Ideanomics (IDEX) - How to Insert Company into Chinese Battery Market

September 24 2020, 12:07 GMT+01:00

Ideanomics (IDEX)

  • Shares Outstanding: 237.3M
  • Share price C$0.84 (23.09.2020)
  • Market Cap: C$216.824M

This is a global ESG story with multiple divisions and a focus on driving commercial electric vehicle adoption. Ideanomics is headquartered in New York with offices in Qingdao and Beijing, China. Ideanomics is an international company with a firm focus on driving commercial momentum into electric vehicle consumption whilst developing innovative, futuristic financial services and Fintech products. Our main topic of discussion was the company's electric vehicle division, Mobile Energy Global (MEG).

The company currently specialises in replacing conventional catalytic conversion engines with battery motors. Moreover, the company also enables group purchasing discounts for fleet managers to be able to carry out these operations and also provides financing and charging solutions. Ideanomics Capital, the company's corporate division, includes DBOT ATS and Intelligenta, providing unique financial services via AI and blockchain solutions. In totality, Ideanomics provides its global customers and partners with enhanced efficiencies, cutting-edge technologies and leverage to capital from global markets.

As a US company operating in China, we were also keen to dig into how Ideanomics' dealings have been affected by COVID-19 and can they operate without hindrance in China as a US company. And in fact, can they grab the attention of investors in the US whilst consorting with the enemy? In terms of the end game, Ideanomics wants to be providing energy to EV consumers and gas stations by taking a fee on the energy provided.

We Discuss:

  1. 2:36 - Company Overview
  2. 3:22 - History & Development of Ideanomics
  3. 5:27 - Fitting into the EV Thematic: Main Problem to Solve
  4. 16:13 - Breaking into the Chinese Market: Implications for Success
  5. 20:04 - The Business Plan: Relationships and Monetization
  6. 31:22 - Assurance for Success and Competition
  7. 33:18 - Geopolitics: "Anti-China" Rhetoric's Impact on Business
  8. 41:48 - COVID-19's Impact: An Outlook for 2020
  9. 44:38 - The Big Prize: Is the Story too Complex for the Market?
  10. 51:27 - Expectations & Excitement for the Rest of 2020

Matthew Gordon: Why don’t you kick off and maybe give us a one-minute overview of what the business is and then we can get stuck into business plans and what the future looks like.

Alf Poor: Ideanomics started out as a company that was really looking to get involved in industries that are transformative. A couple of years ago we really started to shape the business around two key areas. One of them is Fintech, specifically the use of blockchain for trading systems. Also the second one is EV - the electric vehicle industry is a catalyst for change in what has traditionally been internal combustion engine driven automotive industry, and more recently we've been putting a lot of our energy into the EV side because that's really a growth engine at this.

Matthew Gordon: We notice your share price had various incarnations along the way.  What do you put that down to?

Alf Poor: This has been a business in transformation, and I think whenever you transform any business you need to convince the market as to what you are doing. Then you need to prove it out through fundamentals. Starting with the last quarter, we started to produce revenue from our EV Division and that's really the fundamentals the market has been looking for. Now we can show them execution I think we'll see stability and shareholder value growth in the future.

Matthew Gordon: How long have you been working with Ideanomics?

Alf Poor: I’ve been with Ideanomics for exactly two years, but involved a few months longer than that before I officially came on board,

Matthew Gordon: What were you brought on board to do?

Alf Poor: I originally came in more of an operational role, but slowly progressed through as they help them get the U.S. operation stood up and where we wanted it to be, I migrated into the CEO role.

Matthew Gordon: Have been brought on board to kind of clean house, as it were, get focused?

Alf Poor: To some extent, but that would be unfair on the previous management. Obviously, the management team had a fail fast strategy. Whenever you're looking at transformative industries, you look at new ideas, and new ideas are obviously slightly more risky than other endeavours, but I came in with a history of being in start-ups. I worked 8 start-ups previously, all in the B2B space and all of them have been a success to a greater or lesser degree. We've never turned the lights out. I came in with a focus around making sure that execution is important, delivery is important and growing the business profitably is important. 

Matthew Gordon: How are you positioning it?

