Alternative energy stocks have had a poor start to the year as the iShares Global Clean Energy ETF (ICLN) is down 15% YTD. A major component of the industry’s struggle is the poor performance of Tesla, which has been dealing with slowing sales and falling margins. Last week, the company announced that it would be restructuring and laying off 10% of its workforce. In the first quarter, the company had its first decline in vehicle deliveries, from 422,875 in last year’s Q1 to 386,810 this year.

Another is that overvalued parts of the market have moved lower as it’s increasingly clear that rates will remain elevated in the near term. Higher rates have a negative impact on auto sales and result in higher financing costs for green energy projects, leading to fewer installations. 

The larger story is that the transition to electric vehicles (EVs) and clean energy from fossil fuels and internal combustion engines is simply taking longer than expected.  EV demand growth seems to have stalled despite optimistic forecasts from many organizations that demand would steadily increase over the next decade. Meanwhile, the supply of EVs is set to meaningfully increase in the coming years. 

Finsum: Alternative energy stocks have been a laggard so far this year. Two of the major reasons are slowing demand for EVs and higher interest rates.