martin-dm Revisiting Ideanomics – My Thesis As I’ve mentioned in my previous article (Ideanomics: Investing In EV Is A Waiting Game) on Ideanomics, Inc. (NASDAQ:IDEX), I still believe that Ideanomics has a great future ahead of it. Recently, the company created new partnerships and is expanding to different geographic locations, which could help Ideanomics be an outstanding stock in the EV industry. These changes will enable Ideanomics to grow fast under the condition that they will make sales this year: 1. Three-year partnership with Google Cloud 2. New vehicle assembly line for Solectrac 3. The spin-out of fintech subsidiaries 4. Geographic expansion Ideanomics has been unprofitable for quite some time now, so when or where do we draw the line between being okay and not okay with the company being unprofitable for quite some time now? Will these changes and partnerships finally mean that the company can make some sales and increase revenues? Strategic Partnerships, and Geographical Expansion It’s been about 3 months since my last Ideanomics update, and a lot has happened recently. For starters, the company secured a three-year partnership with Google Cloud. What does this mean? It means they’re using reliable and top-notch tech from Google to utilize their AI functionality features to collect and analyze telematics and improve Ideanomics’ cloud platform. The next piece of news that I think will be very interesting for Ideanomics’ path to making sales. On October 2022, Solectrac, a subsidiary of Ideanomics, goes live with a new vehicle assembly line at the Windsor facility, which triples the production capacity of the e25 electric tractor and can produce 4,100 zero-emission Solectrac tractors annually. The exciting part is, Ideanomics expects revenue from Solectrac to double in 2023. Sure there’s a chance for Solectrac to double its revenue in 2023, but without a massive order of these EV tractors, I’m not confident that revenue would be “doubled” in 2023. However, if (it’s a man-sized if) the company does get a massive order of these tractors, then having a new vehicle assembly with a high production rate can definitely contribute to the goal of doubling revenues through Solectrac EVs. Otherwise, I believe having a new vehicle assembly isn’t really going to matter if nobody buys Solectrac products. Ideanomics SEC Filings – Revenue Breakdown Ideanomics also exits the fintech business and is in the process to spin-out its fintech subsidiaries JUSTLY and Timios. I have two reactions to these changes, (1) considering that Timios and JUSTLY are composed of 32% of Ideanomics’ revenues, is it an intelligent decision to spin out these companies at this stage of the company where they’re operating at a 3-quarter loss? Surely, they’re not going to spin out a considerable chunk of its revenues, right? (2) I think it’s good that they’re lasering their focus down on the EV market. Getting out of the fintech market lets the company focus on EV production, which is the primary money maker. Overall, I got mixed reactions upon reading the news that they’re going to spin out its fintech subsidiaries, knowing it’s a significant share of Ideanomics’ revenues. Ideanomics Twitter Ideanomics also has secured DLL as its third-party financing partner that will handle Solectrac’s dealer network. DLL is a global finance company with a managed portfolio of more than EUR 35 billion. Solectrac can benefit from this partnership through DLL’s installment and leasing programs. The interesting part is if the statement “…Solectrac is selling units as fast as they can make them.” is true, then the new vehicle assembly would make sense since you’d generally want to keep up with the demand, right? Solectrac’s target market is specialty agriculture, parks, municipalities, and university market segments for their products. Britta McSparen, the program manager at DLL, stated: “We are thrilled to partner with Ideanomics and Solectrac to help accelerate the electrification of the tractor industry, and to demonstrate our commitment to sustainability” – Ideanomics Press Release This means that their partnership could help improve the sales of their equipment to the end-use customers and combined with the new vehicle assembly at the Windsor facility (which should triple the production capacity of the e25 tractors), they should have little-to-no problems supplying the demands, if there are any. While there are many strategic partnerships and changes, Ideanomics is at the risk of getting delisted because of NASDAQ’s listing rules. However, news came out in November 2022 that the NASDAQ is giving the company an additional 180 days to comply with its listing rules. In the meantime, the company secured $20M in additional funding and a potential follow-on of an additional $20M to support its EV product segments. According to Alf Poor, the CEO of Ideanomics: “Our ability to attract capital stems from our strong performance, which I believe will ultimately become reflected in our share price. We are outperforming many