Alf Poor: It's a very interesting industry, if you look at automotive, that's really not the play here. The automotive is the means to the end. When we say we look for transformative opportunities, it's really happening with the electrification vehicle. There is a transition of energy demand away from petroleum products: gasoline and diesel, known as petrol in your world, to electricity. Now, if you think about it, you look at the automotive industry; the GM's, the Fords, the Fiat Chrysler etcetera. They go through typical economic cycles; good years, bad years, look at the people supplying the energy that's driven the vehicles for the last 100 years – ExxonMobil, BP, Shell -they don't have a good year, they make a few billion. If they have a good economic cycle, they make tens of billions, right? This is really about the energy demand, that's where our focus is. Although we're involved in the industry, we do own an automotive EV manufacturer in Malaysia called Treeletrik, and we are planning to bring our own branded vehicles into North America and Europe under our Medici Motor Works brand. The objective here really, which is what Tesla understands and not a lot of other people do; the end game is about transitioning energy demand. Billions, trillions of dollars are spent every year on petroleum products. That will now be moving into electricity demand.

Matthew Gordon: Where do you fit in the mix?

Alf Poor: Yes, I'll explain what we're doing in China because that's the first market we chose to go into. We chose to go into China first, not because it's easy, but because it's regulatory driven, which means you can be relatively confident that you can derive revenues when there are regulatory deadlines in place, particularly some of them are quite near term like all the city buses have to be changed by 2022. When we go into a country like China, it currently has 90% of the world's EV manufacturers. So there's no point Ideanomics going in as another manufacturer or another brand because it's already a saturated market. What we chose to do was we chose to go into EV enablement to help commercial fleet customers understand how to transition their vehicles, how to get through the sales procurement process, the rebates process, the lease financing process, and then move them into being a customer of ours so we can market them wholesale, prepaid electricity or discounted access to our preferred partner charging units so that we can get that strong, rich, recurring revenue from the electricity demand. 

Matthew Gordon: You're solving for these fleet managers, they are sitting there with these huge, big diesel fleets and you're saying to them there's a better way?

Alf Poor: Yes, we say there's a better way in a number of areas. It's not just about switching to electricity to be clean and meet the regulations, EV vehicles have a lot fewer moving parts in them than internal combustion engines - about 10% moving parts. That means less maintenance costs, less repairs and the vehicle lifecycle is much longer.

The second issue is you save money when you fuel your vehicles with electricity versus gasoline and diesel. If you look at the whole life cycle cost of owning a vehicle. It's going to come down dramatically.

Matthew Gordon: If you've got this mandate from the government coming down the line saying hey, you've got to by X date. What's that discussion look like?

Alf Poor: The discussions are interesting. First of all, they don't know where to go. Because we're focused on the commercial space not the passenger space. If you're in the passenger car space and you're looking for a new family car and you want it to be electric, but you got two choices: Tesla or everything else, right? Most people are picking Teslas. But in the commercial vehicle space, it’s a very different landscape; if you think about walking down the street in any country, okay? A VW Passat goes by, a 5 Series BMW goes by, a Ford Focus goes by. Because of the amount of advertising done by those brands commercially: TV, internet, newspapers Etc. You are ambiently aware of what that vehicle is. You don't know you know why it's a VW Passat or Ford Focus, but you know it is. You see a city bus go by, a garbage truck, fire truck - you have no idea who they're made by. Heavy goods vehicles - you may know Scania and one or two other names in the business, but you don't really know who makes those commercial vehicles. There's a lot less brand awareness in commercial vehicles.

If you take that dynamic already, from a commercial fleet perspective and you add in almost everybody as a new entrant int he markets, how do you pick who you work with? If you are a commercial fleet customer sitting there right now, how do you know which companies are making reliable EV trucks when almost every player in the market is less than five years old? That's where people like Ideanomics come in. We work through everybody from local and national governments on the rebate programs, through all of the best battery makers. We have Partners like see ATL - world's leading battery maker. Major manufacturers. We know the entire landscape. We've got a McKenzie-style IP knowledge of this industry at this point, and we're making our mistakes at scale in China, which is our first market we're in, so when we come to copy paste that model as we go to other countries, we will have a refined model that will be a really important point of purchase commercial fleet customers.

Matthew Gordon: How are you solving their problem? 

