On January 31, 2013 we published a research piece outlining our skepticism toward Echo Automotive (ECAU.OB), a company that claims to possess a technology that converts gasoline powered vehicles into plug-in electric/hybrids. ECAU now trades at around $1.10 after reaching a high of $3.61 on January 29, 2013. We believe the stock will soon break $1.00 to the downside.
As we have mentioned time and time again in past Pump and Dump ("P&D") articles, a successful pump is often tied to associations with "trustworthy people relationships" in order to help build an illusion of credibility. It appears as though ECAU is no exception.
In the days after we published our report, ECAU shares received a boost from the continued email campaign from the likes of Five Star Equities and The Bedford Report. The new talking point of the ECAU story, which attempts to convince investors into accepting its claims, centered on a test drive of one of ECAU's alleged converted vans by the Mayor of Indianapolis, Greg Ballard. It seems that ECAU has jumped all over this PR opportunity. Watch the Mayor of Indianapolis test-drive EchoDrive™.
A sensational quote from a Five Star email letter reads:
"Watch the Mayor of Indianapolis Test EchoDrive™ to Rave Reviews"
Well, we've watched the Mayor's test-drive and he did seem to be entertained by his minute-and-a-half trip. But we think most investors will agree that his commentary was not a "rave review" of Echo's technology, nor does it infer that the city of Indianapolis is about to sign up for Echo's platform.
As we will discuss, the promotional email conveniently failed to mention that the Mayor is already in discussion with partners and major automakers. Furthermore, ECUA's "business plan" appears to be geared towards converting existing vehicles whereas it seems that the Mayor would like to purchase some of its new vehicles from established automakers. Finally, it seems that if the city of Indianapolis does choose to convert vehicles it will convert a good deal of its fleet vehicles to natural gas.
It is no secret that Mayor Ballard is championing the plight to reduce U.S. dependency on oil. On December 21, 2012 Mayor Greg Ballard signed Executive Order #6,
"requiring the city to replace its nearly 500 non-police sedans with electric or plug-in hybrid vehicles. New vehicles would be purchased as older ones are retired, and the city hopes to completely swap out its current 3100-vehicle fleet by 2025."
Here is some specific verbiage from the Mayor's December 21, 2012 press conference about the new bill. Around the 6:12 mark, he clearly states that:
"… our team is currently working with multiple automakers to have IMPD (Indianapolis Metropolitan Police Department), and the city of Indianapolis serve as technical advisors, test drivers, and eventually the proud users of the first plug-in hybrid police vehicle."
An article at Indystar.com does a good job outlining Mayor Ballard's proposals:
- Requires the purchasing of electric or plug-in hybrid vehicles for non-police fleet use. The city fleet of approximately 500 non-police fleet cars will be replaced, as needed, saving taxpayers approximately $12,000 per vehicle over the ten-year life cycle of each car.
- The city is currently working with partner organizations including Energy Systems Network and finance experts to convert the city's heavy fleet, including snow plows, trash trucks and fire apparatus to compressed natural gas ("CNG").
- Finally, the city is seeking to partner with one or more automakers to develop a plug-in hybrid police vehicle that meets the safety, power, electronic and range needs of a modern urban police force. If a plug-in hybrid electric car could achieve just 40 MPG and meet the needs of police officers, city taxpayers would save up to $10 million per year. The city's current police vehicles average 10 MPG.
Considering the facts, we conclude that the odds that ECAU will play a meaningful part in the city's transformation process seem to be grossly over-exaggerated.
So here we go again. In our opinion ECAU is nothing but a pipe dream and will endure the same fate as all of the other P&Ds we have tracked, in a flop. Ultimately, we believe that it is likely that ECAU will follow the route of several of its president's past business ventures as detailed in the Seeking Alpha report published on February 7, 2013: Echo Automotive: The $155 Million Company Driven By Promotional Steam. Mayor Ballard may or may not be aware that his name and reputation are being used in what we believe to be a pump and dump game, but we assume that he will not be particularly ecstatic when he finds out.
Disclosure: I am short ECAU.OB.