Think the climatetech SPAC scene in the US is wild? You should see what’s happening in China

2020 was a big launch party for climatetech companies: In the U.S., 27 climatetech firms announced they were going public. The revelry has continued into 2021 with still more companies joining the bash.

These companies represent a wide range of climate-positive technologies: electric cars, hydrogen trucks, batteries, bioplastics, vertical farming — the list goes on.

In a year when more than 400 initial public offerings took place in the U.S., 27 may not seem like a large number. But consider this: For years, I was able to count all the climatetech startup ​“success stories” on one hand (Tesla…umm, who else?). Today, I can’t keep track of climatetech public market debuts with two hands and a brain.

The 27 companies that made their U.S. public market debuts last year all did so through a SPAC merger. If you think about the U.S. stock exchanges as the world’s most exclusive dance party, a SPAC (which stands for special-purpose acquisition company) is like a rich aunt with loads of cash to buy you a VIP ticket through a dedicated back-door entrance. This aunt allows you to skip the long lines (i.e., the lengthy process of a traditional IPO listing). She also has a knack for picking out the young and promising (that is, fast-growing startups) and is willing to overlook the fact that you may not earn enough to pay for the cover charge being levied at the front door.

To sum up what was really happening: The regulars of Wall Street party scenes (the institutional investors) were craving climatetech debut performances so badly that they were handing out record numbers of back-door VIP tickets.

Jonathan Shieber wrote a great article for TechCrunch explaining this phenomenon at the end of last year, which includes this quote from longtime clean technology investor Rob Day:

“[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.”

So that’s the picture in the U.S.

But climatetech is trending all over the world, so this must not be just an American thing or a Wall Street thing, right? Right. Climatetech launch parties are also happening across the Pacific — and they’re at least as big, as loud and as wild.

U.S. vs. China

Let me give you a sense of the scale of the climatetech stock market scene in the U.S. (and Europe) versus the scene in China.

Number of companies: At the end of 2020, the EIP Climate Tech Index, compiled by Energy Impact Partners, listed around 35 companies that focus primarily on climatetech and are trading on the U.S. and European stock markets.

China’s Shanghai and Shenzhen stock exchanges together listed so many climatetech companies that they could have filled a Solar PV 100 and a New Energy Vehicle 100 Index had such indexes existed.

U.S. 0, China 1.

Market gain: In 2020, these 35 U.S. and European climatetech stocks recorded a 130% gain, ahead of Nasdaq’s 44% gain. The 10 completed climatetech 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, while Chinese new-energy vehicle stocks posted a 63% gain. Both are ahead of the 39% gain of the CSI 300 Index, which tracks top stocks on the Shanghai and Shenzhen exchanges.

U.S. 1, China 1.

Company size: I ranked the top 10 publicly traded American and top 10 publicly traded Chinese companies in climatetech by market capitalization, as of July 16. The results are quite telling.

The party in the U.S.A. has one massively popular performer headlining the show: Tesla, about 23 times the size of the second-most-valuable U.S.-based climatetech company.

The party on the Chinese side is more of a medley: The microphone is passed around among the top performers in EVs, batteries, renewable power, high-speed rail and other climatetech genres and categories.

The U.S. occupies the No. 1 spot, but China owns No. 2 through No. 9.

U.S. 1.5, China 1.5?

Why does China have so many climatetech companies? 

There is a straightforward answer to why China has more publicly traded climatetech companies than the U.S. China makes a lot of stuff, up and down the climatetech supply chain, and that production is supported by a massive network of developers, assemblers, and component and raw material suppliers.

This is what happened in China: Each EV maker that scored an invite to the IPO party held the door open for a couple of lithium producers, a dozen cathode suppliers, and a handful of battery manufacturers. Before you know it, her family, neighbors and fellow townspeople had all joined the party.

These ​“chain invitations” are happening where China dominates the supply chain, most noticeably in solar, EVs and lithium-ion batteries. As a money manager at a Shenzhen-based asset management firm explained to the South China Morning Post earlier this year:

“If foreign investors want to invest in the [new-energy vehicle] supply chains, [mainland China stocks] 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 [mainland China stocks] because more than 80 percent of the supply chain is in China.”

In the U.S., a bet on climatetech is a bet on Tesla and a long tail of innovative smaller startups. In China, a bet on climatetech is a bet on the global EV and solar supply chain.

Getting even bigger in 2021

Asia’s climatetech IPOs are making even more headlines this year.

A renewable energy company’s recent market debut will very likely turn out to be China’s largest IPO of 2021.

China Three Gorges Renewables Group, a state-owned solar, wind and small hydro developer, went public in May and raised RMB 22.7 billion ($3.6 billion) against an estimated asset value of more than RMB 140 billion ($21.7 billion).

Meanwhile, across the Yellow Sea, South Korea also makes a ton of batteries, and this year a South Korean company that produces battery materials is likely to have the country’s largest IPO ever.

LG Energy Solution, the lithium-ion battery subunit of LG Chem, is seeking 10 trillion won ($10 billion) against an estimated enterprise value of 60 trillion to 70 trillion won ($60 billion to $70 billion).

While the SPAC party has cooled since early 2021, the suppliers’ and builders’ extravaganza is becoming even grander.

A previous version of this article was published at Celsius Rising. Author Hara Wang works for Third Derivative, a subsidiary of RMI. Canary Media is an editorially independent subsidiary of RMI.