Alf Poor: The ultimate problem right now is around financing. I'll tell you how we solve the problem: there are rebate programs available. I own an EV. I bought an EV passenger car in the US. People don't understand the amount of money the government will give you to move to a clean energy car. I don't think all the governments internationally really understand why they're promoting the programs other than ambiently they want to be doing something for the environment. You can save a lot of money doing that - you get USD$7,500 off the car in the US. So that already brings the cost down. The big challenge is EV is very different to an internal combustion engine when you break down what you are actually trying to do for the commercial fleet customers because half the vehicle’s value is in the battery, the battery pack and the energy management. Most of that can be taken out and put in another vehicle. That's like being able to take 3 or 4 screws out of a car, lift the engine out, put it in another one. So the lease financing companies are like, whoa - how do we deal with this problem? Because you can't predict the future residual value if you're going to be swapping batteries, because the battery in a truck or a bus is 55% of the value. In a car like a Tesla it is 35%. If that thing can be taken out and changed and it doesn't have a VIN number on it like an engine does, then you have a real problem from a lease financing perspective. So that's where you've seen commercial sales be a lot less vigorous than you've seen with maybe Tesla's sales.

Tesla is looking at an upper middle market, right? So they are cash buyers for the most part, but they can afford to buy that vehicle. It's a higher-end vehicle. Commercially that doesn't exist. They have a balance sheet built over many years, it says they rotate the fleet within a certain amount of time and they are used to pay 10-15% deposit. The EV world kind of blew that; the lease financing companies can't jump in with the way they borrow the money from the capital markets because their capital at risk is structured a different way if you do an EV deal.

What we've done, and we need to solve this problem regionally as we move through different countries, in China we created a consortium and we went to the typical people who back lease financing funds, typical corporate debt buyers, people like insurance companies with cash on the balance sheet. We also did a bit of a masterstroke; we rounded up all of the electrical utilities as well. Okay, because who's the downstream beneficiary of the change in energy demand? The electrical companies. So we went to Southern Grid, State Grid, Three Gorges, GCL, and we came up with a program where they participate and they will take the risk on the difference with the battery. They can afford to play the long game because they're the people who are getting the demand for electricity. Even if I market the electricity in China and I get a certain percentage for selling at wholesale by giving access to the charging partner network, the underlying electricity is coming from one of these major grid suppliers. So they're the ultimate beneficiary in that, and that's what we did to solve that problem in China.

We were responsible for that. Our chairman and some of his team put that Consortia together so we could get these lease financing funds up and running, get these commercial vehicle owners, fleet operators into EV within the regulatory timelines they need, which has been a big headache for them.

Matthew Gordon:  You have solved that problem for them. But you said, we've made a lot of mistakes in China.

Alf Poor: Yes, we're making our mistakes in China. I wouldn’t say we made a lot of mistakes, but whenever you launch into a new industry, you're sailing in uncharted waters. You sail down cul-de-sacs, so you have to turn around again, but we're making a market. When you have to put together a consortium of lease financing funds, you're building that market. As soon as we start to deploy those funds, which we are doing this quarter going forward, I think we'll see other copycat funds come to market because there's a lot of capital in China that needs to be deployed like there is in most countries. When they see what we're doing and that we're making money from it, I think that'll happen. We embrace that because China has a big problem; it has a lot of very large polluted cities, but it has a very short regulatory window. Up until now, passenger vehicle sales have been very strong in EV, but commercial vehicle sales have not.

Matthew Gordon: What makes you think that you can succeed? Surely there is a lot of competition?

Alf Poor: It comes down to a couple of things: we developed our model, which we call, ‘S2F2C’, which is sales to financing to the charger. It's really the charging like I said, that's really what we want to get access to because that's the rich, recurring revenue stream in the future. How can we play out in the charging? Own the customer, which is the fleet operation. How do you own the customer? You do the sales and the financing aspects for it because it's tricky in EV because it's a new way of doing things. Whenever there's a new way of doing things people need a guiding rail.

Think of it as a fishing analogy - the sales procurement that we do, helping them find the right vehicle with the right spec for the right price - that's the hook. The bait is the lease financing; giving them terms that they’re used to that they currently can't get in. Then we've acquired a valuable customer. He may own a fleet of 20, 200, 2000, 10,000 vehicles. Once we have him as a customer and he trusts us as a service provider, we then market his energy needs: we can sell you, with our utility partners, wholesale, prepaid electricity. We can also sell you access to our preferred partner charging networks. GCL and others are building their own charging network systems at this time. They are our partners; we have agreements with them. If we give one of our fleet customers access you will get a discount for in-network charging and we'll get a small percentage of that.

