President Biden’s Infrastructure Investment and Jobs Act was officially signed into law this week, adding billions of dollars in fuel to the growth of America’s renewable energy economy. For some companies operating in this nascent market, that surge of funding could be just the support they need to take their products mainstream.
We asked three of our Foolish contributors to pick a stock that they think will make particular headway thanks to this infusion of renewable energy money. Their choices — all leaders in specific green energy niches — were Bloom Energy (NYSE:BE), Proterra (NASDAQ:PTRA), and ChargePoint Holdings (NYSE:CHPT). Here’s why they think these companies are well-positioned to be beneficiaries of the boom in green energy investment.
Image source: Getty Images.
Travis Hoium (Bloom Energy): Today, most energy storage is accomplished using lithium-ion batteries, but they have limitations. Large storage batteries are great solutions for a home, where you may need them to provide backup power for a few hours, or for a business so that it can keep operating even if there’s a short-term outage. However, they’re not as viable a solution for long-duration storage, like storing solar energy generated in the summer for use in winter months. That’s where hydrogen can come in.
Companies like Bloom Energy are building a hydrogen economy that consists mainly of electrolyzers — devices that turn electricity and water into hydrogen — and fuel cells, which use that hydrogen to generate electricity. Done right, this could be an entirely clean process, creating a non-carbon-emitting fuel that could be stored easily and transported for use in everything from buildings to container ships. But the industry is extremely young, so there’s a lot of risk.
The infrastructure package could help the hydrogen economy in a number of ways. The act earmarks $14 billion for resiliency programs and includes another $11 billion grant program for states, utilities, and other organizations to make resilience investments.
It also puts $3 billion worth of investment into “grid flexibility” and another $3 billion will go toward helping energy storage companies build out their manufacturing operations.
What’s clear is that the government is pushing investments in energy storage and clean energy technologies, and hydrogen is likely going to be one of the beneficiaries. It provides a valuable solution, its costs are coming down, and manufacturing facilities are being built in the U.S. So Bloom Energy could get a big boost from new government spending in the coming years.
Howard Smith (Proterra): Commercial electric vehicle (EV) technology company Proterra has already been growing its business as the electrification of transportation moves forward. But it now has a new catalyst — the federal infrastructure act, which allocates billions of dollars in funding to accelerate the country’s transition from internal combustion vehicles to electric vehicles.
Proterra, which makes electric transit vehicles, drivetrains, and battery platforms, just reported its third-quarter financial results last week, and its revenue grew 30% year over year. In addition, its battery production almost doubled and its powered battery deliveries grew by 144% due to a 58% rise in transit bus deliveries.
Image source: Proterra.
Biden’s $1 trillion Infrastructure Investment and Jobs Act includes two line items particularly aligned with Proterra’s business. The bill contains $5 billion for zero- and low-emission buses and other transit vehicles that will replace much of the nation’s school bus fleet. And another $7.5 billion is geared toward building out EV charging infrastructure in the U.S.
Unlike many other newly public EV names, Proterra is not a pre-revenue start-up with plans but no products. Its guidance calls for revenue of nearly $250 million in 2021. It has already delivered more than 750 electric transit buses, and has more than 55 megawatts of charging infrastructure installed for its fleet customers.
While there will most certainly be bumps along the way, the transition to electric vehicles in the U.S. looks like it will include much more than just consumer vehicles. Proterra is in a good position to benefit not only from vehicle sales, but also from rising demand for its battery and energy platform solutions.
The stock has jumped almost 25% in the last month, boosted by investors’ optimism about how the infrastructure act will benefit the company. Along those lines, Proterra management said in its latest financial update that the act will continue to “provide additional tailwinds to the growth outlook for each of our businesses in 2022 and beyond.” Investors who want to profit from the coming growth of the EV sector may not want to miss this bus.
Daniel Foelber (ChargePoint Holdings): Although it took Congress months to hammer out the bipartisan infrastructure act, the resulting legislation is still a big win for electric vehicle charging companies. About $7.5 billion of the roughly $1 trillion bill is earmarked toward expanding EV charging infrastructure in the U.S. ChargePoint operates one of the largest Level 2 charging networks, and it has been hard at work expanding its fast-charging capabilities. It stands to benefit from the government’s investment in infrastructure, but arguably, an even bigger catalyst will be the rapid rise of EVs.
In addition to Tesla, newer companies such as Rivian, Lucid Group, Nio, and others are hitting the scene with impressive technology. Unlike Tesla, which out of necessity built its own charging network, many of these newer players will depend on third-party charging providers like ChargePoint. In addition, most legacy automakers like Ford and General Motors are increasing their EV spending.
ChargePoint’s growth is driven by the level of demand for charging options adjacent to businesses and commercial and recreational areas. The COVID-19 pandemic stunted the company’s growth because businesses lost foot traffic, and therefore felt less of a need to attract customers with charging stations. With the economy reopening and businesses recovering, ChargePoint, too, is seeing its numbers improve. It will take time for the company to become profitable, especially as it continues to spend heavily in an effort to retain its market-leading position. However, the company’s fiscal 2022 Q2 results showed that it has turned the corner and is ready to resume the growth trajectory it was on prior to the pandemic.
