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Why Clean Energy Fuels Corp. Shareholders Have Something to Worry About

By Travis Hoium - Jul 27, 2017 at 8:14AM

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Natural gas was once seen as the vehicle fuel of the future, but a couple of different "next big things" are poised to steal its thunder -- and its hoped-for market share.

A few years ago, Clean Energy Fuels (CLNE 7.00%) was looked upon as the future of the trucking industry. Long-haul trucks were being built to run on natural gas, with the help of Westport Innovations' (WPRT 17.42%) technology, and it made financial sense for both long- and short-haul trucks and local buses to make the switch. As the fueling station infrastructure expanded, it would get progressively easier for vehicle operators to go with natural gas fuel, and the industry was anticipated to experience explosive growth. 

But that's not exactly what's happened. Natural gas as a vehicle fuel has hit a wall in the marketplace, and batteries are now becoming a viable power option for environmentally focused customers that Clean Energy Fuels might once have expected to land. Here's why the future may look even darker for the company and its fuel source. 

Fuel tank on empty.

Image source: Getty Images.

Electric is taking a big step forward

It's logical for bus and truck owners to consider natural gas when you compare it to their traditional diesel options. But in 2017, electric drivetrains are making a play for this market, and their business case could prove devastating to Clean Energy Fuels. 

Proterra is the most advanced competitor, already producing electric buses with ranges of up to 350 miles per charge. As the company lowers costs and proves its vehicles' lower overall cost structure, cities will recognize that it makes financial sense to buy electric rather than natural gas buses. 

The Fuso electric truck being developed by Diamler.

Image source: Fuso.

Local trucking offers a similar dynamic. Daimler has developed the Fuso eCanter e-Cell, which is expected to debut in 2019. The truck only gets 62 miles per charge, but with its short recharge time of under an hour, it's a solid choice for certain types of local needs. 

Long-haul trucking is really where Clean Energy Fuels and its natural gas offerings should have an advantage over batteries. But again, that advantage may be evaporating. Tesla (TSLA 0.78%) has discussed building an electric semi truck, and Toyota (TM -0.71%) and Nikola Motor Company are building hydrogen-fuel-cell semis. Since semi trucks spend far more hours at a stretch on the road than smaller trucks, charging times become an issue. But hydrogen fuel cells may be the answer: An electric drivetrain could be powered by rapidly dispensable hydrogen. 

Up and down the truck market, electric drivetrains seem to be gaining momentum. And if battery costs continue to come down, they'll only grow more compelling for owners. Energy drawn from the electric grid costs a fraction of what customers pay for diesel or natural gas, so as long as the upfront costs of electric or hydrogen-fueled trucks are competitive, they could kill the natural gas truck market. 

A rough position long term

You can see below that Clean Energy Fuels has cleaned up some of the debt that was dragging on it a few years ago, but revenue has stagnated, and it has been losing money for most of the last five years. Without a gain of $70.6 million from a sale of assets in the first quarter of 2017, the profit that appears below wouldn't even exist. 

CLNE Revenue (TTM) Chart

CLNE Revenue (TTM) data by YCharts

As competing technologies improve, it will get harder to increase the market share for natural gas vehicles. And without a profitable foundation to rely on, Clean Energy Fuels may be in trouble. Natural gas fuel just isn't a great source of clean transportation energy we thought it would be just a few years ago. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Clean Energy Fuels and Tesla. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Clean Energy Fuels Corp. Stock Quote
Clean Energy Fuels Corp.
CLNE
$8.10 (7.00%) $0.53
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
TM
$156.20 (-0.71%) $-1.11
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$871.27 (0.78%) $6.76
Westport Fuel Systems Inc. Stock Quote
Westport Fuel Systems Inc.
WPRT
$1.55 (17.42%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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