Matthew Gordon: What was that? S2F2C?

Alf Poor: Yes: Sales to financing to charging.

Matthew Gordon: How has this business has been set up? It comes back to why you've been drafted in here. What are you trying to build?

Alf Poor: Chairman Wu - he's a gift to any company. What he has is an incredible network and a capability to shrink a sales cycle for you.

Matthew Gordon: What do you mean by that? 

Alf Poor: Say you want to work with a utility provider who provides cheap, clean electricity like Three Gorges. The world's largest hydroelectric dam. A huge electricity company in China, one of its main power companies. It's very difficult for me as somebody without any influence in China, to pick up the phone and get that deal done.  I can call Dr. Wu, our chairman, and say, I need you to get us a relationship with Three Gorges. He can get on the phone and make it happen. Instead of there being an 18-month sale cycle in which there has to be a lot of learning about each other, getting to know you, corporate lawyers taking 6 months to turn the agreements around, Dr Wu can use his influence within China. He can crush that cycle down to a 2-3 month program.  So that's really the value of him. Underneath him we have operators that are responsible for running the business. In China one of the most important things we did last year is Bruno and I went out and looked for somebody to run our MEG group, and the gentleman that we brought in from GCL, which is a clean energy provider and has a lot of plans to be influential in providing both clean energy and charging networks for EV, and prior to that, he was a sales executive at Gili which is an international automotive company that owns some high-profile brands like Volvo. So we put somebody at the head of the ship there who knows the industry both from the electrical demand perspective and from the automotive.

Similarly, in Asia we hired a gentleman called Shane McMahon to go in and head up the electrics. He set up the operations for LDV DAF, which is an old British Leyland truck event you may remember from years ago. That was bought by a Chinese company. They set up operations in China. He did everything from setting up the assembly plants to the supply chain for parts and everything else. We're putting the people in place who are experienced operators. So we use Bruno Wu to get the door open, we use him to get the deal done. Then we bring top-class professionals in to help do the job.

Matthew Gordon: Why guarantee manufacturing? That's fraught with danger, isn't it?

Alf Poor: One very simple reason: when we went to speak to the manufacturers in China so we could help get top-tier relationships to make the sales procurement side of the business, they said to us: we love your story. We love what you're doing. You're bringing the whole industry together. It's great that you guys are evangelists. But you're just a source of orders for us. Until you have an order we have nothing interesting to talk about. We said: that's never the case, what’s your real pain? They turned around they said: the real pain point is this -we've been told, as a bus manufacturer, that we have to do something like 25 years of bus manufacturing in a 4.5-year window to meet the government regulatory guidelines. And we're in China. This is not like the UK, the US where we set a deadline of 2022 and it's 2032 and you're on Panorama or 60 Minutes talking about budget overruns and things like that- it doesn't happen in China. They say the bad thing about China is it is authoritarian, but when you want to get something good done, being authoritarians is a pro not a con.

When they say 2022 they mean 2022. They will use different fines and things they have for their carbon credits against those particular companies or provinces or city municipalities if they don't meet those deadlines. So the manufacturers said, if we're going to create 25 years’ worth of buses in 4.5 years, we are going to create tremendous overcapacity.

Now China, at either the national level or at the Province level, they're subsidising it. So that's great. But I've still got to buy a factory, build factories and hire workers. What happens January 1, 2023, when the last bus has been delivered? I'm waiting for a vehicle accident in order to sustain my business, why? Because China is not a growing population. It's not like India.  So once all the buses have been replaced they have a 17-year shelf life, it's going to be a long time before another bus is sold and this one breaks down. So they have an overcapacity issue.

Southeast Asia is a very friendly belt and low trading partner for China, so owning an electrical vehicle brand in Malaysia, the only country that has an automotive manufacturing history because of the proton, also has a highly-skilled workforce. It has factories for Intel and others there, is a very attractive proposition. So by making that move to acquire Treletrik, we suddenly became very interesting to a lot of major automotive manufacturers in China.

