All things green tech are seeing the light of day as the global economy digs its way out of the pandemic slump. Valuations have been skyrocketing, with makers of electric cars and solar glass panels the stocks du jour. But there’s room for skepticism.
Dubbed the Green-Shaped Recovery, the trend is projected to draw trillions of dollars of funding for more environmentally friendly projects and industry as well as climate mitigation jobs over coming decades. A lot rides on Joe Biden’s climate change plan. Victory for the Democratic candidate could take the global tally as high as $7 trillion. Regulatory guidelines on emissions that U.S. President Donald Trump rolled back would return in more stringent form. One outcome would be to incentivize the car market toward electric vehicles, away from internal combustion engine pickups and sport-utility vehicles.
A Trump re-election would vaporize some of those extra trillions, of course, but the green stimulus pile is still an impressive $1.71 trillion and growing, according to Credit Suisse Group AG analysts. Transport and infrastructure-related areas have received over $300 billion, mostly toward electrification. Wind and solar energy capacity will increase as the European Union’s Green Deal kicks in and the world, with or without the U.S., tries to reach decarbonization goals. That could mean an average 30 percent increase in valuations for companies that stand to benefit by 2035, Goldman Sachs Group Inc. has forecast.The flood of money has powered public markets to new highs, at least before last week’s rout. The prospect of the U.S., China and Europe all united on the green front has made a compelling case for investors. They should tread with care. Technology companies and their newer peers that have any "tech” have driven stock enthusiasm in recent weeks. Doubts around whether the rally has gone too far could hit the weakest link first. Backing companies that build solar panels and power grids, enabling energy generation and transmission, is one thing. Electric car companies that don't even make cars yet are another.Consider the Chinese electric vehicle companies that went public in recent months. Five-year-old XPeng Inc., which sells itself as a smart EV manufacturer for the mid to high price segment, delivered 5,499 cars in the first six months of 2020, fewer compared to last year. Even allowing for the COVID factor, it continues to lose money. Guangzhou-based XPeng boasts full-stack autonomous driving technology, where, as Sanford C. Bernstein analysts put it, "success has so far eluded much larger rivals.” It managed to raise $1.5 billion in New York, more than hoped.