Electric Vehicle company continues to hemorrhage cash in 2022.
Multiple businesses have serious potential but the company needs more funding to keep investment elevated.
Costs are in the process of getting cut significantly. Wait for strong hands to enter here before putting money to work.
Intro
Ideanomics, Inc. (IDEX) operates in the electric vehicles space through a whole host of businesses plus also runs a capital business where financial services are provided. The technical chart below looks depressing, to say the least where the only real comfort for investors who remain long this name is the fact that the company's EV businesses in fiscal 2022 grew by over 70% compared to fiscal 2021. Although the lion's share of Ideanomics' growth in EV came as a result of the acquisitions which the company took on board, it needs to be said also that organic growth was evident in various subsets.
However, elevated interest rates led to lower transaction numbers on the real-estate side of the business. This meant that full-year sales slid by 11% to come in at just over $100 million. Management believes that EV sales should now ramp up, especially given the fact that funding from the Inflation Reduction Act is expected to only now come on stream in a significant manner.
While this may be true with Ideanomics' EV sales benefiting as a result, we believe there is no point in investing in this company at this stage. The reason is that we still do not know the speed at which the EV space will gain traction in forthcoming quarters. Furthermore, the stock price at a mere $0.04 per share may be dirt cheap from a valuation perspective (P/B of 0.18 & P/S of 0.20) but still represents an elevated risk for the micro-cap investor.
Apart from the fact that Ideanomics could indeed be delisted from the Nasdaq, the generally lower trading volumes of micro-cap stocks means that the share price can be manipulated much more easily by either a larger buyer or seller. Suffice it to say, the CEO bought 400,000 shares last October at $0.25 per share each. More similar transactions from insiders like this would move the stock which would in turn aid the stock bounce back above its first line of resistance which is approximately $0.10 per share.
Although management has no direct control over how fast the EV industry can scale going forward, it knows that it must now become laser-focused on the following (Reduction of costs & Growth of sales) in order to essentially keep the wolf from the door. Remember, Ideanomics will need capital for some time here (In VIA, Solectrac, US Hybrid & Energica) so the best way it can essentially buy more time (While waiting for EV sales to potentially explode) is to get its financial house in order.
Reduction of Costs
On the latest earnings call, the Chief Operating Officer outlined that continuous measures will have to be undergone in order to get the cost profile under some type of control. This started recently with the letting go of approximately 15% of the workforce so we see this number most likely going up in upcoming quarters. Then, you have the Justly & Timios businesses which will be dispensed with in due time plus you will see more consolidation in the EV segments again to bring down that cost profile overall.
SG&A & costs of goods sold almost hit $250 million in fiscal 2022. This number will be frowned upon by creditors given Ideanomics' market cap is a mere $31.4 million and fiscal 2022 sales barely topped $100 million. $247+ million of cash was disposed of in the trading year which simply is not good enough considering the reported growth rates overall in Ideanomics.
Growth Of Sales
Suffice it to say, the market needs to see returns come more quickly off the company's investments. One way of doing this is through economies of scale where management can increase the supply of its products and services in order to meet the elevated demand in the respective EV businesses. Through ramping up production at VIA & Wave charging solutions, management believes significantly more demand can be tapped especially in the last mile area. Ideanomics' other businesses will obviously also be funded with respect to their scale and technology improvements but the key here is to develop long-lasting commercial relationships. From here, the market may get interested as sales and cash-flows will then become more predictable due to the clear visibility of the value being added by Ideanomics in the markets it serves.
Conclusion
We reiterate that there is no point in getting long Ideanomics at this stage. The company needs funding after spending hundreds of millions of cash in the last 12 months alone. The potential is certainly there but Ideanomics needs to stay in the race until the EV space gains traction in earnest. We look forward to continued coverage.