When you're in the commercial space, you don't mind being an OEM and building those buses, building those garbage trucks, building those police cars, those fire trucks, vans, lorries and trucks, and having the Treeletrik brand on them. What you need to do is, you need your business to be sustainable after the regulatory deadline has gone. So that was the key strategic reason why we purchased Treeletrik.

Matthew Gordon: Why is that your problem?

Alf Poor:  I wanted preferential terms with the manufacturers: he BYDs, the SECs, the JIACs, like DonFeng - the big boys. Until I had orders for them, I wasn't interesting. ‘You guys sell some buses then come and tell us and we will sell you the buses to sell to your customers.’ Then we introduced the notion of giving them an export and international expansion then we became much more strategically important to them. Then we got more preferential terms, which means when we sell a bus, we can create a greater spread for ourselves because they're giving them to us at a discount which nobody else can achieve because I have another strategic reason why they want to be involved.

Matthew Gordon:   Can you make money?

Alf Poor: Absolutely.

Matthew Gordon: It's not just about the relationship. You can make money. That's a commercial decision?

Alf Poor: Yes. I'll give you a quick rundown on how we make money on the S to F to C: on the sales we make money on spreads. We buy the vehicle at one price, we sell it on for another. Again, because we're strategically important to them and we have volume of sales, we get a much better deal than any fleet customer would by going direct. In terms of the lease financing, although we put the Consortium together, we're not actively part of the lease financing. We sit on the board. So they pay us a commission, a finder's fee whenever we place the deals. The deals are large because it's commercial vehicles, big ticket items, we get a commission out of that. We get a spread and a commission but those are just nice income streams in order to acquire that fleet custom. What we really want to do is we want to make 3% recurring revenue off the energy sale. We're getting commissions and spreads from the lease financings in sales today in order to help us acquire the customer and pay the bills, but really what we're after is that recurring revenue stream. You get 3c on the dollar or 3p on the pound for every gallon that's filled up, you're a very wealthy company. That's where Ideanomics is heading and that's the endgame.

Matthew Gordon: How long is that pilot running?

Alf Poor: When you're involved in EV enablement, as I said earlier, you speak to everybody from government bodies through to customers, battery suppliers - everything. We got into some discussions with the government, and the government said: look, we love EV/ We're promoting EV. Our cities are polluted, but we need a game plan for three of the biggest producers of money in the treasury, which is Petrochina Sinopec and Sinoc, three big petroleum pants. They give us the majority of our treasury revenue. If you look at the total state-owned entities in the PRC, they give me a huge amount of money. We do not want to be out of business tomorrow. EV has suddenly hit a tipping point and everybody's driving EV. So they came to us and said: we want to do something: we want to convert all those fuels stations so that we don't have a hard stop for a treasury revenues but we have a gradual curve and then our petroleum companies get to meet energy demands. They've all made grid edge technology investments, like BP, Shell and others have in recent years, acquiring charging station technology.

The idea here is going to a petrol forecourt, gas station forecourt – there are 10 pumps. We're going to take out the last two. We're going to make those EV fast charge. We're going to leave the other 8 as diesel and petrol. In some areas, depending on how fast the growth is, it will be as quickly as 5 years. We'll just keep taking two pumps off until the last two pumps are petrol and diesel. In others, you'll be able to replace the whole one. It really depends on the city; whether it's a suburban or rural area. The rural areas we anticipate will take longer but the idea is to replenish those.

That's interesting for China -why? Because they own more than 100,000 pieces of real estate in prime locations called gas station. They don't want to shut all those and put a for sale sign up, those will be hard to sell. They also don't want to lose their revenues into the treasury. They need to stay in the energy business. They just need to transform. They've done a study that tells them if they can get the DC fast charging time down to around 10 minutes, so it's only a couple of minutes more than filling up your car with petrol, consumer habits won't change that quickly. If consumers are ambiently aware there's a network out there they can refuel at, they don't care if it's electricity or petrol.

Matthew Gordon: How do you assure me that you know how to do that and you're going to be able to do that?

Alf Poor: That’s the most important part, and that's where the S2f2c is important. As I said, we're providing a value-added service right now, helping these people get the right vehicle, the right spec, for the right price on the right lease financing terms, then they trust us. Only through that process can we then market the electricity product.  We have a deal with China Union Pay, which is the equivalent of  MasterCard wrapped in one to create a 4-in-1 energy card. So they're going to have a card, or actually an app in China because no one uses plastic anymore, all payments are electronic and phones. So the app will allow them, if they have this app, to get discounts at those partner networks. That's our app. We're guaranteed to get the revenue stream from them.

