The election of Donald Trump on Nov. 5 has already led to investors anticipating which stocks might win or lose over the next four years.
One immediate casualty has been clean energy stocks. With a Trump White House and a likely Republican House and Senate, investors fear a repeal of clean energy incentives put in place by the Biden administration’s Inflation Reduction Act (IRA).
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Add in concerns that Trump’s tariff and tax cut policy may stoke more inflation, and it could be a perfect storm for clean energy stocks, which were already suffering from the high-interest rate environment over the past few years.
However, the current sell-off may also present an opportunity for certain clean energy stocks. It’s time for investors to seriously look at these two high-quality industry leaders which have been thrown out with the bathwater.
Image source: Getty Images.
There are two reasons why clean energy stocks might not be as much of a risk as first thought in the new Trump administration.
First, while Republicans have taken Congress, many of the clean energy projects beginning to move forward are actually in red districts. About 75% of the IRA’s spending and job creation has gone to red states or red counties in blue states.
While that fact certainly didn’t help Vice President Kamala Harris win the election, it might keep a full repeal of those incentives at bay. In fact, 18 Republican lawmakers just sent a letter to House Speaker Mike Johnson warning against a full repeal of the IRA, given the benefits they are seeing in their districts. While Republicans are likely to see a majority in the House, the margin will likely be much smaller than 18 votes.
The second factor is Tesla CEO Elon Musk being a big Trump booster and donor. Musk is obviously a proponent of clean energy and will likely have some sway over the new administration’s handling of IRA incentives.
So while there could be some pullback around the edges of the policy, a full repeal of the IRA and its incentives appears unlikely.
Rivian(NASDAQ: RIVN), like many electric vehicle (EV) stocks, sold off after the election. Yet the stock has basically recovered those losses following a generally positive update to the company’s outlook on its recent third-quarter earnings release.
Rivian is somewhat of a start-up, so it’s still losing money. However, its high-end SUVs and the electric delivery trucks it’s making for Amazon have given the company two formidable niches where it’s currently succeeding.
Rivian’s high-end R1 SUV goes for more than $70,000, so its wealthier end customers may be less sensitive to the high interest rates or the potential rollback of EV incentives coming from a Trump administration.
Furthermore, the company just inked a high-profile deal with Volkswagen(OTC: VWAGY) in which Rivian will license its leading software and hardware technology to a joint venture and in return receive up to $5.8 billion through 2027, which will help fund the company’s 2026 launch of its R2 SUVs in the first half of 2026.
Rivian has also made progress lowering raw materials costs and capital expenditures, and actually anticipates a positive gross margin in the fourth quarter. This is due to several old supplier contracts rolling off as the new second-generation R1 platform ramps, which has a much lower cost structure.
While Rivian certainly has a ways to go in getting to overall profitability, achieving a positive gross margin is a huge improvement from the negative 40%-ish gross margin seen over the past year. Furthermore, the Volkswagen deal provides an important source of funding as uncertainties around interest rates remain.
Overall, Rivian appears to have the high-profile partnerships, funding sources, and margin improvements EV brands will need in order to survive and compete in the new environment.
Like other solar companies, Enphase(NASDAQ: ENPH) has seen its stock decimated following the election. However, the stock has been struggling ever since interest rates spiked in 2022, which severely curtailed rooftop solar demand.
Still, Enphase is a profitable industry leader. Its microinverter technology goes on each panel of a system and is a superior choice to string inverters, which only convert power from all panels all at once. The advantage of microinverters is that they increase the efficiency of the whole system, whereas string inverters are limited by the lowest-performing panel on a solar installation.
Microinverters therefore command a price premium to string inverters. That has allowed Enphase to stay profitable even in an absolutely horrific rooftop solar environment over the past couple of years. Just compare Enphase’s results to string inverter rival SolarEdge:
Enphase has taken even more proactive steps to preserve its profitability, recently laying off some 500 employees. While that is unfortunate for those employees, it does show that management is proactive in cutting costs and maintaining management’s margin targets, even though Enphase is still profitable at the moment.
Furthermore, while revenue has declined markedly year over year, revenue and operating margins have improved sequentially in each of the past two quarters, as you can see on the top left and bottom right panels.
Image source: Enphase October 2024 presentation.
So while the market is still in a big downcycle, Enphase’s results show it could be at a bottom. And with its profitability better than that of all competitors, it has the potential to outlast those who may go bankrupt, putting Enphase in a position to capitalize on the next upcycle.
With Enphase stock now down to just 18.5 times next year’s earnings estimates and the stock price back down to levels not seen since 2020, now may be a good time for contrarian investors to hone in on this solar leader.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or his clients have positions in Amazon. The Motley Fool has positions in and recommends Amazon, Enphase Energy, and Tesla. The Motley Fool recommends SolarEdge Technologies and Volkswagen Ag. The Motley Fool has a disclosure policy.
