Clean Energy Fuels (CLNE 0.93%) doesn't have to manufacture its own compressors, but co-founder and CEO Andrew Littlefair says owning the source of a major component makes strategic sense. IMW also gives Clean Energy a way to participate in natural gas expansion in China, Russia, and elsewhere, without diverting resources away from expanding its core fuel delivery business in North America.
He also talks about the company's reasoning for selling BAF to Westport Innovations (WPRT 4.81%), and how Westport has taken BAF, integrated it into its WiNG business, and taken it to another level. Clean Energy Fuels is the leading provider of natural gas for transportation in North America. Clean Energy provides CNG and LNG fuels to solid waste, trucking, and transit fleets, among others, and currently operates some 500 fueling stations in the United States and Canada, as well as manufacturing related equipment and technologies through its IMW subsidiary.
Jason Hall: Let's talk a little bit about IMW. How important is IMW, outside of supplying Clean Energy directly?
Andrew Littlefair: I get that question some. I think I got the question more often when we had BAF -- which was our conversion business -- and we had stuff in Peru. As you know, we sold BAF last year to Westport Innovations.
Others are in that business. We didn't really need to be in that business. We needed to be in the business when BAF was in a difficult financial situation. We needed product. We have stations; if you didn't have BAF you wouldn't have a natural gas taxicab.
I think we were in it at the right time for the right reason.
Hall: Planting seeds.
Littlefair: Yes, planting seeds and filling up our stations. Without their product -- and BAF did a really good job working with Ford and developing a full line, which Westport now has incorporated into their WiNG technology, but they did an excellent job.
They did an excellent job selling thousands of units into AT&T, and we fuel about 50-60% of those today. That made sense at that time. But others are in that business.
People used to ask me, "Do you really need to be in the compressor business?" because other people are in that business too. Well, we buy a lot of compressors, so we see it as strategic.
We have, if you look at this business today, about 95 competitors in the refueling business. Now, people say, "Oh, come on, there's not that many." Well, some of them are pretty small and some of them are kind of regional. Some of them really don't have any experience.
But, there are about 95 companies out there that say they're in the CNG business, and I don't want to stand in line with them, waiting for a compressor. For us, I think it is strategic. We're buying about 35% of IMW sales.
But natural gas fueling and transportation is happening around the world-probably faster than it's happening here. We took our company public in 2007. I remember at that time there were about 5 million natural gas vehicles in the world, and today it's closer to 17 or 18 million, so a lot's happening in a lot of places.
We're asked all the time to go into different places. Look, we're in a great sandbox. We're in the best market, here in the United States. It's one of the biggest fuel markets, so we try to stay pretty focused.
However, IMW is asked all the time to build stations around the world, so it kind of allows us a way to participate globally in this. We know more about this fueling than just about anybody else, so IMW is selling today into about 26-27 countries.
We have a big deal in China right now. We've built a couple hundred stations in China already. We don't own them.
Hall: With China Gas?
Littlefair: Yes, with China Gas. We signed recently a deal with Russian Machines to do a similar thing in Russia, but we're selling equipment today into Vietnam and Egypt and Mexico.
It took us a while to get IMW squared away. It had a little bit of growing pains. I remember when I made the first deal with IMW probably 10 or 12 years ago. In that year, they were producing 12 compressors, and we bought 6 of them. I think this year it will be closer to 300 or 350, so that business has grown a lot.
We've retooled it some, we've got some new management in there, we've beefed up our sales. Really, until recently -- that's why I mentioned on the last earnings call we like what we see there -- we really were taking orders around the world, not really selling.
We can do better than that, so we've got a new sales organization in IMW. It's important. The business can be much larger than it is and I think, importantly, we buy a bunch of the equipment so it gives us an edge that others don't have.
Hall: It sounds to me like, besides the obvious advantage of allowing you to be first in line when you need equipment for your own needs, it lets you participate in other markets without pulling away from the core resources that drive your business.
Littlefair: That's right. We've looked at other markets. We've looked at India -- they wanted us to come there -- and we've looked at Thailand and stuff.
But you know, in a lot of those places the government owns the resource, and they set the price. We don't have any business building and owning stations in Russia on long-term contracts and trying to figure out if we're going to get repaid.
But, selling them equipment that the Canadian government guarantees -- because IMW is based in Canada -- that does make some sense.
