the lower of cost and net realizable value. The cost of inventory includes purchase costs and conversion costs, and is determined principally by using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, disposal, and transportation, and any other estimated costs necessary to make the sale. As necessary, the Company records write-downs for excess, slow moving and obsolete inventory. To determine these amounts, the Company regularly reviews inventory quantities on hand and compares them to estimates of historical utilization, future product demand, and production requirements. Write-downs of inventory to net realizable value are recorded in cost of revenue in the consolidated financial statements.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

Prepaid expenses and deposits

The Company pays for some goods and services in advance and recognizes these expenses as prepaid expenses at the balance sheet date. If certain prepaid expenses extend beyond one-year, those are classified as non-current assets.

Plant and equipment

Plant and equipment are measured at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to its present location and condition.

Depreciation is generally computed using the straight-line method over the estimated useful lives of the respective assets, as follows:

​

​

Impairment of long-lived assets

Long-lived assets, such as plant, and equipment, finite-lived intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group exceeds the undiscounted cash flows, an impairment is recognized to the extent that the carrying amount exceeds the fair value. Fair value can be determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment loss recognized is not reversed in future periods.

Goodwill is assessed for impairment annually on December 31 or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. Goodwill is tested for impairment at the reporting unit level, which is the operating segment, or a component, which is one level below that operating segment. Components are aggregated as a single reporting unit if they have similar economic characteristics.

Goodwill is tested for impairment when there is a triggering event indicating that the carrying amount may be impaired. When impairment indicators are identified, the Company compares the reporting unit’s fair value to its carrying amount, including goodwill. An impairment loss is recognized as the difference, if any, between the reporting unit’s carrying amount and its fair value, to the extent the difference does not exceed the total amount of goodwill allocated to the reporting unit. Any impairment loss recognized is not reversed in future periods.

For the purposes of annual impairment testing, the carrying amounts of goodwill are allocated to the reporting units. In conducting its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Factors considered in a qualitative assessment include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity and reporting-unit specific considerations. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment. The fair value of the reporting unit is determined by analyzing scenarios of business projections and sensitivities attempting to model various assumptions as to how the revenues and cash flows of the business may evolve

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

depending on factors including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance specific to the reporting unit. The Company estimates the fair values of its reporting units based on discounted cash flow (“DCF”) methodology reflecting the latest projections.

Cloud computing arrangements

Capitalized implementation costs for cloud computing arrangements represents the primary balance of the Company’s other assets.

The Company’s cloud computing arrangements primarily comprise of hosting arrangements which are service contracts, whereby the Company gains remote access to use enterprise software hosted by the vendor or another third party on an as-needed basis for a period of time in exchange for a subscription fee. Subscription fees are usually prepaid and recorded in operating expense over the period that the Company has access to use the software. Implementation costs for cloud computing arrangements are capitalized if certain criteria are met and consist of internal and external costs directly attributable to developing and configuring cloud computing software for its intended use. Amortization of capitalized implementation costs is recorded on a straight-line basis over the term of the cloud computing arrangement, which is the non-cancellable period of the agreement, together with periods covered by renewal options which the Company is reasonably certain to exercise. We only capitalize subsequent additions, modifications or upgrades to internal-use software to the extent that such changes allow the software to perform a task it previously did not perform.

Leases

The Company enters into contractual arrangements for the utilization of certain non-owned assets. These principally relate to property for the Company’s offices, assembly facility and kiosk locations which have varying terms including extension and termination options.

The Company determines if an arrangement is a lease at inception. Leases are evaluated at commencement to determine proper classification as an operating lease or a finance lease. The Company’s leases are all operating leases. The Company recognizes a right-of-use (“ROU”) asset and lease liability at lease commencement based on the present value of lease payments over the lease term.

The Company generally uses its incremental borrowing rate as the discount rate as most of the Company’s lease arrangements do not provide an implicit borrowing rate. The incremental borrowing rate is estimated using a combination of risk free interest rate corresponding to lease terms, as well as a blended credit risk spread.

For operating leases, fixed lease payments are recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, and has elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component. Certain lease agreements include variable lease payments that depend on an index, as well as payments for non-lease components, such as common area maintenance, and certain pass-through operating expenses such as real estate taxes and insurance. In instances where these payments are fixed, they are included in the measurement of our lease liabilities, and when variable, are excluded and recognized in the period in which the obligations for those payments are incurred. The Company’s leases do not contain any material residual value guarantees or payments under purchase and termination options.

