The clean tech sector is in the midst of grappling with liquidity concerns and softer-than-expected demand, setting the stage for a defensive posture in preparation for the impending Q4 earnings, according to analysis by JPMorgan.
Clean Tech Stocks Show Underperformance
Over the last year, clean tech stocks have largely underperformed the broad market. The standout exception, however, is Enovix Corp ENVX.
JPMorgan remains bullish on Enovix’s potential for substantial revenue growth, particularly in consumer electronics and the EV market. The analysts have pegged a price target of $18 for the stock, reflecting more than a 50% upside from the current levels (approximately $11.85 per share) based on cautious assumptions about manufacturing line installations.
Clear Underperformance of Clean Tech
The clean tech sector, especially in the areas of EV charging and hydrogen, has witnessed pronounced underperformance. This includes companies such as:
- EV Charging – ChargePoint Holdings Inc CHPT & EVgo Inc EVGO
- Hydrogen – Plug Power Inc PLUG
JPMorgan analyst Bill Peterson notes, “We expect Clean Tech companies to stay in defense mode broadly, with several likely to have experienced a challenging 4Q.” These sentiments have sparked controversy and skepticism among investors who have become increasingly reluctant to take long positions, opting instead to trim their holdings. Short interest across the sector has surged to over 20%, pointing to a cautious approach and aligning with the downturn sentiment surrounding the EV value chain.
Peterson anticipates that Clean Tech companies will continue to prioritize cost-saving initiatives and capex reduction throughout 2024, given the uncertain demand influenced by macroeconomic factors.
Enovix – A Potential Beacon in Clean Tech
Contrary to the broader sentiment, Enovix has been identified by Peterson as a potential standout in the clean tech landscape. JPMorgan, which rates Enovix as Overweight, points to several positive catalysts, including the completion of Factory Acceptance Testing and Site Acceptance Testing, heralding the start of high-volume manufacturing at Fab-2.
JPMorgan anticipates modest single-digit million dollar revenue for Q4 2023 from Enovix, driven by contributions from acquired Routejade and ongoing shipments to the U.S. Army. The completion of testing milestones and the strategic deferral of spending away from Fab-1 in California are seen as positive developments.
Enovix’s focus on reducing cash burn while maintaining business opportunities is underscored, with expectations for a full year of approximately $20 million in revenue in 2024.
The long-awaited transition to Fab-2 bodes well for Enovix, with JPMorgan anticipating positive outcomes, including sample production in 1H24 and high-volume production in the latter half of the year, positioning it favorably amidst the ongoing challenges faced by the clean tech sector.
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