If you didn’t look at the technical chart for Gevo (NASDAQ:GEVO), you might assume that this is one of the more promising names in the market. Even if you did look at the GEVO stock chart, it’s all about the framework. On a year-to-date basis, for instance, shares are up almost 70%.
Fundamentally, this makes perfect sense. Gevo specializes in biofuels for various industrial and agriculture applications, which give it tremendous relevance in the current ideological environment. According to the company’s website, “Biofuels provide energy by using carbon from plants, and reduce the need to use fossil fuels. There are several biofuel crops, including corn, beets and sugarcane.”
Moreover, the company states, “Sustainable biofuels capitalize on the fact that plants draw their carbon from the atmosphere, where it lingers in the form of greenhouse gases such as carbon dioxide. We know how to make biofuel from corn, since ethanol has been around for more than 100 years.”
Further bolstering GEVO stock is the political landscape. As you know, President Biden during the 2020 election cycle promised to get America on a path to net-zero emissions by 2050. Further, The Washington Post recently reported that the Biden administration plans to cut emissions at least in half by 2030.
On paper, it should be a huge lift for the alternative energy industry. So it begs the question, why the heck is GEVO stock down 16% over the trailing month?
In my opinion, it has to do with the underlying company being an aspirational firm. Yes, as management states, biofuels have been around in the form of ethanol for more than 100 years. But getting people to adopt the technology is another matter altogether.
With electric vehicles capturing the imagination, it’s difficult for many investors to imagine how the alternative energy will pivot productively.
GEVO Stock Faces a Number of Challenges
This is not to say that I’m picking on biofuels or that I don’t appreciate aspirational companies. But if I’m reading the latest market conditions correctly, investors want more substance and less narratives from their portfolio holdings.
As Consumer Reports demonstrates, ethanol-based fuel isn’t without its faults. For instance, the energy source provides 25% lower fuel economy than gasoline. And less than 1% of gas stations carry ethanol (E85). If you’re for alternative transportation, electric vehicles just carry more consumer conveniences than ethanol.
Now, our own Chris MacDonald noted that Gevo has been attempting to cater to the fuel-cell EV market. And because FCEVs have been getting blasted on Wall Street, GEVO stock likewise absorbed substantial volatility.
But even if the company never sank in sympathy with the FCEV sector, GEVO stock will still face pressure at some point. That’s because the underlying technology is very expensive, according to Consumer Reports. Plus, the lack of an infrastructure buildout is an issue.
True, battery EVs also have infrastructural challenges. Nevertheless, the buildout is at a much higher rate than it is with FCEV refueling stations. Plus, battery EV drivers have the option (though the process takes longer) to charge at home. That’s just out of the question for either biofuels or hydrogen (for FCEV refueling).
Also, the intense demand for personal vehicles — whether that EVs, FCEVs or good old fashioned combustion cars — may fade as the healthcare industry distributes vaccines in earnest. As you probably have witnessed, it’s not just the housing market that’s going crazy; it’s also the used-car market.
That’s part of the reason why I’m selling my old beater. I can command a ridiculous sum of money for it. But this extreme bullishness won’t last because the reason people have been buying cars — fear of Covid-19 — will not be a permanent catalyst.
Once this catalyst fades, GEVO stock might have more room to drop.
The Market Has Spoken
Presently, the sentiment for Gevo isn’t completely bearish. As I write these words, GEVO stock is sandwiched between the 50-day moving average at top and the 200 DMA at bottom. Still, with the unwinding of many speculative trades recently, I’d be very careful with this one.
As I noted earlier, investors are probably looking for more substance and less story-driven marketing pitches from their holdings. Granted, Gevo is an intriguing concept from a scientific perspective. But practically speaking, there are too many questions here.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.