Natural gas vehicle fuel supplier Clean Energy Fuels (NASDAQ:CLNE) has enough problems of its own, without having occasional partner and critical technology supplier Westport Innovations (NASDAQ:WPRT) create more. However, it looks like that's just what happened this week, when Westport announced that sales for 2014 would probably be 25% less than forecast as recently as the end of July.
While Westport's stock was down as much as 25% on the day after the earnings revision, Clean Energy Fuels' stock fell about 7% but has rebounded a little as of this writing. And while these short-term ups and downs (mostly downs with these two lately) are noteworthy, it's much more important to understand the long-term implications of whatever is causing the price to move.
With that said, what is the impact of this on Clean Energy Fuels' prospects -- both in the short and long term? It's not really anything, quite honestly. Let me explain.
On Sept. 30 after market close, Westport Innovations announced that it was reducing its revenue and earnings guidance for 2014 by 26%. The news has been a major shock, considering that it came exactly two months after management reiterated its full-year guidance after falling short in the first half of the year already.
Here are the details of the release, distilled into bullet points:
- Development of HPDI with engine OEMs is taking longer because of the rollout of HPDI 2.0. This is delaying some revenue from "milestone" payments.
- "Market uncertainty" in Europe, Russia, and China is affecting core business, supplying parts to passenger and medium-duty vehicle OEMs.
- A single large customer's order for iCE PACK LNG fuel systems is going sideways.
And while this is all bad news for Westport today and the remainder of 2014, the impact on Clean Energy won't be anything like it is for Westport.
What it means for Clean Energy Fuels
Westport's core business today isn't heavy trucking, but parts that it supplies to OEMs in Europe and Asia. This is where a lot of the softness is, and it's completely unrelated to Clean Energy Fuels' business in the United States. The two areas that are of any concern to Clean Energy are the HPDI 2.0 rollout, and the large iCE PACK deal that's gone wonky. Let's talk about the iCE PACK deal first.
This customer in this specific deal has been identified as Universal LNG Solutions, and Universal LNG Solutions is using the tanks primarily for marine and off-road applications, not on-road transportation. So this is essentially a non-factor for Clean Energy Fuels.
As to HPDI 2.0 and the potential for delays in commercial product launches, remember that the first product -- AB Volvo's (OTC:VOLVY) D13-LNG -- isn't coming to market until late 2015, and that's been the case since early in 2014. Westport's other OEM development partners so far have remained unnamed, so it's impossible to say what effect the move to HPDI 2.0 will have. After all, nothing has been announced.
So you're saying this really doesn't affect Clean Energy Fuels?
Nothing that Westport has cut its forecast on really has anything to do with heavy trucking in the U.S., or even with small natural gas fleet vehicles like cars and pickups.
Don't get me wrong -- that doesn't mean everything is perfect for Clean Energy Fuels. It's imperative that the company continue to focus on growing its fuel sales as quickly as it can, because that's the only way it will reach profits and positive cash flow before it burns through its cash and its debt begins coming due in 2016.
The key here? Westport's joint venture with engine maker Cummins (NYSE:CMI) isn't affected by any of this. And since this JV's ISX12 G engine is essentially the only natural gas engine for heavy-duty trucking applications -- and this will remain the case in both 2014 and most of 2015 -- it really is business as usual for Clean Energy, and the adoption of natural gas for trucking.
Buy, sell, or hold?
Just because the price has changed, that doesn't mean you really have to do anything. After all, nothing material has changed with Clean Energy's business. The stock price has fallen, but that's a product of the market's fear and almost complete loss of confidence in natural gas vehicles as an investment, and that means the stock could go lower in the interim.
For patient investors with a long-term horizon, all that uncertainty might have created a good price to buy at, but only if you're willing to stomach even more volatility, and if you believed in the business before the price started falling. A cheaper stock doesn't mean less risk. The business still has to perform. I think that it will, but it's going to take time for that to happen, and maybe longer for the market to recognize it.