Declining Clean Energy Stocks: A Cautionary Tale

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Clean energy stocks have experienced a significant decline over the past year, raising concerns among Citigroup strategists about the potential for further downside. The two largest clean energy exchange-traded funds, iShares Global Clean Energy (ICLN) and Invesco Global Clean Energy ETF (PBD), have both seen a decline of approximately 25% in the past year. These funds initially surged after the passage of the Inflation Reduction Act, which allocated billions of dollars to support clean energy initiatives.

One of the contributing factors to this recent sell-off is the deteriorating demand. Enphase Energy (ENPH), a prominent holding within the iShares fund, has repeatedly cautioned investors about weakening demand due to customers cutting back on spending amid high interest rates.

According to Citi’s Drew Pettit and Scott Chronert, the clean energy stocks with the highest risk of further losses are those with the most evident declines in cash and negative free cash flow. To identify these vulnerable stocks, the strategists conducted a comprehensive analysis of clean energy stocks globally and focused on those with a significant decrease in free cash flow and high cash burn or spending over the previous 12 months.

As a result, eight companies emerged as the most at risk for further losses within the clean energy universe. These include:

  1. Plug Power (PLUG) – a clean fuel cell company that recorded a staggering cash burn of almost $2 billion.
  2. Ballard Power Systems (BLDP) – another clean fuel cell company that experienced a decline of $188 million.

The cautionary tale of declining clean energy stocks serves as a reminder of the challenges faced by this sector. Investors must be wary of companies with weakened financials as they navigate the clean energy landscape.

Electric Vehicle-Related Stocks Facing Financial Challenges

Several electric vehicle-related stocks have experienced significant declines in their cash reserves. Rivian Automotive (RIVN) has seen its funds decrease by $4.7 billion, while ChargePoint Holdings (CHPT) has depleted its cash by $152 million. Fisker (FSR) has also suffered losses, with a decrease of $387 million.

In addition to these companies, solar energy companies SunPower (SPWR) and Sunnova Energy International (NOVA) have faced financial difficulties as well. SunPower has burned through $384 million in cash, while Sunnova has seen a decrease of $21 million.

Another company affected by financial challenges is ACEN (ACEN), an energy corporation that has depleted its cash reserves by $33 million.

When contacted for comment, Rivian, Plug Power, Ballard Power Systems, Fisker, SunPower, and ACEN did not respond. ChargePoint declined to provide a statement. However, Sunnova referred to Chief Financial Officer Robert Lane’s previous remarks in July, stating that the company is focusing on software development and expects expenses to peak by the end of the year.

While the Citi strategists acknowledge that factors such as declining interest rates could positively impact these stocks, they caution investors to carefully consider stock selection within this subcategory.

Alternatively, Citi recommends considering Renault (RNO.FR) as a clean energy stock with potential for significant gains once the sector garners more widespread acceptance. BofA Securities Global Research team has also identified other stocks that could benefit from increased federal spending on clean energy, including wind energy player TPI Composites (TPIC) and Sunnova.

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