Matthew Gordon: You talked about China, it's very authoritarian, very good at getting things done, but does it stop competition coming in? 

Alf Poor: It doesn’t. BP is working with Didi, the China equivalent of Uber, to put charging networks in. China does actually allow foreign investment and foreign companies to come in. China is opaque by nature. It's not a difficult trading environment that many people think it is. On the ground, we find them to be very buttoned-up, very business-focused and open to foreign investment, but it has to be done in the right way because China just works a little bit differently than the West.

Matthew Gordon:  Do you think your share price has been affected by the whole Trump trade War? The kind of rhetoric that's going around, the anti- China type statements?

Alf Poor: Yes, we do. A lot of people don't understand. Bruno Wu, our chairman, obviously, he's a very important person in China. He's married to one of the favourite daughters of China. He's a high-profile media personality, but he's a US citizen and this is an American company. All of our operations in China are foreign-owned entities. This is how China sees us. We have to do a lot of work, a lot of advocacy to be a basically US company because the obvious thing,  everyone says to us – you are Chinese. We're not Chinese. When we're in China, they're saying to us: we need specific assurances from you guys because you're enriching NASDAQ-based investors because you're a public company. You're a US public company. So we get it on both sides. That's probably one of the toughest challenges in the job; China is cautious because we're a US public company and the U.S. sees us with heavy operations in China and some meaningful Chinese individuals within the company, so they are trying to see like that. We are just saying: hey, let the politics be the politics, We know what we're good at. Let's keep focused on the business. China has a problem that needs to be solved. We're adding value. Let's make some money.

Matthew Gordon: Is Trump a problem for a business like yours?

Alf Poor: He hasn't been so far. I don't know how much of it is just rhetoric in the media, for soundbite sake, and how much of it is actually true. I can tell you that, other than questions about us being a NASDAQ-listed company, no-one's ever mentioned Trump to us in China. He never comes up in conversation. We're all focused on doing the job, which is getting the pollution levels down and getting him to move on to clean energy vehicles. And politics doesn't really get spoken too much in China anyway, it's not one of their pastimes. Their Pastime food and drink, doing business so it's a slightly different culture than the West. We're obsessed with politics and things like that. They don't have elections, right? So for them, there's not so much focus on day-to-day politics.

Matthew Gordon: What are the things that you have to do carefully?

Alf Poor: It's a very, very regulated and documentation-heavy process to work in China. People think it's not. People think it's the Wild West, fly-by-night. It's not  There's a lot of things in China that occur. I’ll give you one very specific example, you raise an invoice, a VAT invoice in the UK, a tax invoice in the U.S. You pay that at the end of the month or end of the quarter in the Western World. You pay that at the point of billing in China. You send out an invoice, you need to log onto a government website, get a serial number to attach to the invoice so they can trace that you charged somebody and you have to remit it immediately. That's one of the challenging things; the administration side of it more than culture side. China is very interesting. People think it's a communist country, it's a fully-westernised capital market in a communist country. There is no difference to here: there is McDonald's, Kentucky Fried Chicken, Gucci, Gap. Cars ranging from Ford's and Buicks through to Lamborghinis on the street. This is this is not the China of 50 years ago. This is a very modern country with all the normal modern entrepreneurial dynamics that you would expect to see in place.

Matthew Gordon: Do you see any kind of conversations? You said they don't talk about politics, but is there an anti-West approach to this?

Alf Poor: There's a lot of questions why, they basically say to us, why do you hate us? We manufacture everything you want us to manufacture very cheaply because we've got a billion people. We have low labour costs, right? We make everything you want. We do everything you want to do. Apple is one of the richest companies in the world, and the reason that they're so rich is because we can make the iPhone so cheap, they keep most of the margin, so why are we the bad guys? We are a non-religious society by and large. We're not bringing any religious overtones into it. We love the West, we love Hollywood. We love all of your brands; all of our shopping malls are packed with all of your people buying all of your brands, and yet it’s a very simple statistic that no one likes to talk about.

