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While Tesla (TSLA -1.14%) is the leader in electric vehicles (EV), other aspects of its business also promote the use of clean energy. Its solar roof panel and energy storage segment represented about 5% of revenue in the third quarter, generating more than $1.1 billion.
Just like traditional automakers would Ford (F 0.15%) and General Motors (GM 0.94%) working to develop their electric vehicle lineups, they are also trying to expand the use of clean energy. But those companies are taking a different approach, and it gives investors another angle to play in the growing EV sector.
The new (green) steel
Car manufacturers are now looking not only to build electric cars; they also look upstream to find sustainability in what goes into making those vehicles. The average car contains about 2,000 pounds of steel, making it a huge market for the steel industry.
Steelmaking has long been thought of as a dirty, smokestack industry. But Nucor (NUE -0.37%) pioneered the electric arc furnace (EAF) method of steelmaking in the 1980s and built a hugely successful business using that technology. Steel Dynamics is another company that emerged using EAFs and was founded by former Nucor employees. Other steel companies, including U.S. Steel, is also moving into EAF production now.
That technology uses mostly recycled content for steel production. Nucor recycled more than 23 million tons in 2021, providing more than three-fourths of its production needs. But the North American leader is also working to further reduce the greenhouse gas (GHG) intensity of its operations, and it hopes to eventually produce net-zero-emission steel at scale.
A strategy it has taken has been noticed by customers, including Ford and GM. Late last year, Nucor introduced a new product it says is the world’s first net-zero-emission steel. General Motors became the first customer for what Nucor called the Econiq.
Gathering momentum
Nucor established its Econiq certification and made it available across its entire product line. The company says this “implies that the steel is produced using 100% renewable energy to offset Scope 2 emissions and that Scope 1 emissions are countered by purchasing carbon offsets.”
Scope 1 emissions include those created directly from company operations. Nucor addressed Scope 2 emissions — indirect GHG emissions associated with the purchase of energy for steel production and processing — by establishing several virtual power purchase agreements with wind and solar energy generators that serve the its facility.
Scope 3 emissions are not part of the certification because those emissions are the result of activities from assets not owned or controlled by the steelmaker. But Nucor is still committed to trying to reduce and disclose most of its Scope 3 emissions. And General Motors isn’t the only one willing to pay a premium for green steel from companies like Nucor.
Heating, ventilation, and air conditioning (HVAC) and refrigeration company Trane Technologies has also announced plans to buy Econiq from Nucor as its main supplier of low-emission steel. The company will also increase its supply of a new version of US Steel called verdeX for its US operations. Trane said the steel will go into making high-efficiency heat pumps and air conditioners for homes and thermal management systems for commercial buildings. Green steel agreements represent 20% of total annual steel purchases, according to the company.
Ford has also joined the movement. Ford has just signed a memorandum of understanding (MoU) with the India-based European subsidiary Tata Steel for its supply of net-zero carbon steel. Tata’s approach to zero-carbon steel is to replace the use of carbon with hydrogen as part of the steelmaking process. Its plant in the Netherlands is working to build that skill at scale, and Ford is at the front of the line for its use.
Another type of green
As these automakers push up the supply chain to achieve their sustainability goals, Nucor and others become viable potential investments to participate in the growth of the EV sector. It’s fair to note that the volume of these green offerings won’t have a major impact on the company’s top lines anytime soon. But there are plenty of other reasons to invest in steel leader Nucor as the renewables business grows, and it could turn investors into another type of green.
The automotive business represents only 7% of Nucor’s volume. The construction sector remains its main driver, accounting for 55% of its business. But Nucor isn’t just focused on its green steel offering. It will also be an important provider of the infrastructure needed to transition to renewable energy. In a recent presentation to investors, Nucor offered more detail on how it will participate.
Image source: Nucor.
Nucor aims to use sustainability trends to create new opportunities, expand its capabilities, and grow market share in the automotive, construction, and energy sectors. And the company is using its strong cash flow to give shareholders a bigger share of those opportunities.
In its recently reported third quarter, Nucor showed how much its stock buybacks cut into its remaining stock. As part of its goal of returning at least 40% of earnings to shareholders, Nucor has bought back 20% of its shares over the past five years.
Image source: Nucor.
Nucor also expects 2022 to be another record-profit year. Steel prices have contributed to this, but they have recently declined. Sales prices are still high, however, and Nucor has several projects coming online in the near future. That includes a new state-of-the-art plate mill in Kentucky that will open up new markets for the steelmaker, including wind turbines.
Nucor is not only leading the industry in introducing green steel. Importantly for investors, it is also a revenue leader. That gives investors some good reasons to buy the stock.
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