The energy industry is changing rapidly as formerly dominant fuels like coal and oil are being supplanted by cheaper renewable energy sources. We can also anticipate a significant demand shift due to the rise of technological innovations like electric vehicles. And the disruption is far from over, given that renewables and EVs today account for less than 5% of electricity markets and vehicles sold, respectively.
As this transition away from fossil fuels continues, investors will want to place their bets on which energy technologies will shine the brightest. As it stands now, Bloom Energy (BE -1.93%), SunPower (SPWR -1.02%), Star Peak Energy Transition Corp. (STPK), and General Motors (GM -0.04%) look like they'll be leaders in the future of renewable energy.
The emerging hydrogen economy
The hydrogen economy is closer than ever to reality, thanks to companies like Bloom Energy. The company is building the technology to turn renewable energy into hydrogen that can be stored or transported and then used to generate electricity where and when it's needed.
Bloom's business has been steadily improving over the last three years, with revenue growing and margins improving as the cost of its fuel cells comes down. The company is still reporting losses as it invests in growth, but its operations are on the right trajectory, and if the hydrogen economy takes off, it will be well-positioned to capitalize.
BE Revenue (TTM) data by YCharts
One product Bloom Energy is currently focused on could be a game-changer for the company: It is developing an electrolyzer that will use wind- or solar-generated electricity to produce hydrogen for use in its fuel cells. Management says this clean hydrogen will be cost-competitive compared to fossil fuels, opening up a $2 trillion energy market to the company. The electrolyzer is still in a prototype phase, but commercial operations are expected to begin at a small scale later this year.
There's a lot of uncertainty about how much of a role hydrogen will play in the energy market of the future, but as a leader in industrial-scale hydrogen, Bloom Energy will likely be one of the segment's winners.
Profiting from solar energy
The number of solar energy systems deployed throughout the world continues to grow rapidly, but the industry has been rough on investors over the past two decades. However, as the industry moves into a more mature phase, I think SunPower has a strategy that can deliver both profits and growth.
At its core, SunPower is a service company for the residential and solar market. It has developed tools for selling, quoting, and installing solar panels and energy storage systems, but it doesn't do most of the installations itself. Instead, it works with dealer partners who provide the boots on the ground for its products.
This gives SunPower an asset-light business model that can provide leveraged returns on the growth of installations. And the company will play an even more critical role as energy storage rolls out because it will be able to aggregate the electricity held in tens of thousands of individual storage systems and bid those assets into competitive electricity markets as virtual power plants.
A unique play in energy storage
Star Peak Energy Transition Corp. is a SPAC that has agreed to merge with energy-storage pure-play Stem. Stem was one of the early leaders in commercial energy storage, and will use the $383 million in cash being added to its books by Star Peak Energy to fund its growth in markets like the U.S., Japan, and Canada.
Stem is attempting to take what it has learned building energy storage systems and use it to pivot to a more software-as-a-service type business model. This will allow the company to be an energy management business, rather than just a battery business.
The real value in energy storage isn't in making batteries or installing them -- it's in managing when and where the stored energy is deployed. Stem is a leader in that niche, and that's why it's a great way to bet on the future of energy storage.
Image source: Cruise.
The next electric vehicle giant
We all know Tesla leads the electric vehicle space right now, but I think that GM provides the biggest EV opportunity for investors today. Management just announced that the automaker will transition its product line entirely to electric vehicles by 2035, and it has already announced compelling EVs like the Hummer, Bolt, and Cadillac Lyriq.
GM also holds a controlling stake in Cruise, which is developing autonomous vehicle technology. Cruise and GM are working on a fully autonomous ride-sharing vehicle that GM will produce and Cruise will manage. This could be a major new growth market.
Shares of the legacy automaker are relatively cheap, trading for just 26 times trailing earnings -- and that doesn't factor in the potential value of its stake in Cruise, which by itself may be worth over $23 billion. GM isn't the biggest name in EVs today, but it may be a decade from now.
The future of energy will be here before you know it
There's no longer any debate over whether electric vehicles or renewable energy can be viable. They're cost-effective already, and their prices continue to drop, which will allow them to increase their market share. As they do, the companies with the best technology and strongest business models -- companies like Bloom Energy, SunPower, Stem, and GM -- could be big winners for investors.
