The recent US presidential election results, including a Republican victory, have raised questions about the future of renewable energy under the leadership of newly elected President Donald Trump.
Morgan Stanley’s report evaluates the economic impact on renewables under different policy scenarios and their effects on profits.
The analyst has changed his view on the clean technology industry from ‘Attractive’ to ‘In-Line’.
Also Read: Solar and Renewable Energy Stocks Crash After Trump’s Win: Should You Buy Now at Cheap Valuations?
While long-term demand for renewables is likely to be stronger than current market perceptions, short-term growth prospects have become less clear due to new uncertainties.
It is important to remember that these new uncertainties add to the already difficult environment facing the clean energy sector, addressing issues such as permitting and interconnection delays, financing challenges and intense competition that have hurt profitability.
Uncertainty surrounding the Inflation Reduction Act (IRA), rates and interest rates has had a significant impact on the valuation of clean fuels.
Morgan Stanley writes that clear guidance on the IRA is essential for recovering clean technology valuations. However, this could take some time as it will likely be related to discussions about the Tax Cuts and Job Act (TCJA), which expires at the end of 2025.
Morgan Stanley recommends investing in stocks with high-quality and sustainable growth/margins, with a clear catalyst path and/or a strong balance sheet to withstand any volatility in growth and/or profitability in the short term.
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The analyst maintains an Overweight rating GE Vernova Inc. (NYSE:GEV), First Solar Inc. (NASDAQ:FSLR), and Bloom energy Company (NYSE:BE).
However, the analyst downgraded three cleantech stocks from Equal-weight to Underweight, including:
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SolarEdge Technologies, Inc. (NASDAQ:SEDG): The analyst lowered the price target to $9 from $23, citing slower profitability due to reduced European demand and stiff competition from cheaper Chinese manufacturers. As a result, the company is not expected to reach breakeven on EBITDA until after 2026. At last check Friday, the stock was trading 13.2% lower at $11.13.
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Maxeon solar technologies (NASDAQ:MAXN): Morgan Stanley expects a slow recovery in profitability due to increasing competition in Europe’s utility-scale solar market, which is likely to continue to depress prices. The analyst maintains the price target of $4. In addition, recent customer losses in the US residential market could make maintaining market share and premium pricing more difficult. Shares are trading 10.08% lower at $10.08 at last check on Friday.
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TPI Composites, Inc. (NASDAQ:TPIC): The analyst notes that there is uncertainty about how quickly the U.S. wind market will recover, primarily due to challenges in securing financing and recent design and inspection issues as the industry shifts to larger blade sizes. Morgan Stanley has lowered its price target from $4 to $2. Shares are down 8.82% to $2.16 at last check Friday.
