Last week, shares of Clean Energy Fuels Corp (NASDAQ:CLNE) took a beating when Piper Jaffray reiterated its "sell" call on the shares. Follow that up with Jim Cramer parroting the call, which was based on faulty analysis, and the stock price has fallen over 15% since the beginning of October:
Here's the rub: Just because the analysis was way off base, don't assume this means Clean Energy is a guaranteed success. Let's take a closer look.
Counting on someone else for your success is risky Clean Energy Fuels, right now, is a play on two things: First, it's legacy business as a CNG (compressed natural gas) supplier for "return-to-base" vehicles like municipal transit, refuse pickup, and airport transit vehicles, and second, a very large bet on the trucking market transitioning away from diesel, and to LNG (liquefied natural gas) for long-haul shipping. So while Piper Jaffray and Cramer got their facts wrong, the company is still facing an uncertain future that is heavily tied to things that are largely outside of the company's control. For example:
- The Westport Innovations Inc. (USA) (NASDAQ:WPRT) - Cummins Inc. (NYSE:CMI) NG engines -- the only serious game in town right now -- will meet both reliability and performance expectations. - Shippers will have to be convinced that the cost-savings of NG outweigh the additional expense of NG-powered trucks, and that the cost-savings can be expected to continue over the life of the truck (five to 10 years or more.) - Shippers need to trust that there will be access to fuel wherever they make deliveries.
The only thing Clean Energy can directly control is the third one -- access to fuel -- by opening as manly locations on shippers' routes as it can. The first two, at best it can only influence. While management is doing a commendable job of getting as much positive information in the market as it can, the end-game is waiting for things to play out.
And while Clean Energy has been working closely with Westport to meet with customers and explain how the price of NG as a commodity has a much smaller effect on "at the pump" prices than oil does to diesel, it's still a matter of the shippers deciding to buy something from another company (the truck maker) before its product becomes an option. And frankly, that's a lot of counting on other companies for your own success.
And Westport has been facing plenty of challenges lately as it attempts to transition from a heavy R&D phase to an integrated manufacturer, and licensor of its proprietary technology. Never profitable as a public company, Westport disappointed investors recently with an unexpected public offering, diluting shareholders 10% through the 6 million shares sold to raise $175 million. The good news is that this should be the last hit to dilution, as management told investors that all its operating segments would be profitable, or at least cash-flow neutral by the end of 2013.
Building an infrastructure: Targeted or diversified? Chicken or the egg? SolarCity Corp (NASDAQ:SCTY) is targeting a much larger market with solutions for government, commercial, and residential customers. While Clean Energy's "America's Natural Gas Highway," or ANGH, is aimed at a small segment of the total transportation market (though it's one that uses a LOT of fuel) and spending big on the infrastructure in advance of the adoption, Solar City is building, as Chairman Elon Musk has described it, a "massive, decentralized utility," through its network of solar panels.