Source: Westport Innovations 

Investors in Westport Innovations (WPRT 0.45%)a company that designs engines that can run on natural gas -- might have noticed their shares took a precipitous fall this week. That's because the company is offering up 6 million  new shares -- a 10% dilution . Below, I'll show why this move will either turn out to be a brilliant move, or one that leaves shareholders wondering what happened to their investment dollars.

Cashing in on a huge macro trend
It's no secret that over the past 10 years, the discovery of vast deposits of natural gas -- accompanied by new fracking techniques to extract the gas -- have completely redefined the global energy landscape. When used, the gas burns cleaner and costs less than conventional, petroleum-based gasoline.

As you can see, based on projections, the financial incentive is heavy for companies that use standard automobiles and trucks to convert to natural gas.

Source: EIA, via Westport SEC filings 

But there remain several roadblocks to realizing a full conversion to vehicles running on natural gas. For starters, the infrastructure of filling stations isn't anywhere near where it needs to be to see wide-scale adoption.

Westport has already announced a partnership with Clean Energy Fuels (CLNE -1.75%) -- a company building natural gas fueling stations across North America -- to deal with this problem.  Under the agreement, Westport will be able to offer substantial fuel credits to customers who go on to buy natural gas at Clean Energy's fueling stations .

There's also the simple fact that the price charts above are simply predictions -- and professional predictions have a long history of being way off the mark .

An important risk
But for Westport, a more pernicious roadblock sits in the way of its future success: It doesn't manufacture the vast majority of its engines. Instead, it develops the technology for engines to run on natural gas, and them partners with original equipment manufacturers (OEMs) to bring the products to market.

Currently, the two most significant of those partnerships are joint ventures with truck engine-maker Cummins (CMI -0.25%) and China-focused Weichai Holdings. Through the first 6 months of 2103, these joint ventures accounted for 28% and 58%, respectively , of Westport's revenue.

But what if either of these two -- or other OEMs -- were to develop their own engines that can run on natural gas? With the appropriate intellectual property, there would be absolutely no need for an OEM to go to Westport for its technology. In fact, Cummins has already announced  its intention to offer a 15-liter engine of its own design.

Enter the secondary offering
In all, Westport believes that it will be able to raise gross around $155 million from the offering. Here is how the company plans to divvy up the newfound cash.

Source: SEC filings , figures in millions, each section representing the mid-range of possible funds devoted.

It appears that the company is taking a two-pronged approach to defending itself. First, it is doubling down on developing technology for the trucking sector -- clearly where it sees the most potential for growth. But it is also devoting significant resources to designing natural gas technology for automobiles, as well as off-road and marine applications.

If I'm reading the company's filings correctly, it is the devotion of funds toward production that is the most interesting. Though not an overwhelming, the investment toward realizing some independent manufacturing capabilities shows that the company is willing to start making at least some of their own parts. Even if it does realize these capabilities, it remains to be seen if it will be enough to incentivize OEMs to go to Westport instead of going it on their own.

In the end, the move seems smart: It will deepen the intellectual property moat that the company must defend, while at least opening the manufacturing door a little.

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