Green Energy Highway: Low on Mojo?

Pete is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

We’ve never known Truckers to be low on the Mojo. In fact, to some extent what we saw on the mud flaps of transport trucks on family road trips as kids was a significant part of our education in manhood. But we ask, is the Green Energy Highway low on the Mojo?

Clean Energy Fuels (NASDAQ: CLNE) is the largest provider of natural gas fuel for transportation in North America. Clean Energy is building the infrastructure of “America’s Natural Gas Highway.”

<img src="/media/images/user_14271/polb_large.jpg" />

Source: Clean Energy Fuels | www.cleanenergyfuels.com

To this end Clean Energy is on course to have 150 natural gas fueling stations in place by the end of 2013 to fuel the natural gas-powered segment of the semi-trailer truck industry.

The distribution of these stations (see Figure 1) is directly parallel to the U.S. Department of Transportation’s statistics for traffic on major truck routes (see Figure 2).

<img src="/media/images/user_14271/anghgreybckd9_1_large.gif" />
Figure 1: Distribution of Clean Energy Fuels LNG Natural Gas Stations [1] 
Source: Clean Energy Fuels | www.cleanenergyfuels.com

<img src="/media/images/user_14271/truckroutes_large.jpg" />
Figure 2:  Major Truck Routes of the National Highway System [2]

Source: U.S. Department of Transportation | ops.fhwa.dot.gov

The Kings of the Road

When it comes to Mojo, the average driver in their 4-door sedan isn’t going to challenge the Alpha male superiority of the transport truck simply because of size ratios. As far as actual crushability on the road, semi’s can crush anyone else and it makes no difference what is fueling the kings of the road. The main objective for most truckers and the trucking industry is to transport goods from point of origin to point of destination at the cheapest possible cost. Natural gas is reported to save the average trucker approximately $1.50 or more per gallon compared to diesel or gasoline [3]. Saving money is a no-brainer for the Kings of the Road.

Westport Innovations (NASDAQ: WPRT) is the global leader in the development of the natural gas engine that “maximizes natural gas use while maintaining equal horsepower, torque and efficiency characteristics of a diesel-fueled engine” [4]. There is some excitement in the trucking industry about a new engine due out in early 2013, the Cummins-Westport 11.9-liter ISX12 G, which industry leaders are saying will be an engine that Cummins-Westport “will not be able to sell fast enough” [5]. A “green energy” natural gas powered trucking industry that meets environmentalist goals and increases profits for the industry is not a bunch of hot air, not to mention that these engines use liquefied natural gas.

Don’t Underestimate Canada!

Most investors who have heard of Westport Innovations also know that it is a Canadian company, but there is another Canadian factor to consider. If we look at the current statistics for the Top 10 largest cities based on population in North America you will see two of them are in Canada (Wikipedia):

Largest cities in North America:

2. New York City +8.1 million (Metro: +18 million)

3. Los Angeles +3.7 million (Metro: +12.8 million)

4. Chicago +2.6 million (Metro: +9.4 million)

5. Toronto +2.6 million (Metro: +5.5 million)

10. Montreal +1.6 million (Metro: +4.2 million)

While Clean Energy Fuels is building America’s Natural Gas Highway in the USA, just north of the U.S. Border you will find Canada’s Highway 401, which runs from Windsor located across from Detroit, MI through Toronto and links to Montreal, Quebec via Autoroute 20. HWY 401 is called the Quebec City-Windsor Corridor and the segment of the 401 that passes through Toronto is North America’s busiest highway as of 2007.

As anyone knows who has crossed the US-Canada border at Windsor-Detroit, this is a trucker border as it is the junction where Canada’s Highway 401 connects to the USA’s Interstate I-75, an interstate that takes one to Florida without a change in route or connects to I-40 in Knoxville, TN to reach the Greater Los Angeles area after a long haul.

The HWY 401/I-75/I-40 corridor could very well prove to be one of the most prosperous routes along the developing “green energy highway” as it reaches some of the largest metropolitan centers in North America. What is required for America’s Natural Gas Highway to reach the next level is a cross-border green energy route between the USA and Canada. It makes good business sense to extend the Natural Gas Highway to Toronto and Montreal.

Private Green Energy Revolution: Mojo or Cheap Cars?

We’ve looked at green energy in the transport truck industry where the statistics suggest that an investment in any of the companies mentioned here are likely to bring good returns. But it remains to be proven if the same is true of the private green energy vehicle industry. While there is a lot of buzz about Tesla Motors (NASDAQ: TSLA), when it comes to the bottom line, profitability, the numbers are not yet there (see [6] The Motley Fool: "Avoid This Auto Manufacturer").

Case study in the Electric Car: Israel’s Better Place

Israel’s Better Place (http://www.betterplace.com) is a venture-backed American-Israeli company based in Silicon Valley in Palo Alto, CA. After years of optimistic press reports and visionary leadership of a future of cars in Israel, “50% electric,” Better Place's critics have gained a momentary victory. Unenthusiastic sales of the Better Place car, the Renault Fluence Z.E., have left Israelis wondering about the company’s future. To make matters worse, last week visionary CEO Shai Agassi stepped down from his leadership of Better Place [7].