Lease terms are initially determined as the non-cancellable period of a lease adjusted for options to extend or terminate a lease that are reasonably certain to be exercised. Lease liabilities are subsequently measured at amortized cost using the effective interest method.

Right of use assets are carried at cost less accumulated amortization, impairment losses, and any subsequent remeasurement of the lease liability. Initial cost comprises the lease liability adjusted for lease payments at or before the commencement date, lease incentives received, initial direct costs and an estimate of restoration costs.

The Company has elected not to present short-term leases on the consolidated balance for leases that have lease terms of 12 months or less and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. The lease expense related to those short-term leases is recognized on a straight-line basis over the lease term.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

Revenue

The Company generates revenue primarily through the sale of electric vehicles as well as parts sales, services, repairs, and support services, and sales of custom built vehicles; however, the revenue from custom built vehicles permanently ceased in the fourth quarter 2022.

Sales of electric vehicles

Vehicle sales revenue is generated from the sale of electric vehicles to customers. There is one performance obligation identified in vehicle sale arrangements. Shipping and handling provided by Company is considered a fulfillment activity. Payment is typically received at or prior to the transfer of control of the vehicle to the customer. The Company recognizes revenue related to the vehicle when the customer obtains control of the vehicle which occurs at a point in time either upon completion of delivery to the agreed upon delivery location or upon pick up of the vehicle by the customer.

The Company’s vehicle contracts do not contain a significant financing component. The Company has elected to exclude sales taxes and amounts collected on behalf of third parties from the measurement of the transaction price.

The Company provides a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the sale of the vehicle. The estimated cost of the assurance-type warranty is accrued at the time of vehicle sale. These provisions are estimated based on historical warranty claim experience with consideration given to the expected level of future warranty costs as well as current information on repair costs. The provision for product warranties are utilized for expenditures based on the demand from customers. The warranty expense recorded as a component of cost of revenue in the consolidated statements of operations was approximately $0.7 million for the year ended December 31, 2022.

As disclosed in Notes 10 and 21, the Company has decided to buy-back all the vehicles sold and has recognized a recall provision at December 31, 2022 in relation to the anticipated expenditures under this program to repurchase all the G3 SOLO vehicles previously sold. At December 31, 2022, no additional warranty provision has been recognized other than the recall provision as no future warranty services would be required following Company’s decision to buy-back the vehicles under the recall. As of December 31, 2021, $ nil warranty provision was recognized based on management’s estimate.

Part sales

The sale of parts is a single performance obligation to be recognized at the point in time when control is transferred to the customer. Shipping and handling provided by Company is considered a fulfillment activity. Payment for the products sold are made upon invoice or in accordance with payment terms customary to the business. The Company’s parts sales do not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price.

Services, repairs and support services

Services, repairs and support services are recognized in the accounting period when the services are rendered. Payment for the services are made upon invoice or in accordance with payment terms customary to the business. The Company’s service revenue does not contain a significant financing component. The Company has elected to exclude sales taxes from the measurement of the transaction price.

Sales of custom built vehicles

The Company manufactures and sells custom built vehicles typically on fixed fee arrangements with its customers. Revenue is recognized when the Company has transferred control to the customer which generally occurs upon completion of shipment to the

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

customer. There is one performance obligation identified in vehicle sale arrangements. Shipping and handling provided by the Company is considered a fulfillment activity. Payment is typically received at or prior to the transfer of control of the vehicle to the customer. The Company’s vehicle contracts do not contain a significant financing component. The Company has elected to exclude sales taxes and amounts collected on behalf of third parties from the measurement of the transaction price.

Foreign currency translation

The Company and its subsidiaries’ functional currency is U.S. dollars (“USD”), except for the functional currency of Intermeccanica. International Inc. is CAD and the functional currency of EMV Automotive Technology (Chongqing) Inc. is the Chinese RMB. The Company reassessed the functional currency during its first quarter of 2021 and determined that the factors now supported USD as the functional currency for the Company and certain of its subsidiaries. The Company has applied the change in functional currency from Canadian dollars (“CAD”) to USD effective January 1, 2021.

Each entity within the consolidated group records transactions using its functional currency, being the currency of the primary economic environment in which it operates. Foreign currency transactions are translated into the respective functional currency of each entity using the foreign currency rates prevailing at the date of the transaction. Period-end balances of monetary assets and liabilities in foreign currency are translated to the respective functional currencies using period-end foreign currency rates. Foreign currency gains and losses arising from the settlement of foreign currency transactions are recognized in the consolidated statements of operations and comprehensive loss.

