Is Clean Energy a Good Investment, How can you Invest in Clean Energy & Which Companies are a Good Bet. Find out all of this and more in our Clean Energy Investing Guide.
Interest in clean energy stocks is soaring because of news stories predicting an impending climate change catastrophe.
For example, predictions the world faces an increased risk from extreme drought, wildfires, floods, and food shortages by 2030. The UN Intergovernmental Panel on Climate Change forecasts global temperatures will rise to 1.5 degree Celsius, CNN reports. Therefore, temperatures will exceed preindustrial levels and change the climate.
Catastrophic Climate News is Bad for Humans but Good for Stocks
Such news is good for clean energy stocks because scientists think reducing carbon dioxide emissions is the best way to counteract Climate Change. For instance, carbon dioxide emissions will need to drop to net zero by 2050 to limit global warming.
Achieving zero emissions will require massive changes in cities, energy, buildings, transportation, and industry. The companies that manufacture the materials and machines that make zero-emissions possible will make money from it.
Internal Combustion Ban could Boost Clean Energy Stocks
The biggest boost to clean energy stocks could come from plans to ban petrol and diesel-burning vehicles.
Notably, five major countries; China, the United Kingdom, Germany, France, and India plan to ban sales of gasoline and diesel burning vehicles by 2030, or 2040. In addition, several smaller nations; including the Netherlands and Norway, are considering similar bans, Futurism reports.
However, President Donald J. Trump’s (R-New York) wants to lower emissions standards in the USA, CNN reports. Conversely, there are plans to ban internal combustion engines in America’s largest state California.
There will be a huge market for zero emission vehicles if internal combustion bans become a reality. Therefore, investors need to inspect automakers with plans for Zero Emissions vehicles.
Making Money from Zero Emissions Stocks
Builders of zero-emissions vehicles; like Tesla Motors (NASDAQ: TSLA), Volkswagen AG (OTC: VLKAY), Tata Motors (NYSE: TTM), Ford (NYSE: F) and Toyota Motors (NYSE: TMC) can profit from internal combustion bans.
For example, Volkswagen plans to invest €6 billion ($7 billion) in electric car production, CNBC reports. The company’s head of electric mobility; Thomas Ulbrich, claims; “in the first wave alone, around 10 million VW group cars will be based on this platform.”
Volkswagen plans to have 27 electric models in mass production by 2022, CNBC claims. Moreover, VW is investing in the infrastructure electric cars will require.
VW subsidiary VW America plans to build 500 charging stations for electric cars in the United States, The Verge reports. For instance, Volkswagen will build charging stations at 100 Walmart stores in 34 states.
Toyota, on the other hand, is investing in new battery technology and hydrogen-electric fuel cells. Fuel cells generate electricity with a zero-emission chemical reaction. Toyota has a Hydrogen electric fuel sedan, the Mirai and two fuel-cell powered trucks on the road.
In addition, Toyota is experimenting with solid-state batteries that could theoretically store more electricity than today’s lithium-ion batteries. Volkswagen, Honda Motors (NYSE: HWMC), and Nissan are also experimenting with solid-state batteries, Power Electronics reports.
Tesla is the world’s largest Clean Energy Company
Automakers are one of the best clean energy investments because they make and market a successful product right now. Most automakers are not a pure energy-energy investment; however, because they still manufacture diesel and petrol vehicles.
On the other hand; one controversial automaker, Tesla Motors (NASDAQ: TSLA) is a pure clean energy company. To explain, Tesla only manufactures zero-emission electric vehicles.
Subsidiary Tesla Energy is a green energy company because it manufactures solar panels and batteries. For instance, Tesla Energy markets several power systems including the Powerwall home battery system and the Solar Roof. The Tesla Solar Roof uses shingles that contain “invisible solar cells.”
Tesla Energy is a major provider of electricity storage solutions for utilities. For example, it built the world’s largest battery farm in South Australia in 2018. That makes Tesla a major player in clean energy infrastructure.
Finally, Tesla operates the world’s largest network of charging stations for electric vehicles. Tesla operates around 1,357 “Supercharger Stations” and 11,220 Superchargers, Tesla’s website claims.
Does Tesla Prove Clean Energy Companies cannot Make Money?
Unfortunately, Tesla is losing a lot of money. In detail, Tesla reported a net loss of -$717.54 million and an operating loss of -$623.39 million for 2nd Quarter 2018.
Additionally, Tesla recorded a negative “free cash flow” of -$806.80 million on 30 June 2018. Not surprisingly, Tesla pays no dividend.
Tesla is an example of what to avoid in a clean energy stock. Despite its losses, Tesla shares were trading at $252.23 on 12 October 2018.
Why are Volkswagen and Toyota are good Clean Energy Stocks?
Strangely, both Volkswagen and Toyota could be good energy clean stocks. Notably, both companies make money and are developing zero emission vehicles.