of our direct competitors when it comes to revenue generation, manufacturing and distribution.” – Ideanomics Press Release Considering that the company hasn’t been performing well in sales, it’s a bold statement to release that its performance will reflect its share price. It’s trading at $0.20 right now, which is an 82% year-to-date decline. Ideanomics Press Release Another positive news I appreciate from Ideanomics is that its subsidiary, Energica, is expanding into different geographical markets, which can help Ideanomics grow its geographical footprint by entering Japan and Australian markets. According to Robin Mackie, Ideanomics Mobility CEO: “This new market entry into Japan and Australia will contribute to what we anticipate a strong fourth quarter and long-term consistent revenue growth.” – Ideanomics Press Release I think they can achieve this, considering that Japan has over 10.3 million two-wheel vehicles registered and more than 83,000 motorcycles over 250cc. Additionally, the report mentions Australia and Japan are high-value markets they can enter as both countries hit a 15-year high with more than 100,000 new units sold, which makes this an excellent market for Energica to enter with their premium EV motorcycles. Ideanomics Press Release Ideanomics’ subsidiary U.S. Hybrid expands its partnership with Toyota Tsusho America, Inc. to convert existing diesel port vehicles and equipment to hydrogen-powered. First thoughts, on paper, this sounds amazing. Zero-emission and converting diesel port vehicles and equipment into zero-emission equipment sounds excellent! Toyota Tsusho America, Inc. will help U.S. hybrid by providing engineering and design capabilities to integrate Hydrogen Fuel Cell technology to port drayage vehicles and equipment. Although these changes and operations are undoubtedly significant for the environment, the profits will be from retrofitting existing vehicles, turning them to zero-emission, and giving operators an easy and affordable way to future-proof their fleet and comply with regulations. Honestly, this is a brilliant move by U.S. Hybrid; instead of convincing fleet operators to buy electric vehicles, they (Ideanomics) would make revenue by retrofitting existing vehicles. Of course, we still need to see the progress of this partnership and the revenue it rakes in for the company, as this partnership was made in December 2022, making it too early to make huge conclusions on how far this would go. Ideanomics Risks With all the recent Ideanomics strategic partnerships and news, we will be talking about the risks. Sure I could make a lot of forward-looking statements about the company and the probability of the positive & negative effects happening. I think that we should also look at the risks associated with Ideanomics: What Happened to VIA Motors Acquisition – This is less of a risk but more of something to think about when investing in Ideanomics. The company agreed to acquire VIA motors in August 2021, but until now, there have been no state updates or progress with their plan to acquire the company. Risk of Being Delisted – The company is running the risk of being delisted from NASDAQ since they don’t fit the listing requirements. Although they have been given an extension until May 2023, I still need to see the company pulling off having its stock trading at $1 for long periods, considering its performance. Good Market Position, But We Need Sales, and Lower Costs – I think many investors would agree that Alf Poor, the CEO of Ideanomics, has recently made great partnerships and changes in the company. I believe they are good, but we need robust top-line growth and better margins (which can be achieved by reducing costs and trimming expenses). Right now, they’re in a great position to create an opportunity for momentum and growth through its better production speed for Solectrac, expansion in Japan and Australia, and collaboration with Toyota Tsusho to retrofit existing diesel-powered vehicles and fit them with a hydrogen fuel cell system. I believe the solution to their problems is: (1) increase sales and (2) reduce costs to improve the company’s margins. It may sound too simple, but think about it; if they get a massive order of EV tractors and maybe have a successful run on Energica in Japan and Australia, they can solve their profitability issue and delisting issue (which could spark some confidence in potential investors that want to get into the EV market), and even better, maintain that position to be one of the big players in the EV market in the next 3-5 years. The company can improve its gross profit margin and operating margin to ensure more robust bottom-line performance. On the company’s Q3’22 performance, the cost of revenues was $24.9 million, a 10.18% or a $2.3 million increase mainly caused by the increase in revenues from EV products in China in the second quarter of 2022. Are there ways to improve this? Yes, suppose demand increases, and they gain more recognition for the EV products they sell (may it be