The clean energy revolution is here: how to invest in electric vehicle stocks
Clean energy stocks have been gaining momentum, most notably in the transportation sector. Despite its recent slump, for example, hydrogen fuel cell manufacturer Plug Power has had an incredible run in the past year, rising from just $4 to $28. At its height, the stock price reached $73, 18x its original value. And Tesla? Don’t even get me started on the performance of that stock (although personally, I’m not a fan).
Companies focusing on clean energy will continue to gain traction under the current administration. President Joe Biden recently proposed an infrastructure plan that aims to spend $174 billion to move our country away from gas-powered cars, including allocating $7,500 credits to those who purchase electric vehicles, and an additional $100 billion on making our infrastructure more resilient to natural disasters. Biden also unveiled an executive order that will convert the entire U.S. government’s fleet to American-made electric cars.
Given the heightened focus on clean energy under the current administration, particularly within the automobile industry, you might be starting to think about how you can incorporate these types of companies into your investment portfolio.
What is meant by clean energy in the automotive industry?
In vehicle manufacturing, clean energy is anything powered by electric vehicle (EV) technology. By definition, electric vehicles are those that have some degree of electric drive. There are three basic types:
All-Electric: These vehicles are fully powered by rechargeable battery packs. There is no engine nor gas tank so they gain electricity by plugging into the electrical grid. The range of all-electric vehicles is the shortest of all EVs.
Plug-in Hybrid Electric: These are known as ‘part-time’ EV’s. They rely on both batteries and petroleum, or another alternative fuel, to power the engine. Plug-in hybrid electric cars are typically used to go farther distances than all-electric as the gas will kick in when the battery loses power.
Fuel Cell Electric: These vehicles are powered by fuel cell technology, which takes chemical energy, like hydrogen, and mixes it with oxygen to produce electricity. This technology emits only water, so the system is entirely clean – the cleanest of all EV’s in fact. Fuel cell electric vehicles don’t need to be charged, allowing them to travel the farthest distance of all EVs.
Source: Volkswagen
Which is the best type?
The answer is complicated.
Research has found that hydrogen fuel cell technology is cleaner and takes you longer distances than vehicles powered by battery technology. According to AutomotiveTechnologies, all-electric takes you 100-200 miles on a single charge compared to 300 miles for fuel cell-powered vehicles. Moreover, the Canadian Hydrogen and Fuel Cell Association found that the carbon footprint of hydrogen fuel cells is lower than that of electric vehicles - 2.7g of carbon dioxide per kilometer compared to 20.9g.
A major issue to fuel cell adoption, however, is the price tag. A recent report by BloombergNEF found that battery technology is much cheaper than fuel cell technology. This is partially due to the significant amount of energy that is lost during transportation - i.e. when hydrogen is converted to electricity. With this loss of energy, consumers need to put 2x as much fuel (or hydrogen) into the tank when they fill up.
This issue is playing out in the market today as all-electric and plug-in hybrid cars – such as those manufactured by NIO and Tesla – have taken off at a faster rate compared to vehicles powered by hydrogen fuel cell technology.
How can I invest?
Numerous businesses are focusing on electric vehicle technology in the U.S. and internationally. These companies are becoming increasingly valuable in the eyes of U.S. investors with the Biden administration’s proposal of a 10-year tax credit extension for renewables and a tax boost for carbon capture technology.
However, proceed with caution, several stocks are overvalued in this market today - most notably Tesla - so be sure you are evaluating each company carefully.
Nevertheless, if you do want to begin dabbling in the industry, here are a few companies that I believe stand out:
Linde (LIN): Based in Ireland, Linde’s stock price has increased 56% in just this past year. The company manufactures atmospheric gases like oxygen and hydrogen, with hydrogen being their biggest focus area. Today, over 160 hydrogen refueling stations are using Linde’s technology worldwide. The company also recently announced it would build the world’s first hydrogen refueling station for passenger trains in Germany.
Air Products & Chemicals, Inc. (APD): Air Products & Chemicals is a U.S.-based company whose principal business is selling gases and chemicals for industrial use. As the foremost company to invest in the hydrogen industry, Air Products & Chemicals built their first hydrogen fueling stations back in 1993. The stock has increased nearly 30% in the past year alone.
Volkswagen (VWAGY): Volkswagen, which focuses on all-electric and plug-in hybrid electric technology, has quickly gained market share in the EV industry and has even surpassed all other car manufactures, including Tesla, in its EV sales in Europe. Importantly, Volkswagen is helping to get charging stations to more parts of America, most notably by investing in a campaign called “Electrify America.” If you are looking for a value stock, alternatively, Porsche (POAHY) – which owns a 33% stake in Volkswagen - is a solid investment. The price of the stock is valued at a little over $10 a share.
Plug Power (PLUG): Plug Power is a New York-based company that was founded in 1997. It describes itself as the leading provider of clean hydrogen and zero-emission fuel cell solutions. Despite the stock price falling 60% since January due to an accounting error, I believe the future of this company is bright. They are one of the first and only pure-play stocks in the hydrogen fuel cell industry and given they are based in the US, they will surely benefit from the Biden Administrations' investment in clean energy solutions.
Another interesting transportation play in the hydrogen and electric technology space is Airbus (EADSY). The company recently unveiled concepts for a hydrogen-powered aircraft that it hopes to bring into operation by 2025.
In summary.
Investment in clean technology, particularly in the transportation industry, is gaining steam. For any investor, allocating some capital to this area is a solid way to diversify your portfolio and stay ahead of the clean energy trend.
However, as noted, be wary of stocks that have gone up in value very quickly and have high trading volume, like Tesla, as these types of companies tend to be overvalued.
Note: I own shares of Plug Power.