Natural Gas: The Other Automotive Innovation
Oct 23rd 2012 9:27PM
Updated Oct 23rd 2012 9:34PM
If you're someone who drives around your neighborhood to save 5 cents a gallon on gas, then $1.50 less per gallon must sound like a dream come true. Today, that's what a natural gas gallon equivalent sells for -- and consumers get more options every day to get a piece of the natural gas pie.
What do I have to do to get you into this natural gas vehicle?
Until recently, the market for natural gas vehicles was limited to fleet vehicles such as long-haul trucks, delivery vehicles, waste-disposal trucks, public transit vehicles, and fleet cars. Today, natural gas vehicles make up 40% of all purchases for fleet vehicles in the United States . Natural gas was used on fleets because they had their own filling stations and could easily equip their filling stations with natural gas.
The times are a changin', though. Last week, Chrysler Group announced that it's offering a natural gas option for its Ram line of pickup trucks . Orders for RAM HD vehicles from dealerships came in around September, so these trucks are just now hitting the showroom floor.
Chrysler joins Honda (NYS: HMC) as the only companies currently selling natural gas vehicles in retail showrooms . Ford (NYS: F) is close on their heels with the introduction of its F-series trucks with a natural gas option. General Motors (NYS: GM) will also be rolling out its own natural gas version of the Chevrolet Silverado truck.
Aside from Honda's natural gas Civic sedan, the natural gas vehicles available to individual consumers are light- and heavy-duty pickup trucks. This is mostly due to so much research already put in for heavier-duty engines. The joint venture of Cummins (NYS: CMI) and Westport Innovations (NAS: WPRT) has developed a strong line of natural gas engines for heavy duty purposes such as long-haul trucking and waste-disposal vehicles. The torque and horsepower demands for these types of vehicles are much closer to pickup trucks than to cars, so the transition to the truck market is much easier. This is why companies like Ford use Westport/Cummins technology in their own vehicles .
Fill 'er up ... if you can find a station
The transition to natural gas for everyday consumers will be difficult. Despite the vehicle choices available, the 1,000 natural gas filling stations around the country simply don't compare with 160,000 plus gas stations.
There are a handful of companies looking to fix this. General Electric (NYS: GE) and Chesapeake Energy (NYS: CHK) just announced their joint project known as "CNG in a box" -- an all-inclusive natural gas pumping station for existing gas stations. This development bodes well for consumers, but it could be a big headache for Clean Energy Fuels (NAS: CLNE) , the current market leader in developing a natural gas infrastructure. Clean Energy Fuels may have a lead for now with its current filling stations and its fast-paced buildout of new locations, but "CNG in a box" could have a big impact in natural gas infrastructure in the upcoming year or so.
What this means for the Investor
The natural gas vehicle and the fueling station have a symbiotic relationship. The more natural gas vehicles available to the public, the more people will need fueling stations. Likewise, the increased presence of fueling stations will make natural gas vehicles a more viable option for consumers. With so many people concerned with process at the pump, this could make natural gas stocks soar. Downstream options in the space like Westport and Clean Energy, which suffer less from high exploration costs and low natural gas prices, give investors the best chance to profit.
Westport has the advantage of having patent protection on the leading technology in natural gas engines. This position has attracted big-time partners such as Cummins and Ford, which give the company strong outlets for its designs. Westport is still young and is not yet profitable, but its sales are strong and analysts are expecting 30% growth over the next five years. No profits means no price to earnings right now, but its price-to-sales ratio of 4.5 is at its lowest since early 2010.
Clean Energy Fuels had the foresight to start building out a national fueling station network before anyone else, which could mean good things in the future. The "CNG in a box" does look like a good product, but it's hard to see that idea making a big difference on the bottom line for megaconglomerate GE, or making up for all of Chesapeake management's other bad decisions.
This is why I think Clean Energy Fuels will still be the better pick for those who want to get in on natural gas infrastructure. The Motley Fool has put together a premium report exploring Clean Energy Fuels' business and the opportunities and risks it faces. To see this report, click here.
The article Natural Gas: The Other Automotive Innovation originally appeared on Fool.com.Fool contributor Tyler Crowe owns shares of Westport Innovations.You can follow Tyler's CAPS picks at the handle TMFDirtyBird. You can also follow him on Google + or on Twitter, @TylerCroweFool.
The Motley Fool owns shares of Clean Energy Fuels, Cummins, Ford, General Electric, and Westport Innovations and has options on Chesapeake Energy. Motley Fool newsletter services recommend Clean Energy Fuels, Cummins, Ford, General Motors, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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