Investors’ Green Enthusiasm Has Waned

Early in 2021 investors were clamoring to get a piece of so-called green startups that focused on making electrical vehicles, corresponding batteries, and things like eco-friendly farming. Analysts say the allure was twofold: potential for large returns while also putting investment dollars toward reducing the use of fossil fuels and fighting climate change. Over the past 12 months, some of those companies’ share prices have slipped by as much as 75%.

Market watchers attribute this to general skepticism amongst investors as well as outside factors like investigations and allegations of wrongdoing. Delivery-van maker Electric Last Mile Solutions dismissed two executives who allegedly purchased shares for below-market value. In a separate incident, Faraday Future Intelligent Electric was said to have provided “misleading” sales reservations data.

Short Sellers Move In As Issues Mount

Other EV companies such as Nikola Corp (NKLA) have been affected by fraud accusations. Founder Trevor Milton faces charges and the company paid out a $125 million fine to the SEC last year. Nikola’s struggles have also forced the company to defend its business model, as short-seller firm Hindenburg Research has been betting against it.

Both Hindenburg and fellow short-seller Blue Orca Capital have eyeing another green startup focused on electric vehicles. Standard Lithium (SLI) produces batteries for EVs, but both of the short-sellers claim its technology is unproven and doesn’t work yet. The battery maker denies these claims and says it’s looking forward to bringing the product to market with German partner Lanxess AG.

It’s Not Just EVs: Green’s Sector Wide Struggles

Some of the struggles for EVs ironically connect back to environmental concerns, as the metals needed for lithium batteries are difficult to source in eco-friendly ways. Electric vehicles are also not the only green startups that face challenges. Eco-friendly or responsible farming is another area investors were quick to target last year, but the sector has hit speed bumps.

During the rapid-growth period for green startups, indoor-farming company AppHarvest (APPH) went public. The Kentucky-based company wrote off the value of an artificial intelligence company it had acquired, sending share prices tumbling. Since AppHarvest started trading on the Nasdaq Composite in February of last year, its stock has fallen by 90%.

There’s clearly a number of factors causing a drain on green startups, and perhaps some of it’s natural after what one portfolio manager described as “complete silliness” during last year’s boom.

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