Editor’s Note: This article was updated on June 24, 2021, to correct the spelling of Solectrac.
Although one of the more popular trading opportunities over the trailing year thanks to rampant market speculation and chatter on social media, Ideanomics (NASDAQ:IDEX) has a sentiment-based Achilles’ heel: the trailing five-year chart of IDEX stock.
Jumping from one extreme and careening toward another, Ideanomics is not what any financial advisor would call a comforting investment. It’s basically the equivalent of betting on race horses without having any understanding of horse racing or even the lexicon. If you don’t mind living dangerously, I suppose IDEX stock may offer profitability potential on either side of the trade.
However, analysts have noted a key business segment under Ideanomics’ complex and always-evolving corporate umbrella. Management is bullish on Solectrac, an electric tractor manufacturer. In October 2020, Ideanomics was the lead investor in a $1.3 million capital raise.
The implication for IDEX stock is readily apparent. As society and politics demand cleaner energy solutions, electric-powered vehicles and machinery seem poised to replace their combustion-based counterparts. That might put Solectrac in the driver’s seat.
Before diving in, though, it’s best to consider the pros and cons for Ideanomics’ e-tractor viability.
Is Clean Energy Finally the Right Business for IDEX Stock?
As our own Chris MacDonald explained last month, Ideanomics has been involved in several disparate businesses, ranging from cryptocurrencies to artificial intelligence to now e-tractors and other electric vehicles. You can call it adventurous, but investors historically got scared off from the lack of direction.
But with Solectrac, the relevance and the ability to start making an impact bode well for IDEX stock. Below are three catalysts to note.
- Zero emissions: On the internet, you’re going to find debates for just about any topic and climate change is no exception. What I can say is that major scientific institutions have sounded the alarm bell for years. With Solectrac e-tractors, the products are part of the solution with their zero emissions. And that’s also a big positive for the human operator.
- Greater reliability: In a question-and-answer session with CleanTechnica, Solectrac founder and CEO Stephen Heckeroth stated that his company’s e-tractors have “one moving part and will last 100 years. A diesel engine has over 300 moving parts that require constant maintenance. Electric charging costs are 1/2 – 1/8 the cost of diesel fuel.” Over time, it makes economic sense to buy Solectrac products relative to combustion engine tractors.
- Solar compatible: Though it may seem like an obvious point, it should be stated that these e-tractors are compatible with power derived from solar energy panels. In the future, then, it’s conceivable that we can have a completely clean power infrastructure that may revolutionize the otherwise stagnant agricultural industry. Further, this may inspire future generations to consider technology-based agricultural solutions, boosting a sector that could use the love.
But Don’t Go Wild Yet on Ideanomics
Although the upper-level concept undergirding IDEX stock is undoubtedly exciting, reality can bite you like a rabid dog. Here are important headwinds to factor into your research.
- Energy density: While the future of mobility is likely electric, the big question is when. True, engineers have made huge advancements in EV technologies. However, the laws of physics will not be denied. Simply, current clean solutions can’t overcome the energy density of fossil fuels. And when these tractors take three to six hours to recharge per Solectrac’s CEO, operational capacity becomes a problem.
- Higher initial costs: Just like in the consumer EV market, e-tractors cost significantly more than their combustion-based counterparts. According to a report from industry journal Agri-View, electric motors and batteries cost roughly twice as much as diesel engines. A quick glance at prices confirms this. Please note that Heckeroth stated Solectrac’s e-tractors cost $40,000.
- Drought: As you’ve probably heard, the southwest region of the U.S. faces a severe water crisis. Various media outlets report that reservoirs supporting multiple states’ water needs have eroded to alarmingly low levels. While the water crisis doesn’t bear a direct impact on IDEX stock, it does hurt the agricultural business. Obviously, there’s no point in farming if you don’t have enough water. In this stressed environment, I’d say the chances of farmers buying e-tractors is slim to none.
Realities Overwhelm Aspirations
When it comes to investment analyses on popular stocks, you are sharply criticized if you have the “wrong” opinion. But what social media doesn’t respect in the slightest is adopting a neutral stance. I suppose that by pulling a Switzerland, you are denying an emotional release for the perma-bulls: either euphoric feeding frenzies or cathartic outbursts of unadulterated rage.
Well, rage away. I’m skeptical about IDEX stock for the reason that while the Solectrac angle is promising, that’s exactly what it is, promising. The catalysts that support Solectrac are aspirational: EVs being the future, clean energy integration, realized cost savings through time and economies of scale.
On the other hand, the negatives are realities in the here and now. Anger won’t make diesel any less energy dense. Anger also won’t make e-tractors cheaper. Certainly, anger is not going to raise our water levels. Combined with the shoddy history of IDEX stock, I think most investors will eventually walk away.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.