Renewable energy stocks fall as reality bites the industry

It’s been a bad week for electric vehicles (EVs) and renewable energy stocks in general as consumer spending continues to struggle and EV competition heats up. It hasn’t helped that interest rates are rising and the economic future is uncertain, prompting investors to take risk off the table in energy fields that haven’t proven profitable.

According to data provided by S&P Global Market Intelligence, shares of Nicholas (NKLA 1.45%) is down 11.5% this week as of 1:30 PM EDT Friday, Power outlet (PLUG -3.35%) decreased by 13.2% and Li Auto (LI -1.35%) decreased by 8.3%. And the decline in stocks may not end.

The industry news is not great

Overall, the industry had a rough week. Earnings reports from general dollar and Lululemon showed consumers trading down and may slow spending levels. Consumers drive the economy, so if there’s a weakness, it could affect everything from car sales to electricity demand.

While the Federal Reserve is expected to cut rates next month, the Atlanta Fed chief said he wants to see more data before cutting rates. That sent the yield on the 10-year U.S. government bond up about 10 basis points to 3.91 percent this week, making it more expensive to finance projects.

There have also been reports that Canada will implement a 100% tariff on electric vehicle imports from China, which will shrink the market for companies like Li Auto. Trade wars are heating up in the auto industry, and that could make exports more difficult for companies that manufacture in China.

Nikola’s new CCO and the money problem

Nikola announced this week that Thomas Schmitt will take over as the company’s Chief Commercial Officer, CCO, with the goal of bringing the company’s products to market more efficiently. But there are bigger issues than making business operations work better.

The company announced last week a capital increase that will bring in an additional $80 million and the potential to grow up to a $160 million sale of convertible notes. As with most capital increases, this could be very dilutive for Nikola in the long term.

This financial reality that more money is needed to execute the company’s vision is not something the market wanted to hear this week.

A downward spiral began

The reality for these companies is that their losses are mounting and new financing will be needed to keep the business afloat. But it’s harder to raise money when your stock price falls, which is what happens with all three.

PLUG data by YCharts.

This is a downward spiral that is hard to break out of in any economic environment. And unless interest rates fall sharply and consumers demand more electric and clean energy vehicles, the market may not be as large as many of these companies hoped.

The recent bankruptcies of companies like Fisker, SunPower and Proterra have proven that the ability to finance these businesses without making money is running out. And if the financial situation doesn’t turn around quickly, the downward spiral could continue.