What happened
Shares of electric vehicle (EV) charging stocks ChargePoint Holdings (CHPT +5.91%) and Blink Charging (BLNK 3.84%), as well as solar inverter company Enphase Energy (ENPH +14.39%), were all plunging today, down 8.7%, 5.3%, and 6.1%, respectively, as of 11:38 a.m. EDT on Monday.
There wasn't much in the way of company-specific news today; however, Blink Charging has its third-quarter earnings release tomorrow, while ChargePoint will report later this month. Enphase already reported third-quarter earnings in late October, topping estimates and raising guidance; but today's decline has erased all of its post-earnings gains.
More likely, the declines are due to two things. First, interest rates have continued to climb following last week's Federal Reserve statement, its interest rate hike, and the press conference with Fed chair Jerome Powell in which he gave hawkish comments.
Second, investors may believe that Republicans are going to win one or both houses of Congress, which is perceived to be a negative for solar and EV stocks.
NYSE: CHPT
Key Data Points
So what
All solar and EV stocks got a boost this summer after Congress passed the Inflation Reduction Act. The legislation contains a lot of incentives for public and private entities to build out the EV charging infrastructure across the country as well as to invest in clean energy projects, which would be a boon to all three of these stocks.
But with Republicans favored to win back the House of Representatives, and with the Senate now a toss-up, investors might perceive the incoming Congress as more hostile to clean energy and friendlier to fossil fuels.
Although the Inflation Reduction Act has already passed Congress and therefore the incentives should remain, Republicans have been known to attempt to starve Democratic programs of funding when they are in power, either through the budget process, which sometimes entails shutting down the government, or holding the debt ceiling hostage. Still, the threat to these solar incentives seems more a question of sentiment around the incoming Congress rather than anything concrete yet
In addition, interest rates continue to rise on the heels of Jerome Powell's hawkish comments last week. The 10-year Treasury bond's yield rose again today, topping 4.2% for the first time in a couple of weeks.
Higher rates are generally not a great thing for companies that either lose money or trade at high valuations, or both. ChargePoint and Blink both trade at more than 10 times sales, and each are still generating substantial losses on the basis of EBITDA (earnings before interest, taxes, depreciation, and amortization) as they build out their charging stations as quickly as possible ahead of more use.
Enphase is in a bit of a better position to handle higher rates, as it actually generated nearly $300 million in net profits over the past 12 months. But it currently trades at 135 times earnings and nearly 60 times next year's estimates. The company has done phenomenally well this year, with the stock up 67%, so it's perhaps no surprise to see investors taking profits ahead of what could be a more solar-hostile incoming Congress.
Now what
It appears that investors are still buying into the growth of solar, as evidenced by Enphase's success; but they are also rightly concerned about money-losing companies in any industry, as ChargePoint is down 26% and Blink is down 44% on the year.
As interest rates look to be settling into higher levels for longer than some expected, it is going to be hard for money-losing businesses to raise more capital to fund expansion. Of the two charging companies, ChargePoint is larger and has a better balance sheet, with about $470 million in cash against $300 million in debt.
Blink is in a more precarious position, with just $90 million in cash against $41 million in debt, after burning through about $40 million in cash through the first six months of 2022.
Despite today's downturn, it appears the Inflation Reduction Act incentives will probably go into effect as intended, or at least for the most part, and clean energy will grow over the long term. Therefore, interested investors might want to dig into these names if Republicans sweep the Congress and these stocks fall further. Just be aware that if interest rates stay high, smaller companies earlier in their life cycle, such as Blink, could run into funding problems.
