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The climate investment outlook at halftime

Illustration of an earth as a Magic 8 ball with the triangle in the center reading "Reply Hazy Try Again".

Illustration: Annelise Capossela/Axios

The first six months of 2023 weren't a disaster for climate startups and investors — but they weren't great either.

State of play: Climate VC investors became much more selective as markets cooled, driving valuations up but deal numbers down through the first half of 2023.

There was a 6% dip in deal value from H1 2022 to H1 2023, to $15.5 billion invested globally, per PitchBook.

  • The number of deals fell 44%, to 291 deals globally.

Meanwhile, investors moved to earlier stages, escalating seed and Series A valuations.

The intrigue: Startups with a compelling story and strong outlook are raking in cash. Funds, too. Others are having a harder time.

Of note: M&A activity in H1 sank 7% from H1 2022, per preliminary data from Refinitiv.

What we're watching: With that setup, here's what Katie, Alan and their Axios colleagues have their eyes on for H2.

🌊 Alan: Offshore wind is supposed to remake American energy generation. Yet developers and manufacturers are getting hammered by manufacturing problems.

  • The country's first new offshore wind farm is set to come online this year. Considering quality issues, plus inflation, labor shortages and transmission delays, how soon others follow is an open question.

🏗️ Katie: The Biden administration has sparked a surge in domestic clean energy manufacturing — close to 100 new factories or expansions have been announced.

  • Now companies are putting steel in the ground — and hitting the harsh reality of competing for materials and labor, plus ongoing inflation, causing costs to soar.
  • Expect to see other growing pains like rising NIMBYism and supply chain challenges as the U.S. tries to bring clean energy manufacturing back to its shores.

🚗 Joann Muller, from What's Next: We’ve been seeing EV sales gradually increase in the United States, to about 7% of all new car sales so far this year.

  • As production grows, we’re also starting to see unsold EVs pile up on dealer lots — a sign that price and charging worries are still a barrier for many consumers.
  • We’ll be watching to see whether those bloated inventories clear out on their own, or automakers have to start slashing prices.

🌞 Andrew Freedman, from Generate: So much depends on how the administration implements specific details of the IRA and how quickly money can move out the door at DOE.

  • More broadly, with 2023 looking as if it will make a run at the warmest year on record milestone, I expect more startups and investments in the climate resilience space.

⛰️ Jael Holzman, from Pro Energy Policy: Auto companies and battery makers are racing to sign mineral supply deals to show they care about animus against China and to benefit from tax breaks in the Inflation Reduction Act.

Plus: Bottlenecks in transmission and labor aren't improving.

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