Changing the status quo is never easy, but the rewards for those who succeed can be astounding. Clean Energy Fuels (Nasdaq: CLNE) is one company that's attempting such a change. Will it be successful? There's a long road ahead before T. Boone Pickens can claim victory, and Clean Energy Fuels has a few major questions that must be answered. Let's take a look at them now.
1. How many nat-gas engines will it take to push wider nat-gas fuel adoption?
Which came first, the fueling stations or the engine demand? That's a question I tried to answer by pitting Clean Energy against Westport Innovations (Nasdaq: WPRT) in a "Stock Smackdown" last week. Clean Energy's infrastructure push has brought it to 313 nat-gas fueling stations at the end of the first half of the year. The company completed 22 new stations so far this year, and is aiming for a total of 70 newly built stations active by the end of 2012. All that construction has necessitated a lot of cash expenditures, and Clean Energy's most recent quarterly report had mixed results.
While Clean Energy builds the infrastructure, Westport and Cummins (NYSE: CMI) are putting nat-gas trucks on the road. The Cummins-Westport partnership's reported shipments of 1,972 engines for the most recent quarter, which doesn't include 75 proprietary Westport-brand engines. That's a lot of growth from the year-ago quarter, but rather than growing rapidly, Clean Energy's revenue has flatlined, and net income shrank:
CLNE Revenue TTM data by YCharts.
At some point, Clean Energy should have the scale and the installed base to maintain better profitability. The size of the installed base is what we need to know.
2. Will nat-gas prices stabilize in favorable territory?
It's no secret that nat-gas prices are a big determinant in nat-gas vehicle adoption. But if costs drop far enough, could Clean Energy's business model be at risk? Conversely, would a sustained growth in nat-gas prices choke off adoption and leave Clean Energy with too few customers?
My fellow Fool Travis Hoium pointed out that natural gas prices have remained depressed despite a multiyear energy-industry shift away from nat-gas exploration. The US Natural Gas Fund (NYSE: UNG) continues to dawdle near all-time lows, and production continues to increase despite the decline in explorative activities:
UNG Total Return Price data by YCharts.
Nat-gas prices could increase quite a bit and still present a favorable alternative to diesel fuel. It may be to Clean Energy's advantage if natural gas prices reverse this slide -- up to a point.
3. Will nat-gas fuel go mainstream?
This is different from the first question in that it applies to all drivers, not just those behind the wheel of big rigs, buses, and other business vehicles. Electric cars are getting all the mainstream attention, but nat gas is quietly gaining steam. According to one recent report from Pike Research, there will be 123,600 nat-gas vehicles on American roads by the end of the year, compared to just 65,500 plug-in electrics. The Honda (NYSE: HMC) nat-gas Civic is starting to get mainstream attention and showroom space, but it's been around since 1998! The Honda Insight hybrid came out at the same time, but sold so poorly it left the market for a few years.
Greater consumer-level demand would help alleviate a nat-gas glut and would drive business to Clean Energy's fueling stations. Of course, if demand is high enough, the company would face increased competition from others, much as gas stations today are essentially interchangeable. It may be a balancing act for Clean Energy to walk the line between wider adoption and the truly mainstream adoption that might bring more competition than the company can withstand.
The answers to these questions will help determine if Clean Energy has the spark for big growth, or if it'll stall out in the end. To stay on top of this company's key developments, The Motley Fool's assembled a premium research service supported by our top energy analysts. You can get a year's worth of detailed updates on Clean Energy's most important initiatives. Click here to find out more.