Toyota, for instance, recorded an operating cash flow of $36.825 billion and a free cash flow of $16.570 billion on 31 March 2018. Moreover, Toyota reported an operating income of $20.992 billion and a net income of $21.815 billion on the same day.
Best of all Toyota paid an annual dividend of $1.945 a share on 4 June 2018. Therefore, Toyota could be a clean energy value investment at $116.33 a share on 12 October 2018. No other dividend information is available for Toyota because it is a Japanese company. Interestingly, Toyota stock trades on the NYSE under the TM ticker.
Financial numbers for Volkswagen are harder to find because it is a German company. Volkswagen recorded a gross income of €55.34 billion and a net income of €11.35 billion in 2017.
Is Volkswagen a Clean Energy Value Investment?
Volkswagen reported an operating free cash flow of -€1.19 billion in 2017. On the other hand, Volkswagen recorded an operating free cash flow of €9.43 billion in 2017.
Volkswagen probably recorded a negative free cash flow in 2017 because of the diesel gate scandal and the electric investments. Therefore, zero emissions and other clean energy investments are costly even for the biggest and most profitable of companies.
Volkswagen is a good dividend stock because it paid a $3.96 annual dividend on 2 May 2018. Additionally, Volkswagen was cheaper than Telsa at $176.04 a share.
Why are Volkswagen and Toyota Safe Clean Energy Stocks?
Volkswagen’s experience shows that green energy investment is a costly and long-term affair. It could be years before companies see a return on it.
Companies like Toyota and Volkswagen are safer than green energy startups because they have long histories of manufacturing and marketing products. Toyota and Volkswagen have been successfully commercializing complex technologies for generations.
For example, Toyota has been manufacturing hybrid vehicles for 21 years. Toyota sold the first Prius in Japan in 1997.
Are Automakers the Best Clean Energy Stocks?
Volkswagen and Toyota are safe clean energy stocks because they are not speculative. These automakers have good basic businesses and real manufacturing and marketing capabilities.
In the final analysis, automakers like Volkswagen and Toyota will probably commercialize zero emission technologies. These companies will profit from green technologies developed elsewhere.
Notably, there are several automakers with low share prices and respectable dividends that are building zero-emission electric vehicles.
For example, Ford Motor (NYSE: F) is investing $11 billion in electric vehicle technology, The Verge reports. Particularly, Ford is planning to build 16 fully electric vehicles by 2022. The first Ford electric; a performance SUV called the Mach 1, is expected next year.
Clean Energy Stocks that Pay Dividends
Ford shares were trading at $8.64 on 13 October 2018. Yet Ford offered a 6.94% dividend yield, an annualized payout of 60¢, and a payout ratio of 43.5% on the same day.
Ford is an example of a company investing heavily in clean energy that pays dividends. Interestingly, several automakers pay dividends but are making huge clean-energy investments. Auto companies that invest in clean energy but pay dividends include:
General Motors (NYSE: GM) is planning to offer 23 electric vehicles by 2023. Importantly, General Motors was trading at $31.79 a share on October 13, 2018. Yet it offered a dividend yield of 4.78%, an annualized payout of $1.52 and a payout ratio of 25.5% on the same day.
Daimler AG (XETRA: DAI) owner of Mercedes has plans for 10 all-electric vehicles by 2018. Daimler was trading at $69.61 a share on 14 October 2018 but it offered a $3.64 dividend on 4 April 2018. If you are looking fo rthe most stable income you will want to look at dividend aristocrats.
Are Clean Energy Companies Good Investments?
Therefore, it is possible to find clean energy companies that pay dividends; as long as you expand your definition of a clean energy company. Unfortunately, most clean energy companies make little money and pay no dividend.
For example, Solar Edge Technologies Inc. (NASDAQ: SEDG); an Israel-based based maker of solar cell components recorded revenues $227.12 million on 30 June 2018. Solar Edge reported a net income of $34.57 million and an operating income of $40.67 on the same day.
Solar Edge is making little money but it is growing fast. To demonstrate Solar Edge achieved a revenue growth rate of 68.88% in 2nd Quarter 2018.
In addition, Solar Edge is generating cash from its business. Solar Edge recorded a free cash flow of $33.83 million and an operating cash flow of $43.89 million.
A Potential Value Investment in Clean Energy Technology
Solar Edge could be a Warren Buffett type value investment because it makes money and manufactures components other companies use. To explain, Solar Edge builds the parts Tesla will need to build giant solar power plants or rooftop solar arrays.
Solar Edge has some potentially valuable products. For example, Solar Edge claims to have the world’s first charge inverter for electric vehicles.
To explain, an inverter is a device that converts the direct current (DC) electricity produced by solar panels into alternating current (AC). Inverters are critical because most electronics, computers, EVs, equipment, and appliances run on AC.
The Solar Edge inverter will be easier to install because it requires no additional wiring or separate breaker. To clarify, competing inverters require additional wiring and a separate circuit breaker.
