What happened
Shares of companies developing cleaner ways to fuel commercial vehicles had a big day today on the back of rising oil prices, an analyst upgrade, and new regulations in California. Shares of Plug Power (PLUG -6.95%) jumped as much as 20.9%, Ballard Power Systems (BLDP -2.68%) was up 17.1% at one point, and Clean Energy Fuels (CLNE -0.87%) rose 10.9%. At the market's close, the three stocks were up 17%, 13.8%, and 9%, respectively.
So what
The first positive is that WTI oil traded up 2.8% today as investors bet that demand would rise despite a growing COVID-19 outbreak. Whether it's fuel cell companies like Plug Power and Ballard Power Systems or a natural gas company like Clean Energy Fuels, rising oil prices can often push shares higher short term.
On the analyst side, Roth Capital raised its rating of Ballard Power to buy from neutral and put a $20 price target on the stock. That bump likely helped Plug Power, which often trades with Ballard's stock.
Image source: Getty Images.
More important in the long term was news out late last week that California has passed regulations that will require trucking fleets to produce zero emissions by 2045. Starting in 2024, there will be a gradual phase-in of zero-emissions requirements through 2035. But the ultimate goal is to be emission-free by 2045.
Hydrogen fuel cells are a natural answer to the new requirement because they enable quick fueling and longer range than electric vehicles, at least given today's technology. That could provide an opportunity for Plug Power and Ballard Power Systems to expand into the trucking market.
Now what
Trucking has long been the market that fuel cell makers were hoping to enter, and California has given some more urgency to the industry's development. But it's not only cleaner fuels from Clean Energy and fuel cells from Ballard and Plug Power that are competing for this renewable energy future.
Some trucking companies are already developing electric-only vehicles as battery-energy density improves and charging times get shorter. Given the scale that batteries have already reached in the consumer vehicle market, it's possible they become the preferred technology in trucking as well.
In the meantime, it's worth noting that all three of these companies have lost money over the last five years. It's this financial result that will tell us where shares go long term.
PLUG Net Income (TTM) data by YCharts. TTM = trailing 12 months.
Until next-generation fuel companies prove they can make money, this will be a volatile and highly risky industry to invest in. After a decade of hoping that trucking would be their next big market, I worry that natural gas and fuel cells will both see batteries surpass them in market share for the Class 2 to Class 8 vehicles that California is pushing to make emission-free.