On consolidation, the assets and liabilities of foreign operations that have a functional currency other than USD are translated into USD at the exchange rates in effect at the end of the reporting period. Revenues and expenses are translated at the average monthly exchange rates prevailing during the period. The resulting translation gains and losses are included within other comprehensive loss. The cumulative deferred translation gains or losses on the foreign operations are reclassified to net income, only on disposal of the foreign operations.

Advertising and marketing costs

The Company expenses advertising costs when incurred in sales and marketing expenses.

Research and development expenses

Research and development expenses consist primarily of personnel-related expenses, contractor fees, engineering design and testing expenses, and allocated facilities cost. Most of the Company’s research and development expenses are related to developing new products and services and improving existing products and services. Research and development expenses have been expensed as incurred and included in the consolidated statements of operations and comprehensive loss.

Stock-based compensation

The Company has a share-based compensation plan under which various types of equity-based awards may be granted, including stock options, deferred stock units (DSUs) and restricted stock units (RSUs). We use the fair value method of accounting for our stock options, DSUs and RSUs. The fair value of stock option awards with only service and/or performance conditions is estimated on the grant or offering date using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. These inputs are subjective and generally require significant judgment. The fair value of DSUs and RSUs is measured on the grant date based on the closing fair market value of our common stock. Stock-based compensation expense is recognized over the vesting period on a straight-line basis. The Company estimates expected forfeitures at the time of grant instead of accounting for forfeitures as they occur.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance milestones when the achievement of each individual performance milestone becomes probable. For performance-based awards with a vesting schedule based on the attainment of both performance and market conditions, stock-based compensation expense associated with each tranche is recognized over the longer of (i) the expected achievement period for the operational milestone for such tranche and (ii) the expected achievement period for the related market capitalization milestone determined on the grant date, beginning at the point in time when the relevant operational milestone is considered probable of being achieved. If such operational milestone becomes probable any time after the grant date, we will recognize a cumulative catch-up expense from the grant date to that point in time. If the related market capitalization milestone is achieved earlier than its expected achievement period and the achievement of the related operational milestone, then the stock-based compensation expense will be recognized over the expected achievement period for the operational milestone, which may accelerate the rate at which such expense is recognized. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

Stock-based compensation expense is recorded in general and administrative expenses, research and development expenses and sales and marketing expenses in the consolidated statements of operations and comprehensive loss.

Income taxes

Income taxes are comprised of current and deferred taxes. These taxes are accounted for using the liability method. Current tax is recognized in connection with income for tax purposes, unrealized tax benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to the taxation period during which the income or loss for tax purposes arose.

Deferred tax is recognized on the difference between the carrying amount of an asset or a liability, as reflected in the financial statements, and the corresponding tax base, used in the computation of income for tax purposes (temporary differences) and measured using the enacted tax rates and laws as at the balance sheet date that are expected to apply to the income that the Company expects to arise for tax purposes in the period during which the difference is expected to reverse. Management assesses the likelihood that a deferred tax asset will be realized, and a valuation allowance is provided to the extent that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The determination of both current and deferred taxes reflects the Company’s interpretation of the relevant tax rules and judgement.

An unrealized tax benefit may arise in connection with a period that has not yet been reviewed by the relevant tax authority. A change in the recognition or measurement of an unrealized tax benefit is reflected in the period during which the change occurs.

Income taxes are recognized in the consolidated statements of operations and comprehensive loss, except when they relate to an item that is recognized in other comprehensive loss or directly in equity, in which case, the taxes are also recognized in other comprehensive loss or directly in equity respectively. Where income taxes arise from the initial accounting for a business combination, these are included in the accounting for the business combination.

Interest and penalties in respect of income taxes are not recognized in the consolidated statement of operations and comprehensive loss as a component of income taxes but as a component of interest expense.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount within a range of loss can be reasonably estimated. When no amount within the range is a better estimate than any other amount, the Company accrues for the minimum amount within the range. Legal costs incurred in connection with loss contingencies are expensed as incurred.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

Net income or loss per share

Basic net earnings or loss per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted net earnings or loss per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise warrants, share options, deferred share units, restricted share units and restricted shares granted to employees and directors.

Segment reporting

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company’s operations consisted of two operating segments - electric vehicles and custom-built vehicles, which are its reportable segments in year for 2022 and 2021.

