PACCAR Inc (PCAR), Cummins Inc. (CMI): Are We Going Overboard With the Natural Gas Hype?

There are other articles that suggest diesel cars are on the rise, but note, they talk almost only about passenger cars, and there’s hardly a word about trucks. Ahem, PACCAR’s 100% about commercial vehicles. So where is the diesel demand coming from? Global markets seem to be the probable answer.

More takers than you think

Take India, for instance. Despite the government’s initiative to free diesel price regulations, demand for the fuel is expected to rise more than 8% this financial year. Even the world’s cheapest car, Nano, will soon be available on diesel as its maker TataMotors strives to regain lost market share. This follows the launch of a diesel-variant hatchback of its popular small car Indica. According to a Business Standard report, 70% of Tata’s sales come from diesel cars. India undoubtedly is a great opportunity for PACCAR which is trying to make a mark in the market with its DAF trucks.

China is an equally big story, with diesel constituting 37% of its oil market. DAF already holds the second position in the Taiwan heavy-duty (15 tonne and above) market; and PACCAR is expanding operations further. As for Brazil, the company will begin producing DAF trucks this year as it aims to up its market share in South America to 20% over the next few years from the current 5% share.

The Foolish bottom line

The debate boils down to two facts – One, lack of infrastructure remains the biggest roadblock for natural-gas fuel, and 2013 might turn out to be a damp squib for hopeful gas-engine players, especially those betting on trucks (think Westport). Two, diesel is still in high demand in several important markets of the world.

And what does this mean for PACCAR? It might find the growth in the nat-gas fuel market painfully slow, but as an established player, PACCAR will also be the one of the first to enjoy the revolution once it kicks off. Meanwhile, it can keep itself busy meeting diesel demands from other customers. So PACCAR investors needn’t worry much, especially after the way it ended 2012 with record revenue of $17 billion and 9% growth in earnings per share.

The article Are We Going Overboard With the Natural Gas Hype? originally appeared on Fool.com and is written by Neha Chamaria.

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