This past weekend I spent a few days in Israel’s resort town of Eilat with students and young professionals from several of the major universities in Israel. The tone of conversation when discussing the future of Israel’s Better Place and the electric car in Israel was disappointing. Those who commented were just not convinced that Better Place was engaging in anything you could call practical or attainable. Visions of an electric car network in the eyes of these young Israelis was more like what Israelis call “living in the movies,” something nice, but a fantasy and not reality. But then again, we should remember that a few weeks ago before the Israeli Press began reporting on disappointing sales at Better Place and the departure of CEO Shai Agassi, it was a different situation.

In Israel, the Renault Fluence Z.E. sells for USD $35,114 and is slightly more expensive than gasoline-powered cars of a similar size. While savings are obvious when comparing gasoline to electricity for fuel, the purchase cost for an entry into the world of electric cars is high. The average Israeli who is looking to save on monthly expenses with an electric car is probably also looking for an entry into electric that will dramatically reduce the initial purchase cost of the vehicle itself.

For a personal subjective view, I drove a gas-powered Renault Fluence around Israel for a few days from Jerusalem to Haifa in the North and back. In terms of cars, it is very low on the Mojo scale. I wasn’t impressed with its performance, appearance, nor its interior, nor sound system, granted the electric version may have more punch. In every respect it seemed “de-Mojo-fied.” In fact, I wished I had the Mazda 3 I usually drive. I don’t think the Mojo factor can be ignored if car manufacturers are serious about penetrating this segment of the car market. You must either offer a lower entry cost or performance and luxury. As far as luxury, Tesla Motors is banking on this fact.

Case study in the Economy Car: Hyundai Pony

While I hope both Tesla and Better Place succeed, I remain skeptical for the simple reason that I’m old enough to remember the Hyundai Pony of the late 1980s. I was a teenager just learning to drive and the college girl I secretly had a crush on drove an “econo-box” Hyundai Pony. She wanted to teach me how to drive a standard transmission and I definitely wanted to learn. While she was high on the Mojo scale, her Hyundai Pony wasn’t. But Hyundai succeeded in selling those Pony’s to the North American market because they were affordable. Hyundai in the 1980s makes a good analogous car manufacturer to where the industry is today for wide-scale penetration of electric cars into the consumer market.

That was Hyundai in the 1980s. In 2011, Hyundai-Kia tied for first with the Chrysler Group for largest sales gains in the auto-manufacturing market [8]. Currently, Hyundai has three vehicles in the top 20 vehicles sold as of October 2012 and YTD 2012 holds a combined 9% market share of the automotive industry. In comparison, Toyota holds 14.4% and Honda 9.8% [9]. Look at where Hyundai was in the 1980s and look where they are now; a good model for the electric car to follow.

The moral of the story is Better Place’s decision to go for the “middle-of-the-road” may be exactly why they have not succeeded in Israel. Perhaps, they should have gone for the “cheaper-car” market like Hyundai in the 1980s or high-end like Tesla, but then, Tesla is not Hyundai. Most people make the comparison between Tesla and BMW. Interestingly, back in 2011 Israeli BMW importer, Kamor Motors, reported a 13% increase in sales of BMWs from 2009 to 2010 [10]; ironic on many levels.

Unknown Future for Personal Electric Cars

The future is still unknown for personal green energy vehicles.  In contrast, “If you build it, they will come” is the mantra of the American Green Energy Highway that is being built right now by companies like Clean Energy Fuels, Chesapeake Energy Corporation, and Westport Innovations.  We hope for the best for Tesla and Better Place and electric cars in general, but until they are cheaper to purchase for consumers than brand-new gasoline-based cars, I remain skeptical for the success of the electric car in the short-term; investor beware.

Interested in Additional Analysis?

The movement toward alternative energy is gaining momentum. One potential opportunity in this field is Clean Energy Fuels, which focuses its natural gas efforts primarily on trucking and fleets. It is poised to make a big impact on an essential industry. Read all about Clean Energy Fuels in the Fool’s brand new report. Just click here to get started.


Sources: 

[1] http://www.cleanenergyfuels.com/buildingamerica.html

[2] http://ops.fhwa.dot.gov/freight/freight_analysis/nat_freight_stats/docs/08factsfigures/figure3_7.htm

[3] http://www.cleanenergyfuels.com/why/aboutng.html

[4] http://www.westport.com/is/core-technologies/hpdi

[5] http://www.truckinginfo.com/fuel-smarts/news-detail.asp?news_id=77983&news_category_id=63

[6] http://beta.fool.com/insidermonkey/2012/10/11/avoid-auto-manufacturer/14011/?source=TheMotleyFool

[7] http://www.haaretz.com/news/national/shai-agassi-steps-down-from-better-place-board.premium-1.468982

[8] http://www2.briefing.com/Marketing/includes/state-of-the-us-motor-vehicle-industry-2012.pdf

[9] http://online.wsj.com/mdc/public/page/2_3022-autosales.html

[10] http://www.globes.co.il/serveen/globes/docview.asp?did=1000629204&fid=1725


Archaeologist77 owns shares of Clean Energy Fuels and Westport Innovations. The Motley Fool owns shares of Clean Energy Fuels, Tesla Motors , and Westport Innovations. Motley Fool newsletter services recommend Clean Energy Fuels, Tesla Motors , and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus