Renewable Energy

  • Since Russia’s invasion of Ukraine, renewable energy stocks have been one of the few rising stocks in a volatile market.
  • So far, investors haven’t flocked to electric car or battery makers, but valuations in the sector are already high and prices remain vulnerable to slowing sales as inflation rises.

The logic is simple – because oil prices are now skyrocketing, investors should start looking at companies that are involved in the renewable energy business, especially automotive electrification.

But the inconvenient reality is that electrification relies heavily on an industrial metal whose price has soared to $100,000 per T in recent days, and Russia and Ukraine are the main suppliers of nickel.

Since Russia's invasion of Ukraine, renewable energy stocks have been among the few gainers in other volatile markets, such as Vestas Wind Systems (-6.33%), which makes wind turbines, which is up 37% since hitting a 20-month low two weeks ago.

According to VandaTrack, retail investors and hedge funds are flocking to clean energy stocks, assuming that demand for renewable energy installations will rise sharply as Europe learns to move away from its dependence on Russian gas and oil.

The problem with buying this argument, however, is that many of the commodities that Renewable Energy relies on come from Russia and Ukraine, including nickel, iron and coal.

Nickel is an important ingredient in batteries, and while the recent spike in the metal's price on the London Metal Exchange was largely due to short-covering by a Chinese firm – Chinese nickel giant Aoyama now faces an $8 billion trading loss on shorted prices Nickel's rise – the metal's price is likely to remain high due to Western sanctions against Russia and Ukraine's inability to access its ports.

The London Metal Exchange is currently closed for orderly trade settlement, but when it reopens, nickel could still be expensive – even before the Russian invasion, when it was at a 10-year high.

Although Russia supplies only about 5% of the world's nickel, it accounts for as much as 17% of the production of high-quality nickel, a key component of electric vehicles because they are less likely to explode or catch fire.

Higher nickel costs will impact the results of large battery makers including LG Energy Solution (+4.02%), Panasonic (+6.98%) and contemporary Amperex Technology (+4.91%), and challenge major consumers of such batteries including Tesla (+4.19%) and Volkswagen (+10.66%). 10.66%).

So far, investors haven't flocked to electric car or battery makers, but valuations in the sector are already high and prices remain vulnerable to slowing sales as inflation rises.

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