After soaring for several years, the equities of wind and solar power companies as well as electric cars have come under heavy pressure in recent years. Not because the issues of climate change and the energy transition are no longer relevant. It was mainly because, on the one hand, equity prices had in some cases outstripped fundamental valuations and, on the other, because high inflation and sharply rising capital market interest rates significantly reduced or even completely cancelled out the profit prospects of many renewable energy projects.

There are also new political uncertainties, such as Trump's election victory in the USA. After an initial boom, demand in the electromobilitysector is currently falling well short of original forecasts, especially in Europe. To be fair, however, this is also a result of the generally weak economy in the EU, which is also dampening demand for cars with combustion engines. In China, on the other hand, the market is booming and Chinese e-car manufacturers have become serious competitors for the European and US automotive industry within just a few years.

Interest rate trend weighs on the industry

Both companies as well as most analysts and investors assumed that business activity in the wind and solar sectors would noticeably pick up in the second half of 2024. This did happen to some extent, but one fundamental assumption of this expectation was not met: declining capital market interest rates in the USA, which would, in turn, improve financing conditions and the profitability of many solar and wind projects. Despite initial rate cuts by the US Federal Reserve, bond yields for longer maturities actually increased. While there is still a general prospect of further rate cuts in the USA, current expectations are that these will be very limited. Much more than 0.25% to 0.50% is not anticipated for 2025. Therefore, there will be little support from this side for the foreseeable future.

Politically, everyone is eagerly awaiting the extent to which Donald Trump will or can cancel and reduce subsidies and incentives for renewable energy projects. In any case, the new US government is unlikely to provide any tailwind. However, the financial markets have already priced in a number of potentially negative measures.

There is much to suggest that many companies in the energy transition sector are currently bottoming out or have already bottomed out, and that the foundations are currently being laid for the next share price upturn. This is all the more true as the wind and solar sector is now valued more favourably in many areas than the stock market as a whole, especially in the USA. There is no guarantee of this, but there is a very high probability. And despite short-term headwinds, new wind and solar power plants are constantly being built.

Growth has certainly slowed in some areas and regions. But there is no end in sight to the expansion of renewable energies.

With electricity consumption continuing to rise and the need to integrate ever larger quantities of fluctuating electricity sources (wind, solar), the electricity grids must also grow with it. We therefore continue to see particularly good earnings opportunities in this area.

Despite the current slump in electric car sales, the trend towards the electrification of motorised transport seems irreversible. In the coming quarters, German car manufacturers will also be launching numerous new electric models on the market and the expansion of the charging station network is also progressing rapidly. However, the original time horizons for a switch to e-mobility within 10 to 15 years, which came from politicians in particular, seem too ambitious and are likely to give way to more realistic timetables sooner or later.

However, with further advances in battery technology, the cost of buying and running these cars will continue to fall. If the overall costs are significantly lower than those of combustion vehicles and there is a sufficiently dense network of charging stations, the vast majority of consumers are likely to switch to electric cars.

The temporary slump in e-cars also has a positive side: it creates a window of opportunity to make the electricity grids fit for the future in good time. After all, the energy transition and power-hungry new applications (such as e-mobility, heat pumps or artificial intelligence) will require further huge investments in modernisation and capacity expansion.

The term smart energy essentially encompasses innovative technologies and business models that aim to generate, transport and utilise energy more efficiently, cleanly and intelligently. This transformation of the energy sectorwill require huge investments totalling several thousand billion euros worldwide in the coming decades. On the one hand, it promises solutions to urgent environmental and climate problems and, on the other, it harbours considerable earnings potential.

The Raiffeisen-SmartEnergy-ESG-Aktien aims to utilise this potential and at the same time combine it with responsible investing. Naturally, there are also challenges and risks that need to be taken into account when investing.