Ideanomics (NASDAQ:IDEX) is attempting to make a profitable company from a business model that largely died out in the early 2000s. For Ideanomics stock this model will either end up being brilliant or a disaster. I think there is no in-between.
As Larry Ramer wrote, the company is essentially a middle man between its customers and the myriad financing companies and makers of chargers for electric vehicles in China. The company describes itself as a “global company driving mobile energy transformation and the green fintech revolution.”
This has been a year when speculation has become very normalized. And on one level, I’m fine with that. You should be free to do what you please with your money. I also do believe that having new investors entering the market may be a great thing if these nascent investors are open to learning about investing.
This year has shown that utterly bankrupt stocks – yes, I’m talking about Hertz (OTCMKTS:HTZGQ) – can be given the breath of life. But the ability to drive a stock’s price from 80 cents to $1.60 dollars doesn’t make the stock twice as good. It just means that someone is willing to pay $1.60 more than they should.
And that’s why you have to be very careful with Ideanomics stock. If you haven’t figured it out, I’m not a believer in the long-term business model for Ideanomics. But in the next year it may catch lightning in a bottle.
But that doesn’t make it a great stock; it just may be a great trade.
The Case For Brilliance
I find the Ideanomics business model extremely interesting in this sense.
As a freelance writer, one of the tasks that I’m responsible for is procuring my own health insurance. But to put it mildly, I’m not healthcare expert. So I appreciate having an agent who serves as my go-between.
I provide information about my situation and he recommends policies that fit my budget. There’s usually a good, better, best approach. It gets done and I have a task completed without much effort.
Maybe a better example is that, as someone who is self-employed, I choose to have someone do my taxes. I probably could file my taxes correctly, but the tax code seems needlessly complex. And I have no time for an audit. So once again, I appreciate having a go-between who serves as an expert.
If you haven’t given up on me yet, let me land this plane. The tax code for me is like the EV marketplace in China. It’s a confusing mess that many companies, at this time, can’t – or choose not to – navigate. And that gives Ideanomics an opportunity.
The Case For Disaster
The problem is that, it seems over time, the EV market will become less confusing and easier to understand. When that happens, it looks like Ideanomics will become the Dunder-Mifflin of the EV space.
Alright I get it you’re sick of the analogies. But it’s hard to tell investors that everything with Ideanomics stock is going to end well. So I’ll leave that to my InvestorPlace colleague Mark Hake who wrote, “So, the company’s business model has no shot of making any kind of profit with this plan. Despite its name, Ideanomics makes no economic sense.”
The larger point behind Hake’s statement is that Ideanomics is burning cash at an alarming rate. And in fact, the only reason the company hasn’t collapsed yet is because it’s acting as a private equity firm of sorts. But since it’s operating in the EV space, what could possibly go wrong?
Ideanomics Stock Is Not a Buy
At a time when investors are buying anything associated with electric vehicles, I suppose I understand why some speculative traders may find Ideanomics stock worthwhile. But that doesn’t mean it is.
The company is using a business model that no longer fits. In the short term, there may be an opportunity for some revenue. But it’s hard to see that revenue being enough to turn the company profitable.
Eventually there will be an app that helps companies do their own brokering for these disparate EV vehicles and accessories. And at that point the idea and the economics of Ideanomics will part ways.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.