Very few Chinese cars are sold in the US. China is one of the USA's largest car markets. Just have a look at the recent earnings coming out from the GM, comments from the Ford CEO. China is one of the most important markets,  then you look at other companies out there: Stanley Black & Decker, right? Covid-19 supply chain issues – why? Because the majority of their parts are all manufactured in China. So I don't know how you can have this love-hate relationship with your engine room, which is basically what China is for the world, it does all of its manufacturing rights. It feels to me a little like being in a tough marriage, where you have an argument and then the next morning the wife wakes up and it's like, oh hi, honey. What's for breakfast? And she is confused. I think that's the role China's playing right now. It's getting bashed but it's doing all the work for Western consumption.

To me, it’s a very strange dynamic. All they ask us is, why do you hate us? In many ways, it's heartbreaking to hear because you have a country that is ready and willing to work to give you the goods at the price that the West wants to pay for them, but also expects them to be the scapegoat.

Matthew Gordon: Do you think that's going to get resolved with the elections at the end of the year if Democrats come in or is it just part of the new world economy that we are looking at?

Alf Poor: There are a few issues here:  I think it's easy to take shots at China. communist countries - immediately when you put that label on it has a negative connotation. I think the bigger issue is China is very fast becoming capitalist and westernised, as I mentioned all those brands, all the restaurants are packed, the shopping malls are packed, but when you've got 1.4 billion people you've got 4 times the population of the US. It's just a matter of time before that economy becomes the largest. I think you're probably looking at the real geopolitical issue - the US and the west, countries like Germany, these massive economies, are they happy not being number 1?

Matthew Gordon: How does this year look for you?

Alf Poor: Q3 and Q4 will be very good quarters for us. We can expect quarter-over-quarter growth here on in. We're making deliveries. We're only halfway through the Q. This Q is already better than Q2, considerably better. The most important thing to understand here, in terms of commercial EV, it's been nascent until this year - the whole industry.  You see people on fire now out there through these reverse mergers they've done into SPACS?, the world the FiSCA Etc. These guys are just taking orders. We started making sales. Although we will be to some extent in the US, we're also not driven by a single brand, we're able to work with multiple manufacturers. So if the commercial fleet operators needs are not met by another brand like a FiSCA they'll go elsewhere. With us, they don't necessarily need to do that.

We can work with any manufacturer because we offer a full end-to-end service provider. You're not just the manufacturer where you make a go or no-go decision. We're ahead of the curve in terms of getting the EV commercially out the door. We're making those sales now. I think you'll see some very interesting numbers in Q3 and Q4 from us as the big-ticket items, the buses and trucks orders start to get fulfilled. I think that'll be much more meaningful and I think investors can look forward to profitable quarters ahead.

Last quarter, we got several million dollars in revenue, which is great to prove our model, to prove that we are over COVID. We also brought forward a lot of non-cash items, because the quarter wasn't stellar, we deliberately brought forward a lot of accounting treatment which made it look more loss-heavy than it was, but it's all non-cash. At the same time, we brought in a lot of money from the market. We filled our coffers so we have a war chest because I think in the second half of the year, there's a lot of interesting companies that are not doing very well but have excellent long-term prospects.

Companies like us right now, are looking at those type of opportunities as potentially accretive acquisitions to give us a boost even further. Push us even further out front.

Matthew Gordon: To control that you need to have something to be able to collect that money; through an app you're talking about? That doesn't sound too expensive or complicated, is it?

Alf Poor:  It’s not. For the most part, when we did the deal with China Union Pay, we're using both of their backing like an infrastructure. We're just producing a front-end app that facilitates, and there will be a connection into the different charging network providers. But again, it is all API handshakes, right? In terms of the technological lift, not terribly heavy to build some mobile apps and some connections to some partners. The challenge will be - China does everything at scale - so how to launch the app, how to make sure the equivalent of the Amazon web services that we’re using over there. We're partnering with the right partner to make sure that it's robust enough for the growth we anticipate. That's the real challenge.

Matthew Gordon: EV thematic and Fintech. What is that?

Alf Poor: To some degree, yes, but we have a number of interesting investments in the BlockChain space. We have in Hong Kong that we have a minority position in called Liquefy. They are a real estate tokenisation platform. We believe that's a big play in the future, getting those illiquid assets liquid, but the regulators are just not ready for that secondary market trading that creates the liquidity. We have investments in a platform called TN2 - blockchain-based without a token, which is interesting for the regulators. Commodity trading plan - that's another interesting one. We own a company called DBot, which is a licensed broker-dealer. It's an ATS, an off-market exchange. The idea is to link those technology platform providers with the Fintech regulated entity when the markets are ready for it so that we can start producing products for the trading markets as well.