tractors from Solectrac or two-wheel motorcycles from Energica). In that case, they either have to increase the prices of their EV products and services or find cheaper sources of raw materials to reduce costs without sacrificing quality. Of course, it’s all speculation, but if we see the positive effects of these recent events (partnerships & expansion), I think Ideanomics’ performance will increase, and the stock price will follow. Financials and Author’s Valuation Data From TiKR – Ideanomics Financials The company isn’t generating that much revenue, and with the recent news that they’re spinning out their fintech subsidiaries, it’ll take a hit on the company’s revenue stream. The company’s revenue hasn’t been increasing year-over-year. On the company’s Q3’22 results, the company had 7.66% less revenue when compared to the company’s Q3’21 results. As you can see from the image above, Ideanomics has a MAJOR profitability issue, with gross margins barely breaking even (technically at a 52-week loss), relatively high SG&A expenses, and EBITDA, EBITA, and EBIT margins at a complete loss. Again, as previously mentioned in my Risks section, I think this can be solved through a strong top line. Data From TiKR – Ideanomics Financials Ideanomics has $25 million in total cash and short-term investments, $94 million in total receivables, $170 million in current assets, $61 million in current liabilities, and $31 million in total debt. I wouldn’t say that the company has strong financials considering they’re on a 5-quarter net income loss and declining margins. However, they have a healthy current ratio, no short-term liquidity issues, relatively low debts, and a low acid-test ratio, which means it can pay half its current liabilities without problems. I have two scenarios with Ideanomics, my bear and bull case. Bear case would be to avoid the stock or take profits if you’re holding on to your dear life with this stock. This means (1) if they don’t solve their delisting problem at least two weeks before the deadline, that’s a bad sign already, (2) if they continue to be unprofitable after their recent partnerships, that again is a bad sign already, (3) under the assumptions that their revenues are going to be similar with what they’ve had during their Q1-Q3’22 performance, it’s a bad sign, and it’s time to take profits. However, if you’re an optimistic investor and everything goes according to plan for Ideanomics, my Bull case price target would be $1 for 2023. Why is that, you may ask? Well, for starters, (1) revenue would double for Solectrac; the company mentioned that they sell the amounts of tractors they produce, so if they triple their production through the Windsor facility, surely their EV sales would increase, (2) we could also expect a revenue increase from Energica after their Japan and Australia expansion, so that’s going to contribute to the company’s top-line strength, (3) if the points mentioned above are achieved, then the company might get closer to complying with NASDAQ’s listing rules, solving the problem entirely, resulting in a $1 price target, or a 400% increase for my bull case. Additional information, I could be very wrong in these speculations. Still, Alf Poor, the company’s CEO, has been spreading the It’s #AboutTime trend on Ideanomics on his Twitter account recently (NOTE: I’m not relying on a thesis based on a Twitter tweet, doing that is dumb. I just found it interesting to see how he’s optimistic with Ideanomics; either he truly is optimistic, or it’s just a PR stunt to boost the company’s share price). Do you think he’s confident in saving Ideanomics? If not, why is he doubling down on Ideanomics and thinking its subsidiaries are showing/will show promising results? Is it #AboutTime to add more? Or is it #AboutTime to sell? What do you think? However, I did give a Bear and a Bull case for the company but am eager to provide it with a Hold rating because I’m leaning toward the Bear case, assuming the Bear case is more probable between the two; the Bull case is just too much to ask in my opinion. I have no responsibility over your (you, the reader) investing decisions, so do your own research. Final Take on Ideanomics Overall, I’m not confident with how Ideanomics performs, so I’m giving it a Hold rating. The company is on a huge loss streak and isn’t generating sales as it’s supposed to be. Sure, they’re putting themselves in significant positions, but the company needs sales and avoiding the delisting issue now. They should solve the delisting issue by May 2023, their deadline for complying with NASDAQ’s requirements. They also need to secure some orders with their EV products & services. Otherwise, I don’t see them turning things around. However, if they do create sales this year, this could easily be a turning point for the company if everything goes as planned. I’ll closely monitor Ideanomics and see what’s next for the company. Thank you for reading. I appreciate your time, have a great day! Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.