To improve the efficiency of the electric vehicle (EV) drive systems and EV performance, the use of multi-speed transmissions and distributed drives has been studied extensively. In addition, to develop efficient and compact drive systems, new clutch solutions are needed. In this paper, we propose an in-wheel two-speed automatic mechanical transmission (IW-AMT) with a selectable one-way clutch (SOWC). The IW-AMT consists of a high-speed motor and a mechanical shift actuator, and it can realize shifting without power interruption, thus effectively reducing the unsprung mass and the technical specifications of the motor. We established a virtual prototype model of the IW-AMT to show the shifting process and evaluate the quality of shifting. The simulation results of the upshifting process indicated that the vehicle torque and velocity changed smoothly, and the maximum jerk is less than 10 m/s3. Furthermore, to improve the jerk induced by the downshifting process, we analyzed the momentary state of the SOWC struts that are dropped and attempted to improve the jerk from two aspects: improving the wet multi-plate clutch (WMPC) combination curve and improving the SOWC structure. The results indicated that the downshift-induced jerk can be reduced to 13 m/s3.