Fair value measurements

The Company follows the accounting guidance in ASC 820, Fair Value Measurement, for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Our financial assets include cash and cash equivalents, receivables, and restricted cash. Our financial liabilities include trade payables and accrued liabilities, derivative liabilities, share-based compensation liability, and lease liabilities. The carrying amounts of these instruments, including cash and cash equivalents, receivables, restricted cash, and trade payables and accrued liabilities, are considered to be representative of their fair values because of their short-term nature.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of principally cash and cash equivalents, bank deposits and certain receivables. The Company holds cash and cash equivalents with highly rated financial institutions. Balances with these institutions exceeded the Canadian Deposit Insurance Corporation insured amount of CAD$100 thousand as of December 31, 2022. The Company has not experienced any significant credit losses in these accounts and does not believe the Company is exposed to any significant credit risk on these instruments.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

Concentration of supply risk

In September 2017, we entered into the Manufacturing Agreement with Zongshen. In 2022 and 2021, the delivery of SOLO vehicles to our customers and the revenue derived depended on Zongshen’s ability to fulfil its obligations under that Manufacturing Agreement. On December 20, 2022, the Company gave notice to Zongshen to immediately cease all production of SOLO vehicles due to the economic hardship and issues noted with the vehicles, pursuant to which, such concentration risk no longer existed (see Note 12).

Standards issued but not yet effective

All ASUs issued but not yet adopted were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements or financial statement disclosures.

​

3.Cash and cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.

​

​

The Company’s restricted cash as of December 31, 2022 and 2021 consists of certificates of deposits related to the Company’s corporate credit card program.

​

4.Prepaid expenses and other current assets

​

​

For the year ended December 31, 2022, an impairment loss of $2,804,032 (2021 - $nil) was recognized for non-refundable deposits for battery cells dedicated to the SOLO, as a result of the Company’s decision to stop production of the SOLO as well as considering alternative uses and maintenance of such batteries.

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

5.Inventory, net

The Company’s inventory consisted of the following:

​

​

For the year ended December 31, 2022 and 2021, the amounts of $13,829,497 and $1,687,215, respectively, were recognized as inventory write-downs and reflected in cost of revenue. In estimating the net realizable value of the vehicle inventory at December 31, 2022, the Company has concluded that it is able to recover the inventory value through exporting vehicles outside of the U.S. to recover tariffs already paid. The vehicle inventory’s net realizable value recognized at December 31, 2022 represents the amount that can be recovered from claiming the tariff. In estimating the net realizable value of vehicle inventory at December 31, 2021, the Company considered the selling price information for sales near the balance sheet date.

​

6.Plant and equipment

​

​

During the year ended December 31, 2022 and 2021, depreciation expense of $4,938,545 and $3,480,055, respectively, was included in the general and administrative expenses.

At December 31, 2022, production tooling and molds with a cost of $8,112,133 and accumulated depreciation of $6,294,544 were written off to nil as these molding assets for the SOLO will no longer be used and these assets were not considered to have any alternate use.

As at December 31, 2022, vehicle assets with cost of $3,563,105 and accumulated depreciation of $966,175 were impaired. These vehicles are SOLO demo vehicles used for sales and services. An impairment loss of $2,001,930 was recognized based on the amount that can be recovered from claiming the tariff and disposing of the vehicles.

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7.Other assets

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Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

​

As of December 31, 2022, gross capitalized implementation costs incurred in a cloud computing arrangement and related accumulated amortization were $6,170,195 and $1,015,287, respectively (December 31, 2021 - $2,681,410 and $134,071, respectively). Our capitalized implementation costs primarily relate to the implementation of a new enterprise resource planning (“ERP”) system during 2021 and 2022. In October 2021, we successfully went live with the new ERP system and started to amortize the cost, and we continue to progress with additional functionality and integrations as scheduled. These capitalized costs are included as a component of prepaid expenses and other current assets and other non-current assets on our consolidated balance sheet. During the years ended December 31, 2022 and 2021, amortization expense of $881,216 and $134,071, respectively was recorded for capitalized implementation costs. The estimated aggregate amortization expense amounts to $1,234,039 for each of year 2023 to year 2025, $925,529 for year 2026, and $nil for year 2027.

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8.Impairment of long-lived assets

We review the carrying value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate.

