What happened
Renewable energy stocks plunged in this short trading week and some of the industry's biggest names are falling fast.
According to data provided by S&P Global Market Intelligence, as of 2 p.m. ET, SolarEdge Technologies (SEDG 2.81%) has fallen 11.2%, Enphase Energy (ENPH 3.80%) was down 11.7%, and QuantumScape (QS 5.69%) had dropped 11%.
Image source: Getty Images.
So what
Some of the moves in renewable energy stocks are just due to the volatility in the market. The S&P 500 was down 1.1% this week and higher-volatility stocks tend to magnify the market's losses. Growth stocks also had a great run in early June, but there's been a pullback recently so SolarEdge, Enphase, and QuantumScape are naturally going to drop as a result.
More automakers have also moved to Tesla's charging standard, which could actually be a headwind for SolarEdge and Enphase, which have moved into the charging space as part of their effort to be the "brains" of energy in the home. Their chargers are the CCS standard, but if the Tesla standard is the direction the industry is headed, products will need to be redesigned and maybe even scrapped.
Investors also learned that after a pause in interest rate changes this month, the Federal Reserve is likely to raise rates more later this year. Chair Jerome Powell told a House committee Wednesday that inflation is still higher than he would like and the process of lowering inflation "has a long way to go." That could mean steadily higher rates and that would increase the cost of financing renewable energy projects.
Ironically, the stock market reacted to the comments, but the bond market didn't react much to the news. Ten-year government bond yields are only up 5 basis points in the past month in the U.S. and 16 points in Canada, while rates have dropped 76 basis points and 33 basis points in Brazil and Mexico respectively, albeit from much higher rates.
For QuantumScape specifically, Toyota's announcement that it has made a breakthrough in solid-state batteries hasn't been received well. As a potential leader in dense battery technology, QuantumScape may now be playing catchup to an industry veteran.
Now what
Earnings season is only a few weeks away and the second quarter may not be as good as the first, particularly in the solar industry. Enphase and SolarEdge benefited from a rush of rooftop solar installations to end the quarter, getting out ahead of net metering changes in California and rising interest rates. Now, those two factors become headwinds.
The EV space, whether it's chargers or batteries, also seems to be shifting in ways that aren't helping any of the companies I've mentioned. A move to Tesla's charger could hurt Enphase and SolarEdge incrementally and QuantumScape's opportunity in the battery market seems to be getting smaller as competitors build their tech. All of this came to a head this week and investors simply took some risk off the table.
