How to Make Green (Investments) in the Automotive Market

Vehicles based on green energy have few takers because of large associated costs. Yet, governments across the world are trying to push for increased usage of alternative energy sources in the automotive sector.

Given this scenario, do green energy stocks (particularly those related to the automotive sector) have the potential to become profitable investments in future? Let's see.

Why green?
There are several reasons why alternative energy companies can rule the roost in the automotive industry in the years to come. According to a report from the Intergovernmental Panel on Climate Change, 77% of the world's energy could come from renewable energy sources by 2050. In the automotive sector, consumers also appear increasingly willing to make a move toward alternative energy sources as the cost of oil increases.

Fuel cells on the rise
FuelCell Energy
(Nasdaq: FCEL  ) deserves consideration from Fools looking for long-term profits. As the name suggests, the company manufactures fuel cells, which are fast becoming a legitimate energy source of choice for a growing number of consumers in the automotive sector. In the same league is also Enova Systems (AMEX: ENA  ) , which offers fuel cell solutions for hybrid and electric cars.

Biofuels
Biofuels also figure in the list of measures taken to reduce greenhouse gas emissions from vehicles. With growing demand for fuels other than the ones from fossil sources, biofuel should pick up the pace in the automotive world. Producers of biofuel in the U.S. include BioFuel Energy (Nasdaq: BIOF  ) .

Another company that looks lucrative in the biofuel space is Codexis (Nasdaq: CDXS  ) , which makes biocatalysts that expedite the production of biofuels. This company finds even more business in the pharma sector as well. Pfizer (NYSE: PFE  ) , for example, uses its biocatalyst in the production of the blockbuster drug Lipitor. Codexis, I feel, will reap good profits in the near future because of its foray across sectors.

Batteries
In an earlier article, I discussed how electric vehicles from companies like Tesla Motors (Nasdaq: TSLA  ) are going to become the transportation of the future. In order to truly understand what drives these vehicles, take a look at the battery under their hood. A major component of this battery is built by Polypore (NYSE: PPO  ) . Its products are also used in Apple products like the iPad. It goes without saying that as the sales of electric vehicles pick up so will the margins of suppliers like Polypore.

Greener in the long run
The automotive industry is on its way to a massive overhaul of the technology it drives on. While concerns regarding greenhouse emissions hound governments across the globe, consumers are worried about rising gasoline prices. The race to find alternatives to the traditional fossil fuel technology is on hyperdrive.

The bottom line
The stocks I mentioned above have the potential to grow with the expansion and development of the alternative energy market for automobiles. In the technology sector, the crucial first mover advantage sometimes determines the winners. But it is still the long run, where the stability of these companies is really put to the acid test. These companies are the early players in a market that is still in its infancy. There is lot more ground that remains to be covered. It will take time before these stocks stabilize. As the attempt to install green, clean energy in our daily lives continues to take off, these stocks are sure to become winners. But as of now, you could start small here in order to cash in on them in the long run.

Arunava Dedoes not own shares of the companies mentioned in this article. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended Pfizer and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.


Read/Post Comments (8) | Recommend This Article (20)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2011, at 10:36 AM, Retire20150 wrote:

    ENA-Enova Systems doesn't make fuel cells. They design systems (software, chargers, inverters, etc.) that communicate and control the power system (electric motor) and fuel source (battery, fuel cell, diesel or gas hybrid). The company make solutions for EV, HEV, PHEV applications and their focused on the medium and heavy duty truck and bus market. They produce systems for Navistar (Plug-in hybrid school bus), FAW-First Auto Works (hybrid transit bus), FCCC-Freightliner Custom Chassis (electric step-van...think UPS, Fed Ex), Smith Electric Vehicles (electric delivery box truck-Newton and electric delivery van-Edison). Enova Systems is poised to have a record year for revenue, potentially $10M+ as they delivery systems for Smith Electric Vehicles as they fill out orders for 500 electric trucks courtesy of DOE grants that off set the higher cost of an electric truck versus a convential diesel. Enova has experience in fuel cells, worked with Ford on a fuel cell Focus and Hyundai on a fuel cell bus, and recently a fuel cell street sweeper in Hawaii but that is not the company's focus.

  • Report this Comment On May 19, 2011, at 12:26 PM, woolingman wrote:

    @Retire

    Okay. But the author never says Enova makes fuel cells. But loads of good information there.

