Westport Innovations and Clean Energy Fuels Team up; Should You?

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

Clean Energy Fuels (NASDAQ: CLNE) and Westport Innovations (NASDAQ: WPRT) agreed to a deal and to join forces through a marketing campaign to help ignite the future of natural gas. On June 28 Westport Innovations agreed to buy two of Clean Energy Fuels subsidiaries, BAF Technologies and ServoTech Engineering, to enhance their powerful product and patent portfolio and tighten their ties with Ford.  Westport Innovations continues to be a buy as it strengthens its ties with the automotive world while becoming the number one choice for natural gas engines.  Westport may not be profitable at the moment but it will likely pay the patience investor huge dividends in the long run. 

With this deal Westport believes they will now have the largest product portfolio and market presence in North America as it relates to light duty natural gas vehicles. This purchase makes Westport Ford's largest partner through the Qualified Vehicle Modifier program, which offers ten different products and gives Westport presence in roughly 150 dealerships. Westport will now be able to make its mark on the California market which includes transit, cargo shuttle and taxi vehicles and other natural gas vehicles. Before Westport was only installing its Westport WING Power System on the Ford F-250 and F-550 series. 

Why invest in either Clean Energy Fuels or Westport?

We are starting to see a turn in the public and private sectors towards natural gas. Los Angeles started making the transition to natural gas with its first natural gas purchase in 1995. In 2011, Los Angeles retired its last diesel bus and is now entirely a natural gas fleet and is the largest natural gas bus fleet in the nation and it is estimated the entire fleet has logged more than one billion miles. The decision to change came down to cost and the goal to reduce emissions which is not an uncommon trend. UPS agreed to buy 700 natural gas 18-wheelers through Westport and Cummins’ (NYSE: CMI) joint venture, which will add to its 1,000 natural gas trucks worldwide.  

This joint venture lends a great learning opportunity for Westport to gain invaluable knowledge from Cummins.  Cummins is a global powerhouse serving customers in more than 190 countries. Cummins earned $1.65 billion on sales of $17.3 billion in 2012. On July 9 Cummins announced a 25% increase in their dividend. As stated by their CEO and Chairman, Tom Linebarger, "The increase in our dividend, combined with our current share repurchase program, reflects our confidence in the long-term prospects for the Company and demonstrates our commitment to increasing returns to shareholders. With today's announcement we have increased the dividend by a total of 257% over the last four years, while continuing to invest in products and our global footprint that will drive future profitable growth."   Westport will need to learn from Cummins and figure out how to become a powerhouse in their own right as they have one the most advanced natural gas engines and vehicles line which is protected by their extensive patent portfolio. 

Back in November of 2012 GE and Clean Energy Fuels agreed to expand the LNG infrastructure to allow trucks to operate off of the fuel across the US. In 2012, Clean Energy Fuels completed the first stage of installing 70 natural gas stations across the US. The goal is to implement another 70 to 80 stations along the major truck routes to ensure an easy transition from diesel to natural gas. It is also comforting knowing Clean Energy Fuels is backed by T. Boone Pickens and now with this new deal with Westport, which was financed through common stock, he is indirectly a supporter of Westport. Clean Energy Fuels is the largest provider of natural gas fuel transportation in the US and that is likely not going to change in the near future as the barrier to entry is high with the cost to implement the fueling stations.

Bottom line

It is also encouraging to see Westport enter into a marketing agreement with Clean Energy Fuels now that they are no longer competing in the natural gas engine world and focusing on what they do best. The marketing campaign will help increase the natural gas vehicle market and will enable Westport to provide fuel credits for newly purchased vehicles. Both companies will benefit with this type of collaboration.

We are only in the first few innings of this energy transformation as it is currently estimated that there is enough natural gas in the US alone to last us the next 105 years at the current consumption rate. Westport and Clean Energy Fuels are current buy opportunities for the long-term investor looking for a pure natural gas energy play for their portfolio. They both dominate their niche and have agreed to work together to enhance the long-term prospects of natural gas.  If you to want to be a part of this changing industry then I encourage you to dig a little deeper into these two companies as they are at the forefront of this transformation. 


Scott Daily owns shares of Westport Innovations. The Motley Fool recommends Clean Energy Fuels, Cummins, and Westport Innovations. The Motley Fool owns shares of Cummins 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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