Green tech is a sphere of the business world where Investment dollars are traditionally thought to go to die. It’s a world in which many investors have had their poorest performance on record. At the same time, it's enticing, wanting to be part of solutions that make this world a better place - we want clean air to breathe and clean water to drink.
Fortunately, there are ways to spot winners rather than losers, and green tech, if done well, can outperform market averages.
Government Subsidies Are a Red Flag
The first observation green tech investors must take into consideration is government subsidies - politicians like to fancy themselves as part of the solution, whether they genuinely are or not. Green tech companies that are profitable without the subsidies are more stable; they have a product, there’s a demand for it, and they have distribution. Companies that only turn a profit with them could have them taken away at the drop of a political scandal or an election. People operating in the financial sector seldom have the technical prowess to determine if there’s a viable product - we have to use financial tools instead. Factoring out subsidies from profitability is essential for determining whether the company will be successful.
When Stocks Go Up, Green Tech Goes Twice as High
The second observation any savvy investor should make is to note the volatility of green tech. When the DOW does well, green tech will do twice as well. On the flip side, when the DOW performs poorly, green tech will perform twice as poorly. When investors have more disposable income, they tend to buy things like solar panels, EVs, and there are more capital expenditures in alternative energy projects like tidal energy.
Different Technologies Appeal to Different Levels of Income
The third, and the most parsing, is the nature of the economic growth in conjunction with the stage of development of green technology.
Consider cell phones. They had minimal functionality in the 1980s and were, by and large, available only to the wealthy. In the 1990s, they added text features to voice calls, which themselves were becoming more reliable, and now available at prices for the upper middle class. By the time the smartphone revolution came around in 2008, some third world nations had a market for them.
EVs developed through this same route. Initially, they were extremely expensive and underperforming. The profit margins on those early EVs were high, and this allowed for reinvestment into developing a superior product at lower costs. Becoming available a few years later to the upper middle class. Now they’re available to the middle class.
Canada requires more research and development for battery storage concerning solar panels. When Canadians in populous regions need the most amount of energy, during the winter to heat homes, there is the least amount of sunlight. During peak hours in the winter, Canadians often don’t get any sunlight at all.
In Canada, given the additional costs of battery storage, solar panelling will be profitable as long as higher-income earners have their economy growing.
In the Caribbean, it’s the reverse; they need to cool their homes in the summer, which is when they have the most amount of sunlight. Because of this, solar panelling can be cheaper than conventional energy. The success of solar panelling in the Caribbean depends on the economy writ large, rather than a smaller segment of the economy.
The thrust of all of this is to say that segmenting the economic growth by income brackets will illuminate the success or failure of various green tech companies, depending on their stage of development.
These three factors, subsidies, macroeconomic concerns for the growth of the stock market, and income segmentation, are the foundations of successful green tech investing.