Over the past several months, companies with heavy exposure to natural gas vehicles -- or NGVs -- have seen their stocks get hammered. Bad news, falling oil prices, and general economic weakness in key NGV markets like Europe and Russia have all contributed to the pounding:
However, a number of companies have recently announced their first deliveries of heavy-duty NGVs, or their first orders placed for NGVs, signaling that there's still some life in the business after all. Furthermore, the U.S. House of Representatives just passed a bill last week that would reinstitute excise tax credits for natural gas refuelers, further reducing the cost of natural gas for vehicles.
Significant tax benefit would benefit refuelers most
Clean Energy Fuels (NASDAQ:CLNE) is probably in the best position to benefit if H.R. 5771, or the Tax Increase Prevention Act of 2014, were to be placed into law. After passing the House with strong bipartisan support, its next stop is the Senate. If passed by the Senate and send to the President for signature, Clean Energy Fuels would get a $0.50 per gallon excise tax credit for every gallon of CNG and LNG it sold for vehicular use in 2014.
This tax credit -- referred to in the past as VETC -- would go a long way toward helping Clean Energy reach profitability, as it has spent heavily to expand over the past two years. Not only would the reinstitution of VETC help Clean Energy's financial picture, it would also allow the company to pass more savings along to its customers, which could help accelerate the pace of NGV adoption in the heavy-duty trucking space, which has so far been very slow to move.
Grocery chains are adopting
Over the past couple of weeks, two grocers -- regional chain Tops Markets, and national giant Kroger -- have both made announcements involving NGVs. Kroger announced that it had taken delivery of the first 11 of 40 Freightliner trucks that will service the company's Fred Meyer stores in Oregon and Washington. Kroger has some 2,700 heavy trucks that make more than 3,000 daily deliveries, so this looks to be just a test program at this point. If the company decides to increase the number of NGVs delivering to its stores, that could be a really positive sign.
Tops Markets, a regional grocer in upstate and western New York, is taking an "all-in" approach, and will replace the company's entire 55-truck fleet with natural gas trucks. By building an on-site CNG refueling facility, the company expects to cut its fuel costs in half. That's pretty significant, considering the sharp decline of diesel so far this year.
There's no certainty that Congress will pass this legislation, but the strong bipartisan support -- the bill passed 378-46 -- indicates that there's a good chance it could. While relying on tax incentives, or any government support at all, isn't a great thesis to invest on, it would certainly help jump-start adoption in key industries like heavy trucking.
Will the companies involved in this industry turn into great investments? So far, the answer has been a resounding no. Could that change in 2015? It's possible, but it will take a lot of adoption growth for that to happen. Stay tuned for more as the industry develops.
Jason Hall owns shares of and options for Clean Energy Fuels and Westport Innovations. The Motley Fool recommends Chart Industries, Clean Energy Fuels, and Westport Innovations. The Motley Fool owns shares of Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.