A Tale of Two Climate Tech Coming-Out Parties
The U.S. climate tech stock boom is a SPAC splurge. Across the Pacific, it is the suppliers and builders’ party.
2020 was a big coming-out party for climate tech IPOs: In the U.S., 27 climate tech companies announced that they were going public.
These companies represented a wide range of climate-positive technologies: electric cars, hydrogen trucks, batteries, bioplastics, vertical farming, and the list goes on.
In a year when more than 400 IPOs took place, 27 may not seem a large number. But consider this: For years, I was able to count all the so-called climate tech startup “success stories” on one hand (Tesla… umm… who else… umm...). Today, I can’t keep track of the list of climate tech public market debuts with two hands… and a brain!
All of the 27 companies made their U.S. public market debuts through a SPAC merger. If you think about the U.S. stock exchanges as the world’s most exclusive dance party, a SPAC—or a special purpose acquisition company—is like a rich aunt with loads of fresh cash to buy you a VIP ticket through a dedicated back door entrance. This aunt allows you to skip the long lines (aka the lengthy process of a traditional IPO listing). She also has a knack for picking out the young and promiseful (aka fast-growing startups), and is willing to turn a blind eye to the fact that you may not earn enough income to pay for the cover charge through the front door.
To sum up what was really happening: The regulars of Wall Street party scenes (the institutional investors) were craving for climate tech debut performances so badly that they were handing out record numbers of back door VIP tickets.
TechCrunch wrote a great article to explain this phenomenon:
“[The] current wave [of SPACs] is because over the past 24 months the institutional investor universe has come fully into believing that climate solutions are going to be a major growth area in the 2020s and beyond, but they weren’t seeing options available to them for investing into,” wrote longtime clean technology investor, Rob Day.
In light of this boom in listings, I find myself asking: climate tech is trending all over the world, so this must not just be an American or a Wall Street thing, right?
Lo and behold, climate tech coming-out parties—as big, as loud and as wild—are also happening across the Pacific.
How big, how loud and how wild?
Let me give you a sense of the scale of the U.S. (along with some European) and the Chinese climate tech stock market scenes.
How many stocks?
By the end of 2020, EIP Climate Tech Index has listed ~35 companies that primarily focus on climate tech trading in the U.S. and European stock markets.
Shanghai and Shenzhen exchanges combined have enough companies to fill a Solar PV 100 and a New Energy Vehicle 100 Index.
China 1, USA 0.
How much market gain?
In 2020, these ~35 U.S. and European climate tech stocks recorded a 130% gain, ahead of NASDAQ at 44%. The 10 completed climate tech SPACs saw a median price growth of 80%, ahead of all SPACs at 27%.
The solar stocks on the Chinese exchanges saw a 110% gain in 2020, and the new energy vehicle stocks a 63% gain. Both are ahead of CSI 300 Index at 39%.
China 1, USA 1.
How big are these companies?
I ranked, by market cap, the top 10 publicly-traded American and top 10 publicly-traded Chinese companies in climate tech. And the result is quite telling.
The party in the U.S.A. has one massively-popular performer headlining the show: Tesla, 30x the size of the second most-valued U.S.-based climate tech company.
The party on the Chinese side is more of a medley: the microphone is passed around among the top performers in EV, batteries, renewable power, high-speed rail, and some other climate tech genres and categories.
The U.S. occupies the No. 1 spot, but China owns the 2nd through the 11th.
China 1.5, USA 1.5?
Innovative startups liven up the U.S. climate tech IPO party. In China, it’s the suppliers and builders.
There is a straightforward answer to why China has more publicly-traded climate tech companies. China makes a lot of stuff, up and down the climate tech supply chain, and supported by a massive network of developers, assemblers, and component and raw material suppliers.
So, this is what happened: For each EV maker who scored an invite to the IPO party, he showed the way for a couple of lithium producers, a dozen of cathode suppliers, and a handful of battery manufacturers. Before you know it, all his family, neighbors and townspeople have joined the party.
These “chain invitations” are happening, most noticeably in solar, EV and lithium-ion batteries, where China dominates the supply chain. As explained by South China Morning Post article:
“If foreign investors want to invest in the NEV supply chains, China’s A shares definitely should be the top choice,” [Li You] said in an interview with the Post. “And if they want to invest in photovoltaics, they will have to invest in A shares because more than 80 per cent of the supply chain is in China.”
In the U.S., a bet on climate tech is a bet on Tesla and a long tail of smaller innovative startups. In China, a bet on climate tech is a bet on the global EV and solar supply chain.
… And the biggest is yet to come.
There are two headlines for 2021 that one shouldn’t miss.
China’s largest IPO of 2021 is very likely in renewable energy.
Three Gorges Renewables Group, a state-owned solar, wind and small hydro developer, is seeking to raise 25 billion RMB (3.9 billion USD) against an estimated asset value of more than 140 billion RMB (21.7 billion USD).
The neighboring South Korea also makes a ton of batteries, and the country is likely to have its largest IPO ever in history in battery materials.
LG Energy Solutions, the lithium-ion battery sub-unit of LG Chem, is seeking 10 trillion won (10 billion USD) against an estimated enterprise value of 60-70 trillion won (60-70 billion USD).
While the SPAC party has lost some steam since earlier 2021, the suppliers and builders’ extravaganza is becoming even grander.