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Why EV and Renewable Energy Stocks Collapsed This Week

The electric vehicle (EV) and renewable energy market took a nosedive this week and it seemed everyone was affected. Part of the drop was due to Tesla's (NASDAQ: TSLA) layoffs announced earlier this week, but part was because investors think the market is overvalued if interest rates are going to stay elevated for the foreseeable future.

According to data provided by S&P Global Market Intelligence, Polestar Automotive's (NASDAQ: PSNY) shares dropped 10.3% from Friday's close to 1:45 p.m. ET today, ChargePoint (NYSE: CHPT) was down 13.7%, and Array Technologies (NASDAQ: ARRY) fell 13.3%. They're from slightly different industries, but they're all impacted by the same news this week.

Tesla's layoffs

Let's start with the biggest news of the week: Tesla's layoffs. The company announced about 10% of workers would be let go in a major restructuring. Management said this would make the company more efficient, but the reality is that demand for vehicles is dropping. Tesla delivered 386,810 vehicles in the first quarter of 2024, down from 422,875 a year ago.

If Tesla's demand is falling, it's likely Polestar is seeing the same effect and of course, that will ultimately lead to fewer chargers being installed, which is bad for ChargePoint. But that's not the only bad news this week.

Interest rates and renewable energy

Whether you're buying a car or building a solar project, interest rates are really important and this week rates moved another step higher. Investors are no longer expecting five or six rate cuts by the Federal Reserve this year and there's speculation rates may not move at all.

10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

Higher interest rates can have a negative impact on the entire economy, but they're especially crucial for EV sales and renewable energy projects.

Vehicles are often financed with loans or leases and higher rates make these purchases more expensive. And buyers are often spending based on the monthly payment they can make, not the purchase price of the vehicle.

Automakers can respond by lowering the price of vehicles, which some companies have done, or by offering financing incentives. Both eat away at margins at a time when margins are falling and most companies in the space aren't even profitable.

For Array Technologies, the impact is the same even if the industry is a little different. Solar projects are financed for 20 to 30 years and higher rates make those projects less valuable, which will likely hurt both demand and pricing.

2024 isn't playing out well for EVs and renewables

These challenges aren't new, but they're impacting the renewable and EV industries all at once in 2024. And they don't seem to be stopping anytime soon.

EVs seem to have hit a demand ceiling just as supply is starting to explode and that's not great for the future profits of the industry. And renewables may have a future, but they keep taking blow after blow from higher rates.

Earnings season will tell a lot, but don't expect it to be positive given the headwinds that everyone in the energy and auto space is experiencing.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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