The week couldn't have been much worse for clean energy companies that once had hopes of disrupting the energy industry. As interest rates rise and the market looks for profitable companies, there aren't many to be found in the clean energy industry.
According to data provided by S&P Global Market Intelligence, shares of Nikola Corp (NKLA +0.00%) fell as much as 16.7% this week, FuelCell Energy (FCEL 8.13%) dropped 21.1%, and Sunnova Energy (NOVA +0.00%) was down 11.9%. Each stock is at its low for the week at noon ET on Friday.
Earnings take a toll
Investors need to see some kind of progress in getting to profitability, and that's not happening in the industry today.
Nikola said revenue dropped from $10.7 million a year ago to $7.5 million last quarter, and loss from operations ballooned from $127.2 million to $145.4 million. There's simply no end in sight for these losses, and with the stock falling, the company may eventually run out of financing options as well.
OTC: NKLA
Key Data Points
FuelCell Energy also dropped, but this was more of a sympathy reaction to the rest of the industry. It's interesting to note that a project with Toyota announced earlier this month hasn't given any real bounce to the stock, indicating investors are worried there's no operational momentum on the horizon.
Sunnova announced earnings, and like most of the industry, there are problems with both demand and margins. Revenue fell $0.8 million to $160.9 million, and operating loss nearly doubled to $84.2 million.
The market squeezes energy companies
The challenge for each of these companies is the financing environment they face. Higher interest rates mean equity investors aren't taking the risks they were a few years ago and project developers are demanding higher returns for investments.
Nikola has never reached the scale necessary to have a sustainable business long term, and it looks like its time is running low. FuelCell Energy is facing similar challenges, and with cash of just $348.8 million on the balance sheet last quarter and falling, it's a matter of time before the company needs an alternative.
NKLA Free Cash Flow data by YCharts.
Sunnova's challenge is ongoing as the economics of the rooftop solar business have been disrupted by changes to net metering in California and higher interest rates, both making it more difficult to make money.
Financing costs are going up, and that's going to make it difficult for all these companies to make money. That's the core problem for the industry right now.
Any hope for clean energy stocks?
Companies that need ongoing financing can find it hard to make money in a rising interest-rate environment. And if they're unprofitable 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 running out of patience.
Sunnova's business may recover, but it's very unclear how profitable new projects will be or whether rates will fall for solar projects in the future. So, shareholders are selling off all solar stocks. Unfortunately, this is the holding pattern the market will be in for the foreseeable future.