  • Report this Comment On May 19, 2011, at 12:27 PM, woolingman wrote:

    The author simply says "solutions". That could mean anything.

  • Report this Comment On May 19, 2011, at 4:02 PM, Retire20150 wrote:

    Woolingman, the problem is the amount of misinformation out there, especially in alternative energy. This article states that fuel cells are..."fast becoming a legitimate energy source of choice for a growing number of consumers in the automotive sector"....really??? When was the last time you saw a fuel cell car driving in your neighborhood? Where are the facts, the evidence to back up these claims. I'm not knocking the writer for bringing some of these companies to our attention, but the lack of details make the arguments weak, and thus the picks made come with very little credibility in my opinion. Throwing Enova's name into the fuel cell category also shows a lack of knowledge or disregard for full research and due diligence. FCEL has had revenue declines of 30% in the last three years, I don't see any positive gross margins in any of the last few years, meaning it costs them more to make the product they what they sell the stuff for, which is a reason you'll see FCEL is burning around $30M a year according to the financials on Yahoo. That doesn't sound like a formula for "green" long term growth, and although I don't follow FCEL, I haven't heard of any big push or market catalyst to change they fact. Americans can barely fill up the gas tanks in their cars, let alone buy a fuel cell vehicle even if they wanted.

    I would be also be cautious of ethanol maker, like BIOF, as well. Ethanol once hailed as the solution a few years ago to reduce dependence on foreign oil, help American farmers and help the environment. But we saw what happened, farmers stopped producing corn for food and that affected feed prices and trickle to food prices. And it turns out producing all that ethanol is not all that good for the environment either. Studies show land use for ethanol prodution may actually increase CO2 as well as divert scarce water resources, and increase harmful fertilizer deposits in our rivers. So I think we are seeing our Gov't begin to step away from support of ethanol as solution.

    Anyway as investors we must always chase the facts.

  • Report this Comment On May 20, 2011, at 1:09 AM, jerryguru69 wrote:

    P'shaw.

    Anecdote #1

    When I was in high school in the early 70's, I checked out a book from the HS library about cars of the future. They were touting about how all cars within a decade, would be using fuel cells. The book's copyright date was 1958.

    Anecdote #2

    The very first 'PC' I had was a Commodore 64. They were clearly the very first, and leader of the new technology of 'home computers'. Last I checked, AD, the closing price of Commodore stock was, um, what, now?

    PS

    yes, I know: the Terminator's Hummer was powered by fuel cells using Hydrogen gas.

  • Report this Comment On May 23, 2011, at 1:25 PM, poracer wrote:

    FCEL does not make anything for autos

  • Report this Comment On May 24, 2011, at 3:37 PM, jaketen2001 wrote:

    ditto poracer

    FCEL has no auto exposure at all

    toyota and honda both have advanced fuel cell programs, and they have repeatedly claimed 2015 production--but nothing to do with FCEL

    Ballard Power does have exposure to automotive via its JV with Daimler and Ford (the AFCC), and Daimler is the most committed of all makers to fuel cell production--

    but even that connection is tenuous at best because the AFCC's contract with Ballard for fuel cell purchases expires in November, and Daimler is actually moving ahead with larger scale production (on its own) of the technology that it is entitled to from the AFCC

    --making it interesting is the fact that Daimler is actually subleasing space from Ballard, in Ballards own production facility--which would lead one to believe that there will be some kind of ongoing exposure that Ballard would have to Daimler

  • Report this Comment On August 01, 2011, at 3:21 PM, brooksagnew wrote:

    I am the President & CEO of an electric vehicle manufacturer. I can testify that the DOE told me directly, face to face, that small business has no business manufacturing electric cars. The majors are not manufacturing electric cars.

    So, without any electric cars on the road, who is going to plug into this nonsensical charging grid? The industry has lost over 40 thousand jobs due to the complete starvation tactics of the banks, insurance companies, and the DOE. We have more than 4o thousand customers who have ordered vehicles, and we cannot sell a single one to the consumer because of the federal regulations blocking electric cars.

    Even the EV industry's household names, because they are trying to sell publicly traded stock, like Tesla and Fisker, are nearly broke.

    This is a multi-billion dollar profitable market, if they would make some basic changes to the vehicle code. You can check us out and see for yourself at mynewev.com

    thanks so much

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