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A Greentech Bubble?

Surging greentech stocks have led to a debate about whether we are on the cusp of a Green Revolution, or yet another asset-price bubble. In fact, both interpretations are provisionally correct, because all now depends on whether governments will step in to provide the necessary rules, infrastructure, and markets.

CAMBRIDGE – Following the tenfold growth of Tesla’s stock between March 2020 and January 2021, the company’s founder, Elon Musk, has emerged as the avatar of green innovation. The Tesla phenomenon has spilled over into the rest of the nascent electric-vehicle (EV) industry, sprinkling stardust on a host of green startups with unproven technologies and minimal revenues.

As entrepreneurs and private investors step in to do what governments have failed to do, some commentators now believe a “Green Revolution” is at hand. Others, however, look at the same picture and see the early signs of a “greentech bubble.”

The greentech (or cleantech) boom is indeed vulnerable. Like the earlier digital boom that resulted in the dot-com bubble of the late 1990s, it is heavily reliant on an outside force that could suddenly recede – namely, easy money. In today’s environment of low interest rates, the present value of future cash flows has been inflated, and thus will plummet were interest rates to rise.