Natural gas promises clean, inexpensive vehicle fuel to Canada and the United States. Westport Innovations (WPRT 0.72%) designs and builds the engines and fuel tanks for all manners of natural gas-burning vehicles. The company joined forces with Cummins (CMI 1.43%), Weichai, Ford, and other companies to maximize sales. With all this going for it, what could go wrong? Plenty.

Partners going it alone
One of Westport's joint ventures involves Cummins, a manufacturer of engines and generators. Cummins plainly states it's developing new engines with Westport. Cummins also plainly states it has developed natural gas engines on its own and will continue to do so. That is, Cummins seems perfectly capable of designing a natural gas-burning engine without any help from Westport.

Cummins could certainly use the extra income from the growing natural gas engine market rather than share it with Westport. The past three years saw a relatively weaker-than-expected global economy, which affected Cummins' earnings. Delays in implementing stricter air pollution laws in China and India also degraded revenue. While Cummins increased its dividends and share buybacks, sales and earnings declined from the previous year.

The Weichai joint venture could face a similar fate. If the Chinese decide to duplicate Westport's technology, I see Westport fighting an uphill battle in any sort of patent-infringement lawsuit. With the Chinese economy slowing down and its air pollution getting worse, building and even exporting their own natural gas engines could help the Chinese solve two problems at once.

Competition taking market share
Westport and Cummins have company in the natural gas engine market. General Electric (GE 0.35%) recently announced its Waukesha natural gas generators received "mobile certification" from the US Environmental Protection Agency. This means these generators can go to oil and gas drilling sites and provide electricity directly from the natural gas produced on site. Devon Energy uses these generators for its submersible pumps, for example.

Locomotives may soon burn natural gas with Westport engines, but not if GE can help it. GE teamed up with CSX and BNSF to develop locomotives that use liquefied natural gas. One driver behind this activity, beyond price advantage, are new, stricter emissions regulations similar to those placed on the power industry. Switching to natural gas would be an easy way for railroads to meet these new pollution regulations. Given GE's position in the locomotive market, I see tough sledding for Westport in this business.

On the other extreme of corporate size, Power Solutions International (PSIX 3.11%) offers natural gas generators for the oilfield, too. While its $780 million enterprise value pales in comparison to GE's $653 billion, Power Solutions and GE share the common trait of making money. The company's latest earnings report takes great pains to point out its reported losses had nothing to do with operating income but with non-cash charges connected to the adjustment of the value of its warrants.

Power Solutions makes money not only on generators but on heavy-truck engines and "fuel flexible" engines. It has a joint venture in China. Sound familiar? These are the same sorts of products and initiatives Westport has. While Westport hopes to become profitable by 2015, Power Solutions stakes the claim that it already is. In fact, its latest investor presentation shows Power Solutions growing its earnings substantially since 2010.

Cost advantage of converting to dual-use engines
Westport also has company when it comes to converting diesel engines into dual-fuel engines. While the cost advantage of natural gas over diesel appeals to truck operators, the upfront costs don't. One alternative is to convert a diesel truck to a dual-use vehicle, one that uses both diesel and natural gas. Converting costs less than buying new, and the savings remain substantial. So by using a so-called glider kit, a trucker can save money over buying a new engine, get a diesel boost when driving uphill or other challenging terrain, and still save a pile of cash on fuel.

Final Foolish thoughts
There's a future for natural gas as a vehicle fuel in North America. Westport, at first glance, looks well positioned to capitalize. However, it must overcome multiple competitors, most of which are making money while Westport isn't. Westport must also protect its technology while continuing to innovate and otherwise make itself irreplaceable to its venture partners. Westport has rolled out new, bigger engines, innovative components, and new partnerships. Revenue has grown, and orders keep coming in.

However, threats continue growing as Cummins, GE, Power Solutions, and others offer their competing products. For all the opportunities natural gas provides Westport, these threats may prove insurmountable. Invest with caution.