Matthew Gordon: That's got nothing to do with EV thematic. Why are they in this entity?

Alf Poor: Well, it has actually. In the beginning, the reason that we got into the EV space is that when China mandated all the city buses be changed, in 2018, by the end of 2020 to it underwrote all the ticket for the city bus companies. It did it at the high-interest rate then they told them you have the rolling stop when you have the bus inventory delivered, go out to the capital markets and ABS refinance, they pay us back and get yourself a lower interest rate. We went in and pitched for a portion of that business using blockchain. What we said is, we can use a blockchain-based system to streamline the underwriting process and help you get better rates in the markets.

If you remember in 2008, one of the reasons the mortgage crisis happened is because people put a thin layer of good quality real estate mortgage assets at the top and filled it up with a lot of bad stuff. If you give the underwriters and the investors access through blockchain, they can look at all the assets that are held within that ABS package and they can see that it’s all high-quality stuff and they can make a proper investment decision. You don't have to push these synthetic products out layered with stuff that looks good but really isn't. So we went in with a with an approach to do that from the marketing the transparency perspective, but also streamline it.

If somebody does ABS right now, whether it's for buses, ships or for airplanes some poor junior analyst has got to go with their iPhone, take pictures of all the stock and the VIN numbers or equivalent. You don't need to do that today. You get an API from the manufacturer or from the bus company or whoever it is, you connect them both to the blockchain. The manufacturer gives you all the digital images, the VIN numbers or the spec of the vehicles, and the bus company will also be able to tell you all the dynamics of it for the investor. This is the route. This is the number of passengers, the amount of revenue. You can do it in near real-time with the internet over vehicles. Here's all the information. Here's the package. Underwriters price it for the market. The market says we love it. We understand what it is. That's how we got into the EV business using the blockchain. So that was an unintended consequence at that time, and we didn't know how successful we would be when we went pitched that. We got a certain amount of business in China as a result.

Matthew Gordon: Can you see where that might be confusing to the market though?

Alf Poor: When we first came into the business, this was an old media company that was looking for a new business model. The media business had failed. What do you do when you're creating your business? You take your underpinnings of something that can be transformative, in our case is technology. We always look to technology for the driver. The Chairman had some investments in AI, a blockchain, we said, okay, where can we apply this? The obvious place to go is financial services; come rain or shine these guys consume these types of services and these can be important transitional tools. Then we got into the EV side of it as a derivative of those investments in blockchain. What I've been trying to do in the last couple of years, as you know, is shut down a lot of the other components of the business that we're currently not pursuing. Now we understand what the business model is. We have two business models: one is financial services, one is EV. There's a large Financial Services component to EV because of the payments for the energy, the lease financing, the ABS refinancing needs to be done. So they do actually have a strong linkage. I've communicated obviously, publicly in our filings that we're looking to divest, specifically for reason you mentioned. We were this thing that was coming together and forming, now we have this nucleus of a business that we want to focus on, we want to get rid of all the peripheral stuff and make some clear communication to the market.

Matthew Gordon: Are you excited for the rest of this year?

Alf Poor:  Excited for the rest of the year. Very disappointed not to be in China. I was going for a week to 10 days every month, pretty much since I joined the company. I spent a good amount of time there and although I can see the progress, I can't see it, touch it, and taste it as if I was on the ground. Important things like launching our Amici Centre in Qingdao, I was there. I toured it, we signed the lease on it in November last year. We're renovating some parts of it but a good chunk of it is online already. I want to be a part of that, and as the CEO I want to be there, I want to be involved in making sure the team on the ground is motivated. We've got the right culture in place, supporting them property from the business perspective. You can do all those things remotely, but you feel much more comfortable when you can be there and be a part of it.

Matthew Gordon: Alf, I appreciate that run through. Fast-moving is, I guess, an understatement and a pretty exciting space to be involved in as well. I appreciate your time today.

Alf Poor: Excellent. Thank you very much.

Company Website: https://ideanomics.com/

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