Why clean energy stocks fell this week

Earnings season has been dismal for clean energy companies.

The week couldn’t have been much worse for clean energy companies that once hoped to disrupt the energy industry. As interest rates rise and the market looks for profitable companies, there aren’t many of them in the clean energy industry.

According to data from S&P Global Market Intelligence, shares of approx Nikola company (NKL -7.43%) dropped by as much as 16.7% this week, Fuel cell energy (FCEL -4.94%) decreased by 21.1%, a Sunnova Energy (NEW -5.20%) decreased by 11.9%. At 12:00 PM EST on Friday, each stock hits its lowest level for the week.

The earnings do their job

Investors need to see some progress towards profitability, and that’s not happening in the industry right now.

Nikola said revenue fell from $10.7 million a year ago to $7.5 million in the latest quarter and operating losses increased from $127.2 million to $145.4 million. There is simply no end in sight to these losses, and as shares decline, the company may eventually run out of financing options.

FuelCell Energy also dropped, but this was more a reaction to sympathy for the rest of the industry. It is worth noting that the project with Toyotas announced earlier this month did not result in a real rebound in shares, indicating that investors are concerned that there is no operational momentum on the horizon.

Sunnova has announced results and like most of the industry, it is struggling with both demand and margins. Revenue fell $0.8 million to $160.9 million and operating loss nearly doubled to $84.2 million.

The market is squeezing energy companies

The challenge for each of these companies is the financial environment they face. Higher interest rates mean equity investors are not taking on as much risk as they did a few years ago, and project developers are demanding higher returns on their investments.

Nikola has never achieved the scale necessary to operate a sustainable business over the long term, and it appears its time is running out. FuelCell Energy faces similar challenges, and with just $348.8 million on its balance sheet last quarter and its decline, it’s a matter of time before the company needs an alternative.

Free NKLA cash flow chart

NKLA free cash flow data according to YCharts.

The challenge for Sunnova continues as the economics of the rooftop solar industry have been disrupted by net metering changes in California and higher interest rates, making it harder to make money.

Financing costs are rising, which will make it harder for all these companies to make money. This is the main problem of the industry today.

Is there hope for clean energy supplies?

Businesses that need ongoing financing may find it difficult to make money in an environment of rising interest rates. And if they are unprofitable with low interest rates, the problem is even more serious. I think that’s what we’re seeing with Nikola and FuelCell, and the market is running out of patience.

Sunnova’s business may recover, but it’s unclear how profitable the new projects will be and whether rates for solar projects will decline in the future. Shareholders are therefore selling all shares of photovoltaic companies. Unfortunately, this is a trend that will continue in the market for the foreseeable future.

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