Therefore, the Solar Edge inverter is theoretically cheaper and easier to install than competing products. There could be a huge market for the inverter because of all the electric vehicles companies; like Ford, Tesla, GM, and Volkswagen, are planning to market.
Solar Edge is a potential value investment because it provides the infrastructure electric vehicles will need. Moreover, Solar Edge is unsexy and somewhat obscure so most investors will ignore it.
SolarEdge is a speculative investment because it pays no dividend. However, Solar Edge is worth looking at for long-term investors because of its price. Solar Edge shares were trading at $40.10 on 15 October 2018.
Investing in the Potential, not the Reality
Solar Edge exposes the big problem with clean energy investments. They base most clean energy stock values solely on future potentials.
Some of these companies have excellent technologies but few people use their products. In some cases, such as SolarEdge’s inverters, the market is brand new.
Obviously, nobody knows how big the market will be or how much money a company can make from it. In particular, it could take decades or longer for markets to develop for new energy technologies.
For example, Edison invented electric lights in the 1870s. Yet the electric grid did not reach many American and Canadian homes until after World War II. Moreover, vast numbers of people in developing nations still lack electricity.
The Vast Potential Market for Clean Energy
The potential market for solar power in developing nations is vast. For instance, 57.2% of the people in sub-Saharan Africa lack electricity, the World Bank estimates.
Companies like Off-Grid Electric are marketing solar electric systems to Africans. To explain, Off-Grid uses pay as you go (PAYG) plans utilizing mobile payments. PAYG enables Africans to make payments on solar electric systems via mobile phones.
The potential market for solar electric in Africa is large because the electric grid only covers the cities in many areas. Therefore, the solar electric market is in rural areas where people want modern technology but lack electricity.
Mobisol Group has even bigger plans for PAYG and solar electric. Mobisol is marketing appliances, TV sets, computers, fans, mobile phone chargers, and solar electric systems, to Africans.
Mobisol and Off-Grid are expanding the market for companies like Tesla and Solar Edge by creating more customers for solar electric systems. Unfortunately, it will take years or decades for these companies to build mass markets in Africa. For instance, Off-Grid Electric relies on door-to-door salespeople to reach potential customers.
The Speculative Nature of Clean Energy Stocks
The greatest risk in clean energy is that almost all the pure clean energy stocks on the market are speculative.
A pure clean energy stock is a company like SolarEdge or Tesla that relies only on green energy technology to generate revenue. The obvious advantage to automakers like Ford (NYSE: F) is that they have older proven energy technologies; petrol and diesel, to fall back upon.
Disturbingly, some pure clean energy companies are even more speculative than Solar Edge. For example, fuel cell maker Plug Power (NYSE: PLUG) reported a “free cash flow” of -$33.21 million and an “operating cash flow” of -$21.15 million on 30 June 2018.
In addition, Plug Power recorded revenues of $36.01 million, an operating loss of -$22.98 million and a net loss of -$25.88 million on the same day. Not surprisingly, Plug Power pays no dividend. On other hand, its stock was cheap at $1.88 a share on 15 October 2018.
Plug Power manufactures hydrogen fuel cells similar to those used in the Toyota Mirai. Plug Power’s solutions include fueling infrastructure for hydrogen-cell fuel vehicles and engines for forklifts and other warehouse vehicles.
The financial numbers prove that Plug Power is purely a speculative investment. It generates no income and offers no dividend.
Are Clean Energy Stocks Risky?
Toyota (NYSE: TM); which paid a dividend of $1.95 on 29 March 2018, is a better stock than Plug Power. In particular, Toyota is marketing hydrogen fuel cell vehicles and making money.
Stocks like Plug Power show how risky clean-energy investment is. Plug Power is successfully deploying its technology and selling to major corporations like FedEx (NYSE: FDX). However, it is still losing money on its operations.
Plug Power shows that having clean-energy technology that works is not enough. To succeed clean energy companies will have to reach mass markets and generate high revenues. Therefore, only people with a lot of extra cash should invest in pure clean energy companies.
Automakers are the Best Clean Energy Investment
On the other hand, people who need income from investments can still invest in clean energy. If you need income from investments purchase automakers because they are making money and paying dividends right now.
The automakers are the best clean energy investment right now because they generate cash and dividends. More importantly, automakers like Ford, Toyota, Daimler AG, and Volkswagen have the resources to commercialize clean energy.
For example, Ford recorded $36.476 billion in cash and short-term investments on 30 June 2018. Moreover, Toyota reported having $50.049 billion in cash and short-term investments on 31 March 2018. Volkswagen AG had $44.32 billion in the bank on 30 June 2018. Finally, Daimler AG recorded $18.408 billion in cash and equivalents on 31 December 2017.
Corporations will need vast amounts of cash to commercialize clean energy and the automakers have it. For instance, Volkswagen, Daimler, or Ford could easily acquire Plug Power or Solar Edge for cash.
Under these circumstances, automakers are the only safe clean-energy investments for average investors. Most people should stay away from clean energy stocks for the foreseeable future.