The week couldn’t have been worse for clean energy companies which once had hopes of disrupting the energy sector. As interest rates rise and the market searches for profitable companies, there aren’t many in the clean energy sector.
According to data provided by S&P Global Market Intelligenceactions of Nikola Corp. (NASDAQ:NKLA) fell as much as 16.7% this week, Fuel cell energy (NASDAQ:FCEL) fell 21.1%, and Sunnova Energy (NYSE:NOVA) was down 11.9%. Each stock is at its lowest level for the week as of noon ET Friday.
Gains weigh heavily
Investors need to see some sort of progress toward profitability, and that’s not happening in the industry today.
Nikola said revenue fell from $10.7 million a year ago to $7.5 million last quarter, and the operating loss fell from $127.2 million to $145 million. 4 million dollars. There’s simply no end in sight for these losses, and with shares falling, the company could eventually find itself running out of financing options.
FuelCell Energy also fell, but that was more of a sympathetic reaction to the rest of the industry. It is interesting to note that a project with Toyota announced earlier this month has not given the stock any real rebound, indicating that investors are concerned that there is no operational momentum on the horizon.
Sunnova reported profits and, like most in the industry, there are demand and margin issues. Revenue fell $0.8 million to $160.9 million and the operating loss nearly doubled to $84.2 million.
Market squeezes energy companies
The challenge for each of these companies is the financial environment they face. Higher interest rates mean stock investors are no longer taking the risks they did a few years ago and project developers are demanding higher returns on their investments.
Nikola never achieved the scale needed to have a long-term sustainable business, and it appears its time is running out. FuelCell Energy faces similar challenges, and with cash on the balance sheet just $348.8 million last quarter and falling, it’s only a matter of time before the company needs a alternative.
Sunnova’s challenge continues as the economics of the rooftop solar industry have been disrupted by changes to net metering in California and rising interest rates, making it more difficult to create of income.
Financing costs are increasing, which is going to make it difficult for all of these businesses to make money. This is currently the biggest problem in the industry.
Hope for clean energy stocks?
Businesses that need ongoing financing may struggle to make money in a rising interest rate environment. And if they’re not profitable when rates are low, the problem is even worse. I think that’s what we’re seeing with Nikola and FuelCell, and the market is starting to lose patience.
Sunnova’s business could recover, but it is very unclear how profitable new projects will be or whether rates for solar projects will fall in the future. So the shareholders sell all the solar stocks. Unfortunately, this is the trend the market will remain in for the foreseeable future.
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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
Why Clean Energy Stocks Crashed This Week was originally published by The Motley Fool