Each of these companies already had strong market trends behind them. EV sales are rising, and companies and governments are investing more in hydrogen assets. But the billions of federal dollars earmarked to support their technologies could accelerate these companies along their growth paths. That’s why we think Bloom Energy, Proterra, and ChargePoint could be among the biggest winners from the Infrastructure Investment and Jobs Act.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Former chief executive officer of RBC Dominion Securities Tony Fell is campaigning to require the Canadian financial industry to account for inflation in how it reports investment returns.Neville Elder/Handout
While the average Canadian is fixated on the price of gasoline and groceries, inflation may be quietly killing their investment returns.
Compounded across many years, even modest inflation can deal a powerful blow to a standard investment portfolio. And investors commonly underappreciate the threat.
But a legend of the Canadian investment banking industry is trying to change that.
Tony Fell, the former chief executive officer of RBC Dominion Securities, is campaigning to require the Canadian financial industry to account for inflation in how it reports investment returns.
“I think they will find this very hard to argue against,” he said in an interview. “It’s a matter of transparency and reporting integrity. But that doesn’t mean it will happen.”
Mr. Fell made his case in a recent letter to the Ontario Securities Commission, arguing that Canadian investors are being misled. He has not yet received a response from the regulator.
Canadians with an investment account receive a statement at least once a year detailing how their investments have performed. For the most part, rates of return are calculated on a nominal basis, meaning they have no inflation component factored in.
A real return, on the other hand, accounts for the hit to purchasing power from rising consumer prices.
These figures, Mr. Fell argues, would give investors a clearer picture of how much they have gained from a given investment.
And since Statistics Canada calculates inflation on a monthly basis, the investment industry would already have access to the data it needs to make the switch to real returns. It would be very little trouble and no extra cost, Mr. Fell said.
Still, he said he expects the investment industry will resist his proposal. “The mutual-fund lobby is so strong, and nobody wants to rock the boat too much.”
He points to the battle to inform Canadians of the investment fees they pay. For 30 years, investor advocates have been pushing for improvements to disclosure.
One major set of regulatory changes, which took effect in 2016, required financial companies to disclose how much clients paid for financial advice.
But the reforms left out one major component of mutual-fund fees. The cost of advice is there, but many investors still don’t see how much they pay in fund-management fees, which amount to billions of dollars paid by Canadians each year.
Total cost reporting, which should finally close the fee-disclosure gap, is set to come into effect in 2026. “It’s outrageous,” Mr. Fell said. “That should have been done years ago.”
So, it’s hard to imagine the industry warmly receiving his proposal, or the regulators enthusiastically pushing for its consideration.
The OSC said it agrees that retail investors need to be attuned to the effects of inflation, which is where investment advisers come in. “Professional advice requires an assessment of risk tolerance and risk appetite in order for an adviser to know their client, including the effect of the cost of living on achieving their financial objectives,” OSC spokesman Andy McNair-West said in an e-mail.
And yet, Mr. Fell said, the need exists for more formal reporting of inflation-adjusted performance.
Inflation often goes overlooked by the industry and investors alike. It can be seen in the celebration of stock indexes at all-time nominal highs, which wouldn’t look so great if inflation were factored in.
The inflationary extremes of the 1970s provide a stark illustration. In 1979, the S&P 500 index posted a total return of 18.5 per cent – a blockbuster year until you consider that inflation was 13.3 per cent.
That took the index’s real return down to a lacklustre 5.2 per cent.
More recently, investors in Canada and the United States piled into savings instruments promising 5-per-cent nominal rates of return. But the rate of inflation in Canada averaged 6.8 per cent in 2022, more than wiping out the return on things such as guaranteed investment certificates, in most cases.
“A lot of people don’t connect those dots,” said Dan Hallett, head of research at HighView Financial Group. “Over 10 years, even 2-per-cent inflation really eats away at purchasing power.”
He worries, however, that reporting after-inflation returns may confuse average investors, many of whom still fail to understand the basic investment fees they’re paying.
All the more reason to get Canadian investors thinking more about inflation, Mr. Fell argues.
“The impact of inflation on investing is sort of forgotten about,” he said. “The only way I can think of turning that around is to highlight it in investors’ statements.”
Capital gains tax hike a sure way to repel the tech sector
Published Apr 18, 2024 • Last updated 23 minutes ago • 4 minute read
If there’s an uncomfortable economic lesson of the past few years, it’s this: The vibes matter.
As much as economists point to data, the reality in politics and policy is that public expectations and perceptions are important too. And from a business perspective, the vibes of the 2024 federal budget are rancid.
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The budget document’s title is “Fairness For Every Generation” and in practice, what that meant was a “soak the rich” tax hike on capital gains.