On December 20, 2022, the Company gave notice to Zongshen to immediately cease all production of SOLO vehicles due to the economic hardship and issues noted with the vehicles. Due to the cease of production of SOLO vehicles, the Company will no longer be using some production mold equipment and SOLO demo vehicles. As a result, we concluded that an impairment triggering event had occurred for the equipment no longer in use. The Company recorded a $3,819,519 non-cash impairment charge for production mold equipment and SOLO demo vehicles in 2022 (see Note 6).

The Company started to sell the SOLO in October 2021 and has been generating a gross loss from selling the vehicles. In Q4 2022, we reduced the SOLO listing price from $18,500 to $15,500. On December 20, 2022, the Company gave notice to Zongshen to immediately cease all production of SOLO vehicles. On February 17, 2023, the Company announced a voluntary recall of the SOLO. The Company has paused deliveries and sales of the SOLO while investigating the issue. The recall was issued due to the vehicle potentially experiencing a loss of propulsion while driving. Due to the fact that the SOLO vehicles have been generating a negative cash flow, the plan to cease production of SOLO, as well as the quality issues with the SOLO, we concluded that an impairment triggering event had occurred for the SOLO asset group at December 31, 2022.

For the purpose of impairment testing at December 31, 2022, all held-and-used long-lived assets, including plant and equipment, operating lease right-of-use assets, and other assets were grouped in one asset group – the SOLO asset group. The carrying amount of the SOLO asset group was higher than the recoverable amount on an undiscounted cash flow basis, and therefore the Company compared the carrying amount of the SOLO asset group to its fair value, being the aggregate of the fair values of the individual assets within the asset group.

The Company estimated the fair values of the individual assets comprising the SOLO asset group using a combination of methods. The fair values of right-of-use assets and leasehold improvements were determined using a discounted cash flows approach, where the significant inputs included the estimated market rent and discount rate for each leased property. The Company used a combination of a market approach and cost approach to determine the fair values of the other plant and equipment and other assets. The significant input in the determination of the fair value of the cloud computing assets was the obsolescence factor applied to determine the depreciated replacement cost. For the year ended December 31, 2022, the Company recorded $Nil impairment charge for the SOLO asset group as the asset group’s estimated fair value exceeded its carrying value.

There was no impairment of long-lived assets for the year ended December 31, 2021.

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

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9.Goodwill and intangible assets

Goodwill

The Company recognized goodwill and intangible assets from the acquisition of Intermeccanica International Inc. (“Intermeccanica”), a developer and manufacturer of high-end custom-built vehicles in year 2017, which belongs to the custom built vehicle reportable segment.

The Company tests goodwill for impairment at the reporting unit level annually on December 31 and whenever events or circumstances make it more likely than not that an impairment may have occurred. A reporting unit is an operating segment or one level below an operating segment to which goodwill is assigned when initially recorded. The Company has two reporting units, which are the same as its two operating segments (see Note 18).

Intermeccanica started the restricting process and stopped taking any further orders in 2022. As such and in connection with the Company’s annual and long-range planning process, which coincided with the Company’s annual goodwill impairment test in the fourth quarter, management determined that the custom built vehicle reporting unit’s financial performance would be lower than previously anticipated. The Company’s quantitative goodwill impairment test using an income methodology indicated that its fair value of the custom built vehicle reporting units no longer exceeded the carrying value, and therefore the Company recognized goodwill impairment of $549,760, representing the full amount of goodwill.

The quantitative goodwill impairment test performed by the Company as of December 31, 2022, included significant level 3 fair value estimates and assumptions including, among others, cash flow projections and selecting an appropriate discount rate.

There was no impairment of goodwill for the year ended December 31, 2021.

Intangible assets

The Company’s intangible assets consist of trade name, customer relationships, domain name and non-compete covenants. These intangible assets were acquired from the acquisition of Intermeccanica. The non-compete covenants asset is amortized over five years and the other intangible assets have indefinite lives.

The trade name, customer relationships and non-compete covenants assets belong to the custom built vehicle reportable segment. The Company’s quantitative impairment test indicated that the fair value of the custom built vehicle reporting unit no longer exceeded its carrying value, consequently the Company recognized impairment charges of $400,628 for trade name, customer relationships and non-compete covenant assets during the year ended December 31, 2022.

The gross carrying amounts, accumulated amortization and net carrying amounts of the Company’s definite-lived amortizable intangible assets, as well as its indefinite-lived intangible trade names, are as follows:

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ElectraMeccanica Vehicles Corp.

Notes to the Consolidated Financial Statements

(Expressed in United States dollars)

For the year ended December 31, 2022 and 2021

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