Renewable energy stocks fall as reality hits industry

It was a bad week for electric vehicle (EV) and renewable energy stocks across the board, as consumer spending continues to struggle and EV competition intensifies. It didn’t help that interest rates rose and the economic future was uncertain, causing investors to pull back on risk in energy areas that haven’t proven profitable.

According to S&P Global Market Intelligence data, shares Nicholas (NASDAQ:NKLA) fell 11.5% this week as of 1:30 p.m. ET on Friday, Power plug (NASDAQ: PLUG) dropped by 13.2% and Li Car (NASDAQ:LI) fell 8.3%. And the stock’s decline may not end yet.

The news from the industry is not the best

The industry in general had a tough week. Earnings reports from Dollar General AND Lululemon showed consumers trading lower and potentially slowing their spending. Consumers drive the economy, so if there is weakness, it could affect everything from car sales to electricity demand.

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

There are also reports that Canada will impose a 100% tariff on electric vehicle imports from China, which will reduce the market for companies like Li Auto. Trade wars are heating up in the automotive industry, which could make it harder for companies that manufacture in China to export.

Nikola’s New CCO and Financial Problems

Nikola announced this week that Thomas Schmitt will take over as the company’s chief commercial officer, or CCO, with the goal of bringing the company’s products to market more efficiently. But there are bigger concerns than streamlining sales operations.

The company announced a capital raise last week that will raise an additional $80 million and the potential to raise $160 million in convertible notes. Like most capital raises, it could be very dilutive for Nikola over the long term.

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

The downward spiral has begun

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

PLUG data by YCharts.

It’s a downward spiral that’s hard to get out of in any economic environment. And if interest rates don’t drop dramatically and consumers don’t demand more electric vehicles and clean-energy vehicles, the market may not be as big as many of these companies expected.

Recent bankruptcies of companies like Fisker, SunPower, and Proterra have proven that there’s no way to fund these businesses without making money. And if finances don’t turn around soon, the downward spiral could continue.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.