What happened

Clean Energy Fuels (NASDAQ:CLNE) fell 19.9% in April according to S&P Global Market Intelligence. The stock was already slipping early in the month, but fell sharply after the company announced a deal to supply Amazon (NASDAQ:AMZN) with low- and negative-carbon renewable natural gas (RNG). That drop came after the news initially propelled shares as much as 25% higher.

A big rig at one of the company's natural gas fueling stations.

Image source: Clean Energy Fuels.

So what

Clean Energy operates more than 550 stations providing liquid and compressed natural gas for fleets across North America. Landing Amazon as a customer is a big deal, so you would think the stock would rally. The fly in the ointment is the warrant the company issued to the retail and internet giant. 

Per the agreement, the company gave Amazon the option to purchase as many as 53 million newly issued shares. That would dilute current shareholders by 26%. Nearly 13.3 million vest immediately. The remaining will vest over time based on fuel purchases up to $500 million.

Now what

For existing shareholders, the upside of a relationship with Amazon seems to outweigh the worries over dilution. First, the remaining warrants can be exercised until April 2031. That's a long time for any vesting to play out. Second, the exercise price is $13.49, nearly 40% above the current price. Shareholders should be happy if it ends up being worth it to Amazon to convert its warrant to shares. Finally, Clean Energy booked about $252 million in product revenue over the 12 months ended March 2021. That means if the full dilution does occur, it would be attached to an enormous increase in sales.

Many are skeptical that goal will ever be reached. Amazon has pledged to purchase 100,000 custom electric delivery vehicles as part of its Climate Pledge. It's likely the deal with Clean Energy is just about keeping options open. With hindsight, the entire episode may turn out to be much ado about nothing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.