We Survived!

The year concluded with a broad market rally, favouring growth and environmentally focused stocks, spurred by the potential outcomes of COP28 and a projected 75 basis points cut in US Federal Reserve rates in 2024. The recent Fed meeting maintained unchanged rates but signalled potential cuts in 2024 due to decreasing inflation. The "dot plot" suggests at least three rate cuts this year, signalling a more dovish stance. The shift in the Fed's tone since November led to an equity rally, impacting interest rate-sensitive sectors. MegaTech's year-end highlight is Apple reaching a historic $3 trillion market cap, but concerns about sustainability linger due to high valuations and doubts about further expansion without new AI markets. Analysts predict key US figures for 2024, including 2% inflation, 2% growth, and 4% unemployment.

In our December 2023 newsletter , we reflect on the Decarbonization, Market Trends, and Optimism for 2024.

DECARBONIZATION DEVELOPMENTS IN DECEMBER

• US EV sales do NOT disappoint: Contrary to media narratives, US electric vehicle (EV) sales showed strong 2023 growth, surpassing one million units by November, a 51% YoY increase. This elevated the EV market share to nearly 8% of all new units sold. Despite trailing the EU and China in EV representation, potential US interest rate reductions and the Inflation Reduction Act's federal rebate, providing a $7,500 discount for qualifying vehicles from January 1st, are expected to boost further EV adoption in America.
• BYD overtakes Tesla: In Q4 2023, Chinese BYD surpassed Tesla as the top seller of pure electric vehicles (EVs), selling a record 526,000 units compared to Tesla's 484,500. For the year, Tesla still led with 1.8 million battery electric vehicle (BEV) sales, while BYD achieved 1.6 million BEV sales and over 3 million "New Energy Vehicles," including BEVs and plug-in hybrids. The EV market competition has intensified, with profitable companies like Tesla and BYD leading in market share. Profitable but not yet breakeven firms, such as Rivian, receive investor confidence, while those struggling in sales, like Chinese NIO, face a lack of investor confidence.
• BNEF releases its EV forecast for 2024: Bloomberg NEF forecasts robust global EV adoption in 2024. Their research predicts the sale of 16.7 million passenger EVs and one million new commercial vehicles, amounting to 20% of all new car sales and a global EV inventory of 57 million by the year-end (4% of the global fleet). China is anticipated to contribute 60% to total EV sales, with a significant increase in new EV charging connectors, reaching a record 1.6 million additions in 2024, surpassing the 1.2 million added in 2023.
• IEA projects a 2.5-fold increase in renewable capacity by 2030: The International Energy Agency (IEA) revealed that renewable energy capacity surged by around 50% in 2023, reaching 510 GW, with solar accounting for three-quarters of the global additions, primarily led by China. Looking ahead, the IEA projects a threefold increase to 7,300 GW of global renewable capacity by 2028 and 11,000 GW by 2030, contingent on government support. Nearly 120 countries at COP28 committed to accelerating permitting and grid connection processes, crucial for large-scale renewable development. Achieving the 2030 target is expected to be faster, taking eight years compared to the previous tripling that took 12 years from 2010 to 2022.

COP28 DOES NOT DISAPPOINT

On December 13th, two pivotal events unfolded, boosting optimism for green shares. COP28 in Dubai witnessed a historic agreement, coinciding with the US Fed signalling a likely decrease in interest rates for 2024. This dual development marked the end of the challenging period for decarbonization companies leading the energy transition, signalling a positive turn for the sector.

• All in one preposition: Following a one-day delay, the final text explicitly addressing a transition away from fossil fuels of the COP28 summit was approved, a historic first for the Conferences of the Parties. The agreement reflects a clear and definitive commitment to moving away from coal, natural gas, and oil, with nearly every country
• Renewable is the clear winner and undisputable solution: At the conference's outset, 118 countries pledged to expedite renewable investments, aiming to triple renewable energy capacity by 2030, reaching at least 11,000 GW. Additionally, the US joined 56 countries in committing to phase out coal-fired power plants.
• Methane is the important short-term issue and again fossil fuel presence and leadership was the catalyst for the agreement: Another achievement of the UAE-hosted COP was the alliance of 50 major oil and gas producers pledging to reduce methane emissions, which are particularly harmful during fossil fuel production. They committed to an 80% to 90% reduction in methane emissions by the end of the decade. This initiative, if successful, could significantly enhance the likelihood of halving global emissions by 2030.

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THE SURVIVAL OF THE FITTEST

As the energy transition progresses, it is evident which technologies are likely to succeed. Fuel cell and electrolyser technologies, vital for a green hydrogen economy, faced significant challenges and scepticism from investors, as seen in the poor performance of the CLMA segment this year. Notably, larger-cap company Plug Power reflects the sector's difficulties. The once widely supported green growth names are now scrutinized, and companies like Proterra, AppHarvest, and Tattooed Chef, which were part of the CLMA index, filed for Chapter 11 bankruptcy. Other removed constituents faced struggles, emphasizing the shift in investor support. The Fed's tightening cycle in 2023 mandates that pre-profitability companies demonstrate a clear path to profitability, fostering resilience and efficiency. The most robust companies will be better positioned to capitalize on the significant growth potential of proven decarbonization solutions.

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THE 3X ON RENEWABLES GOES FROM BEING ASPIRATIONAL TO BEING A TARGET

Contrary to the share performance of decarbonizing solution companies, the adoption of key solutions like EVs, clean energy storage, and solar panels was already progressing. The US sold over 1 million EVs in the first eleven months of the year, and clean energy storage is flourishing in the US and Australia. In 2023, more than 1 GW of solar was added daily, with a significant portion on rooftops, showcasing the appeal of distributed solar. In Europe, 70% of new solar additions were rooftop installations at the point of consumption. While these solutions are compelling, their adoption is influenced by interest rates. Fortunately, on December 13th, there was an indication that the momentum behind these solutions is set to intensify.

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iCLIMA STRATEGIES PERFORMANCE IN 2023

In just a month's time, there was a remarkable shift from an 11.9% decline in CLMA in October to a 10.6% and 10.01% surge in November and December, respectively, ending the year with a 4% gain. The late-year market rally was fuelled by the two-year US treasury yield dropping below 5%, reaching 4.83% in November, with analysts interpreting Powell's remarks at the November 1st FOMC meeting as dovish. The iClima Global Decarbonization Enablers Index may see positive effects in 2024, particularly with the potential for lower interest rates. The year 2024, characterized by 2% inflation, zero recessions, 2% US GDP growth, and 4% US unemployment, could favour growth cyclical names and a broad green rally.

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FROM HAWKISH TO DOVISH IN 12 CHAPTERS

From Greta’s arrest to Biden’s veto, the rise of the Magnificent Seven and the fall & rise of solar, to Tesla’s charging triumph and a historic walk in the park, we have tried our best to cover 2023 through our monthly doses of Climate Solutions. Please on the link here to read our previous editions.

Read our December 2023 Edition.

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