Buying into the so-called “Green Economy” has been a sexy pick for more than a decade. The sustainable energy movement has garnered a tremendous amount of support and fanfare, but the grassroots businesses and even leading green companies may not be the best stock buys.
Those trendy outfits like Tesla with high social media profiles and mainstream mentions might just be over-marketing themselves, because they face big league corporations that are far more profit-driven and can pivot green or fossil fuel on a dime. The future of many friendly sustainable companies touting hope and dreams may be tenuous at best.
Case In Point: Tesla
Tesla is perhaps the most well-known business that strives to reverse climate change while making a buck. Led by frontman Elon Musk, Tesla was founded on the principle it would evolve fully electric vehicles and become a world leader.
Under CEO Musk, Tesla has been a go-getter that raised production to 100,000 vehicles per year and swallowed up SolarCity. The solar panel company seemed like a “no-brainer” according to Musk. The initial deal bumped both stocks up in the mid-2 percent. But, analysts widely criticized the merger because they believed it created a “higher risk entity.” They were right.
SolarCity has been under siege by competitors that offer the same type of home installation program but often at no cost to the owner. SunRun, for example, has gained traction in several states based on no-money down and guaranteed customer savings.
By Mid-August, there were rumblings Tesla was moving $1.5 billion in debt to raise capital. That red ink compounds the debt levels incurred from the SolarCity buy. All told, that’s a quick $4.5 billion in liabilities. Regardless, Tesla enjoys widespread praise in the left-leaning media despite these obvious buyer beware red flags. Now here’s the rub.
The mega carmakers have not let the electric and hybrid market go unnoticed. Manufacturers such as Volvo, BMW and others all have green models rolling off the assembly line and mass production on the drawing board. Volvo announced plans over the summer to incorporate some form of electric propulsion into every vehicle by 2019, and plans to move upwards of 1 million electric vehicles over the next 8 years. Volvo alone will outpaces Tesla while continuing to profit in the fossil fuel market as well.
The rub? The big kids on the block will likely squeeze small timers out. Tesla could become the Victory motorcycle of electric cars: a beloved product that big boy Harley Davidson crushed.
Beware Faltering Solar Companies
Solar Energy has never really been a cost-effective homeowner sell. And, let’s face it, that’s where the pot of gold is buried for publicly-traded outfits.
Last year, the New York Times published a piece called “Renewable Energy Stumbles Toward The Future.” The article pointed out that SunEdison, “a Wall Street darling” was the shining green energy light in 2015. It racked up a war chest of almost $10 billion, and the Times likened it to a Vegas casino. In one year, the renewable windmill stopped turning and its stock fell to Earth from $32 to 34 cents. They filed bankruptcy. Similarly, the solar module outfit Solyndra enjoyed upwards of $527 in government loans just to go belly up.
The problem with the green market is that these idealistic companies have no tried and true business model. Many are moving in different directions. The other, and perhaps more significant, revenue problem is that they rise and fall with government policy. President Obama’s mantra was that he never saw an emission he couldn’t regulate. President Trump’s might just be “legalize coal.”
Under Obama, renewable subsidies reached $7.3 billion, energy efficiency kickbacks were $4.8 billion, and fossil fuel dropped to third at $3.2 billion in 2013. The change in administration, removal from the Paris Accord and the de-regulation of emissions puts real capital in fossil fuel companies such as coal and gas. The expected reductions in tax dollars funding green companies is also expected to decline sharply. Those are real dollars coming of P&L sheets.
The green climate is far too unstable to plunk down greenbacks on stocks. Even now, American solar companies have been lobbying the White House for tariffs on foreign-made panels. Suniva reportedly filed a petition with the U.S. International Trade Commission before bankruptcy.
At some point, the Green economy will produce viable stock winners that can go the long-haul. Right now, it’s high risk poker. As an investor, the best thing to do is wait for the green dust to settle.
Regards,
Ethan Warrick
Editor
Wealth Authority