Ideanomics (IDEX) - Complex Chinese EV Story with Innovative Solutions

September 11 2020, 12:59 GMT+01:00

Ideanomics (IDEX)

  • Shares Outstanding: 237M
  • Share price US$1.10 (11.09.2020)
  • Market Cap: C$261M

This is a complex story that slots nicely into the EV thematic. It is a little different to the mining stories we usually bring you, so let's break it down.

Ideanomics regards itself as a global company driving mobile energy transformation and the green fintech revolution. Headquartered in New York, NY and with offices in Qingdao and Beijing, China, Ideanomics is focussed on driving commercial momentum into electric vehicle adoption. The company is also focussed on developing innovative and futuristic financial services and fintech products.

Matthew Gordon talks to Alf Poor, August 2020

With many analysts claiming EV penetration will reach 25% of all car sales by 2030, and with aggressive subsidisation packages to entice EV consumption being discussed by numerous governments, the EV macro story is gathering pace.

Some battery metal players are experiencing welcome boosts to their share price, especially with Elon Musk's request for as much green, efficient and sustainable nickel as possible. However, investors should remember there is also plenty of money to be made from those who will provide the technical solutions to tomorrow's needs.

The main topic of this conversation was Ideanomics' electric vehicle division, Mobile Energy Global (MEG). MEG provides different services to the EV market. This includes providing purchasing discounts on commercial EVs, EV batteries & electricity, and also financing charging solutions. MEG also offers fleet-order services of various vehicle types, like taxis, buses and industrial vehicles. However, the ultimate prize is clipping a coupon on all energy sales at the vehicle charging points as they are built. Currently, in China, the target is over 100,000 charing points.

Ideanomics also has a commercially-focussed division, Ideanomics Capital, which includes the Delaware Board of Trade (DBOT ATS) and Intelligenta, an AI solutions provider, which offers up some innovative financial services solutions with blockchain and AI at their core. I think these are, at best, a distraction from the main event. The companies sounded like they could come together and seamlessly enhance each others propositions, but that is always harder than it sounds. The CEO sounds like he has recognised this and is actively cleaning up the portfolio of companies and sorting out the balance sheet. The focus is China and collecting a fee on all energy sales. To do this they are having to help build a series of vehicle electrification infrastructure and sales projects, from the upgrade of ore transportation trucks in mining from diesel to electric, the build and sale of electric scooters and electric car sales, and the conversion of petroleum based stations to electric charging stations (+100,000).

This is shaping up to be a great EV-related story, so why was a recent class action lawsuit brought against the company by stakeholders in July? It was announced by Zhang Investor Law, and pertains to several potential areas of either deception or false promotion. Specifically, the key arguments are that Ideanomics' MEG centre is not in “a one million square foot EV expo center” as claimed, the company had been using doctored or altered photographs of the purported MEG Center in Qingdao, the company’s EV business in China was not performing nearly as strongly as it had represented, and as a result, the company's public statements were both materially false and misleading at all relevant times. These are some extremely strong allegations, but the suit alleges that these details were disclosed by market research firms.

It is little surprise that investors may have been disappointed with the company's market performance, especially with the share price declining for most of the last 2 years, but this will all have to play out in court. It looks really messy and reflects poorly on the company, regardless of the outcome, but this news had not dropped at the time of our interview so we were unable to request Poor's comments.

Some have even called Ideanomics 'one of the most suspicious stocks trading on the market today.' The main reasons for so much doubt appears to be questions surrounding the company's business model. Some feel that there is little evidence that a Chinese shift towards fleet orders for electric vehicles is currently happening, or will happen in the short-term, on a major scale. If it does work, the broader ICE market where most industrial vehicles and transport vehicles either use natural gas or gasoline, makes this opportunity look much more marginal. There are doubts about the long-term economic efficacy of these fleet supply contracts, because with the average lifespan of a car being 10-15 years, these contracts might not provide enough of a recurring revenue base. We'd love to hear your thoughts on this issue.

Investors need to understand how Ideanomics plans to make most of its money. MEG supplies the order processing and fulfilment of fleet-level vehicle orders. It achieves this by streamlining the documentation and verification of some rather complicated operations, as well as leasing and inspections. By providing this service, it can collect a fee ranging from 5%-10% of the transaction. While this may make the company some money, the transactions it will be dealing with are specifically retro fitting batteries to vehicles (BEVs) for commercial automotive fleets. It remains to be seen how big of an opportunity this is compared to Joe Public's EV transactions, where the bulk of current and future automotive sales will generate revenue. Again, this is perhaps a commercial distraction, but does build reputation and positions them as an electric vehicle company in China.

Now, we've looked at some of the negatives, so let's take a balanced view and look at the positives too. Many shareholders remain very bullish and feel the stock is undervalued. This is hardly a surprise, but is there any hard evidence to reinforce their positivity?

Ideanomics' Q2/20 financials were reasonable. The company strengthened its cash position to $36M, which is especially useful at this time. Revenues for the 3 months ended June 30, 2020, were $4.7M, including a big increase in revenue for MEG, but this is perhaps below what one would expect from a company with a $263M market cap. However, it is important to note that COVID-19 has created short-term operations issues for EV progression in China. The company's loss from operations was $16.3M, but most EV and battery metals players are struggling right now, other than Tesla.

The fundamentals of this business are undeniably smart. I expect to see increased revenue in Q3/20, with profits following in Q4/20. Many investors are hoping for high ticket orders and exciting catalyst moments like a potential US exclusive partnership. Others are arguing that the lack of financial targets for the next few years makes the management team look like dreamers, but this is a very unconventional path to value creation. However, this is China, and things can get complicated very quickly, especially when trying to push ahead on the global front. Many great companies start from the depths of obscurity, and it is undoubtable that Ideanomics has a distinct first-mover advantage. A US company operating in China is something to be applauded, and it is something more US investors need to recognise.

In spite of this fairly underwhelming performance, Poor and his team remain confident that the long-term vision for the company remains extremely promising. The company's Sales to Financing to Charging (S2F2C) component of the business model intends to provide energy to EV consumers and gas stations by taking a fee on the energy provided. It is a smart way to insert itself into the EV value chain, and the slowly increasing pace of the company's sales growth appears to be a major reason for positivity.

Ideanomics reminds me a lot of an Australian company that also offers up technical, futuristic solutions to problems pertaining to future energy needs. That company is Neometals, and with around A$80M in the treasury, it has a portfolio of highly-prospective projects, is undervalued, and doesn't have an outstanding lawsuit against it. Just something to consider...

So, Ideanomics: is this a great opportunity to leverage EV demand growth, or does this company have something to hide? I am totally on the fence right now, because I'm hearing bad press, but I am also hearing reputable, knowledgeable investors who have confidence in the company's ability to deliver returns. What will your next move be?

Company Website: https://ideanomics.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Club Waitlist CTA
Share this article

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Crux Investor does not verify information provided by contributors or video interviewees on this site, and makes no assurance as to the adequacy, completeness or accuracy of any such information. Crux Investor steadfastly disclaims any liability or responsibility for the outcome of any investments made by users of this site or our branded affiliates. Users of this site (and our branded affiliates) should consult with their own financial advisors to assist them in making investment decisions. By accessing this site and our branded affiliates, you agree to the terms of service and privacy policy.