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You can see how this looked like good politics. In her budget speech, Finance Minister Chrystia Freeland said that only 0.13 per cent of Canadians with an average annual income of $1.4 million will pay higher taxes — hardly a sympathetic lot, at a time when many Canadians are struggling to pay for food and housing.
The problem is that the proposed capital gains tax hike won’t only soak a handful of rich Canadians as advertised. In its current design, it broadly punishes individuals and families of small business owners, tech entrepreneurs, dentists and countless others who have often spent decades trying to build their businesses for a potential once-in-a-lifetime capital gains event. Together, our analysis suggests that those people represent closer to 20 per cent of Canadians.
This tax proposal simply amounts to a systemic tapping on the brakes on the investment in a productive and prosperous future, being made by innovative, hardworking Canadians. And it does so at the very time Canada needs them to accelerate their investing.
But among the innovators and business leaders I talk to in the Canadian tech sector, this week’s budget was a chilling shock. There is a sincere and widespread belief that if something does not change, the budget will do widespread and irreparable damage to Canada’s tech sector.
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That’s why more than 1,000 CEOs have signed a public letter to Prime Minister Trudeau and Deputy Prime Minister Freeland at ProsperityForEveryGeneration.ca, calling on the government to stop this tax hike. Innovators understand what’s at stake.
Firstly, we are at a moment when capital is harder to access than at any time in the past generation. Higher interest rates and economic uncertainty mean that many high-growth companies with innovative products struggle to secure growth capital on favourable terms.
South of the border, we’re seeing strong growth, driven by significant government investment through strong industrial policy, alongside significant growth in bleeding-edge artificial intelligence applications. The U.S. is an exciting place to invest right now.
And capital is highly mobile. If Canada is seen as an unfriendly place to invest, due to high taxes, investors will simply take their money elsewhere, and propel the growth of promising tech companies in other countries.
What’s more, highly skilled talent is more mobile than ever before, and among innovative high-growth companies, stock options — subject to capital gains tax — are a key form of compensation.
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We’re not talking purely about CEOs and tech founders here either. The dedicated early players of a promising tech startup earn their stock options with sweat equity. Their dedication, taking a risk in the prime of their career, is often the key ingredient for the success of future innovation champions.
Innovators are intimately aware of these concerns, because this isn’t the first time the Liberal government has tried to tax stock options. Nearly a decade ago, they promised to hike taxes on stock options in their 2015 campaign platform, and it took years of public advocacy from tech leaders to help the government understand the potential unintended damage that a reckless tax hike could do on the ability to attract and retain talent.
All along the way, we were assured by the government that they knew what they were doing, and there was nothing to worry about. In truth, after many frank conversations, they changed course.
In the days and weeks ahead, I’m expecting to hear the same kind of thing again. Already we’ve heard from government officials pointing to the “Canadian Entrepreneurs’ Incentive” carve-out, which will soften the blow of higher capital gains tax rates overall. The details of this carve-out are not yet fully clear, and it’s possible that the government will tinker with the thresholds to help mitigate the damage of a tax hike on capital gains.
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But the reality is that without a significant change in messaging, the danger to Canada’s economy is real.
Capital gains are taxed at a different rate because they are taxes on investment. Every investment comes with risk; you are not guaranteed to make a profit. The tax code takes this into account.
If the vibes are off, and the global perception of Canada is that we’re not a place where the investment risk is worth it, because the federal government is just going to tax you to death, then we simply won’t see capital or talent flow to Canada.
Innovation and entrepreneurship are about hope. You fundamentally need to be an optimist to risk it all, and invest yourself in growing a business. Right now, Canada’s federal government is not sending a hopeful vibe. And the vibes matter.
Benjamin Bergen is president, Council of Canadian Innovators.
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‘If I try to put myself back into the shoes of me as a 21-year-old, all I can tell you is this: I was hungry,’ writes Gary Stevenson in his recently released memoir, The Trading Game, which tells the story of how the son of a Post Office worker briefly became the highest-paid trader working on Citi’s bond trading floor at London’s Canary Wharf. He sits down with host Claer Barrett to talk about what he learned about trading and how the wider economy works – and why he’s worried.
Find Gary @garyseconomics on YouTube, X, Facebook, Instagram and TikTok. Read Gary Stevenson’s recent FT Magazine profile by Miles Ellingham.
For more tips on how to organise your money, sign up to Claer’s email series ‘Sort Your Financial Life Out With Claer Barrett’ at FT.com/moneycourse.
If you would like to be a guest on a future episode of Money Clinic, email us at money@ft.com or send Claer a DM on social media — she’s @ClaerB on X, Instagram and TikTok.
Want more?
Check out Claer’s column, The hunt for good value UK stocks.
Listen to more episodes, such as Investment Masterclass: An insider’s view of the City of London, Investment masterclass: what’s one of the world’s leading investors buying?, and more.
Presented by Claer Barrett. Produced by Tamara Kormornick. Our executive producer is Manuela Saragosa. Sound design by Breen Turner, with original music from Metaphor Music. Cheryl Brumley is the FT’s global head of audio.
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