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Clean Energy Stocks: Cautionary Tales and Declining Fortunes

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Andrew R. Michaud

• August 30, 2023

Clean energy stocks have taken a beating in the past year, and according to Citigroup strategists, there are a few that could be in for even more pain.

The iShares Global Clean Energy ETF (ticker: ICLN), the largest exchange-traded fund in this sector, along with its smaller counterpart, the Invesco Global Clean Energy ETF (PBD), have both seen a staggering 25% decline in the past year. These funds experienced a boost last year when the Inflation Reduction Act infused billions of dollars into clean energy initiatives.

One of the major factors contributing to this recent sell-off is waning demand. Enphase Energy (ENPH), a prominent player in the solar-power equipment industry and a significant holding in the iShares fund, has repeatedly alerted its shareholders about the decline in demand. As high interest rates prompt customers to tighten their purse strings, Enphase Energy has seen a notable reduction in spending.

Taking note of these warning signs, Citi's Drew Pettit and Scott Chronert have identified the clean energy companies that are particularly vulnerable to further losses. They have focused on those companies that are experiencing evident declines in cash flow and negative free cash flow.

To compile their list, the strategists examined clean energy companies on a global scale and singled out those with significant free cash flow decline and excessive spending over the past year.

Here are the eight companies that made it onto their watchlist:

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

These companies are facing turbulent times ahead as they grapple with financial challenges and unstable market conditions. As the clean energy landscape continues to evolve, it remains to be seen how these companies will navigate these trying times and emerge stronger.

Electric Vehicle-Related Stocks in Decline

Several electric vehicle-related stocks have experienced significant declines in their cash reserves. Rivian Automotive (RIVN) has seen a reduction of $4.7 billion, while ChargePoint Holdings (CHPT) has depleted $152 million. Fisker (FSR) is also down $387 million.

Solar Companies Facing Cash Burn

In addition to the electric vehicle sector, solar companies are also facing financial difficulties. SunPower (SPWR) has burned through $384 million, and Sunnova Energy International (NOVA) is down $21 million.

Energy Company Struggles

ACEN (ACEN), an energy company, has also depleted its cash reserves by $33 million.

Companies' Responses (or Lack Thereof)

Despite these concerning developments, several companies have not responded to requests for comment. Rivian, Plug Power, Ballard Power Systems, Fisker, SunPower, and ACEN did not provide a statement.

ChargePoint declined to comment on the matter.

Sunnova pointed to Chief Financial Officer Robert Lane's remarks from July, stating that the company is prioritizing software development but expects expenditure rates to peak by the end of the year.

Citi Strategists' Analysis

Citi strategists recognize that factors such as declining interest rates may positively impact these stocks. However, they caution that careful stock selection within this subcategory is necessary.

Alternatives for Potential Gains

Alternatively, Citi has identified Renault (RNO.FR) as a clean energy stock with significant potential gains once the sector gains broader acceptance. Furthermore, BofA Securities Global Research has compiled a list of stocks that may benefit from increased federal spending on clean energy, including TPI Composites (TPIC) and Sunnova.