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Cleantech Market Update: Q2 2025 in Review
Jul. 16, 2025 12:30PM PST
Discover how policy shifts and AI-driven energy demand reshaped cleantech investment trends in Q2, and what experts see coming for the sector as the year continues.
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The cleantech industry was once again at a crossroads in Q2, as political winds shifted.
Though the cleantech market's long-term outlook is stable, the industry faced challenges during the period as electric vehicle (EV) growth slowed in western markets and as US policy shifts fueled climate finance concerns.
At the same time, interest in energy storage, as well as the nuclear and geothermal sectors, was spurred by ever-increasing energy demand from the artificial intelligence space.
As investors reassess risk and opportunity in this evolving landscape, the second quarter served as both a reality check and a reminder that while cleantech momentum is far from linear, it hasn’t vanished.
Cleantech sector follows divergent paths
The second quarter of 2025 exposed a dichotomy between cleantech initiatives and political-economic realities.
While innovation and long-term demand remain strong across clean energy subsectors, Bloomberg New Energy Finance's (BNEF) analysis of nearly 70,000 funds reveals that global fund managers invested twice as much capital into fossil fuels as they did into low-carbon energy supply. Weakened incentives and supply chain disruptions resulting from the US trade policy have introduced friction in the deployment timeline.
EV rollouts slowed across major western markets as automakers recalibrated strategies toward hybrids and internal combustion engine (ICE) models. General Motors' (NYSE:GM) announcement that it plans to scale back EV plans due to high costs and tepid demand reflected a broader retrenchment.
Tesla (NASDAQ:TSLA) deliveries fell in Q2 compared to the same period in 2024; in contrast, China’s EV market continued to surge ahead, solidifying its lead in adoption, battery supply chains and global market share.
China’s market, led by BYD (HKEX:1211) and Xiaomi (HKEX:1810), outperformed Tesla both domestically and abroad for the quarter, with BYD doubling its net profit in the first quarter. As a newer entrant to the EV market, Xiaomi's performance in Q2 was impressive, with orders for its YU7 SUV model reaching 289,000 within the first hour of launch.
Meanwhile, the electric autonomous taxi sector saw some advancement in the second quarter, with Amazon's (NASDAQ:AMZN) autonomous vehicle company, Zoox, initiating testing of its self-driving taxi services in Los Angeles, signaling confidence in its technology. Alphabet (NASDAQ:GOOGL) subsidiary Waymo also expanded its operations to New York, further contributing to the growing adoption of autonomous ride-hailing solutions.
Despite the headwinds, certain subsectors remained resilient. An International Energy Agency report shows higher investment volumes for energy storage, especially in grid-scale deployments. Global spending on power sector storage batteries is forecast to reach US$66 billion in 2025, primarily driven by utility-scale storage.
Data compiled by BNEF analysts also indicates growth in the energy storage market, due in part to large utility-scale projects in markets outside of the US and China.
In terms of policy, the passing of the One Big Beautiful Bill Act reversed or narrowed several key provisions of the Biden-era Inflation Reduction Act, hastening the phase-out of many clean technology incentives, including tax credits for wind and solar projects. Similarly, clean vehicle and alternative fuel tax credits, as well as residential clean energy credits, were rolled back or saw their timelines significantly shortened. The Clean Hydrogen Production Tax Credit will also end for projects starting construction after 2027, and the Greenhouse Gas Reduction Fund has been terminated.
However, some clean energy incentives remained more intact.
The bill preserved the full Section 48E investment and Section 45Y production tax credits for non-wind and solar technologies, allowing projects to begin construction by 2033 with only a gradual phase-down through 2036.
This preservation provides a degree of long-term certainty for the geothermal industry.
“This framework delivers the long-term certainty our industry has pursued for years,” Dr. Bryant Jones, executive director of Geothermal Rising, told the Investing News Network.
“With stable, decade-long incentives, developers can commit capital, utilities can integrate geothermal into resource plans and American workers can apply proven skills to deliver 24/7 clean power.”
“Today’s policy milestone highlights the geothermal industry’s role in fortifying grid resilience and national security. With certainty in place, we look forward to seeing projects advance and innovative partnerships flourish,” said Vanessa Robertson, the company’s director of policy and education.
Nuclear power plant tax credits largely persisted, too, with existing nuclear projects phasing down after 2032.
Nuclear power is seen as a reliable baseload option to meet the increasingly insatiable energy demand of AI and data centers. Fusion, while still in its infancy, drew fresh capital and policy attention, according to a Washington Post report that unveiled billions of dollars of investment by leading tech enterprises.
The White House has issued executive orders to accelerate the deployment of nuclear reactors in the US.
Investor sentiment was bolstered by Constellation Energy's (NASDAQ:CEG) Q1 earnings, which exceeded expectations, sending the company's share price up nearly 6 percent on May 6. CEO Joe Dominguez's indication that the company was close to signing multiple long-term deals to provide nuclear power to meet surging energy demands foreshadowed a power purchase agreement with Meta Platforms (NASDAQ:META) that will keep the nuclear reactor in Illinois operating for the next 20 years. Shares of Constellation are up over 40 percent year-to-date.
This favorable outlook was echoed north of the border by Canada's One Canadian Economy bill, which aims to streamline nuclear project approvals, and Ontario Power Generation securing approvals to build the first GE-Hitachi SMR in a G7 nation at its Darlington site.
Cleantech forecast for 2025
Heading into the third quarter of 2025, the clean energy transition stands at a critical point.
While recent policy rollbacks and trade tensions have shifted investor priorities, targeted growth is still possible in sectors aligned with AI-driven electricity demand and infrastructure.
In the EV sector, BloombergNEF has adjusted its EV passenger vehicle sales forecast to 27 percent of the market by 2030, a notable reduction from last year’s outlook of nearly 48 percent. Bank of America's (NYSE:BAC)'s Car Wars report predicts volatility due to slow consumer adoption and high costs. Analyst Jon Murphy forecasts that automakers will continue to prioritize ICE and hybrid vehicles while seeking long-term opportunities in software and dealer services.
At the macro level, BNEF’s latest New Energy Outlook includes a baseline Economic Transition Scenario (ETS) that forecasts a 22 percent drop in global emissions by 2050, falling well short of Paris Agreement goals. While the ETS anticipates progress for technologies like EVs and renewable power, it also projects a 25 percent rise in natural gas demand and slow progress in hard-to-abate sectors like cement and steel. Global emissions may have peaked in 2024, but net-zero alignment remains elusive without new policies and investment.
While US leadership on climate finance appears to be receding, potentially paving the way for the Canadian market to take a leading role, Janet Yellen, former secretary of the treasury, told Axios that she took current treasury secretary Scott Bessent's remarks before the Institute of International Finance — during which Bessent called on the World Bank and International Monetary Fund to reallocate resources away from climate change and other social issues — as a “positive” sign that the US will continue to promote energy security, even if its referred to by a different term.
“The (tax) incentives are there,” she said at the time. “This is going to continue to be a vibrant sector.”
While those incentives have since been drastically scaled back, the electricity demand certainly isn’t going anywhere. Simply Wall St. analysts suggest that while the global clean energy transition faces significant hurdles, low market expectations, the push for energy independence and continued innovation in renewables and nuclear power still present investment opportunities for well-positioned companies.
Investor takeaway
Despite setbacks, the enduring demand for energy acts as a powerful catalyst, propelling innovation and investment in renewable energy, energy storage and sustainable resource management technologies. This constant demand inherently underpins the cleantech industry’s vital role and future growth trajectory.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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