Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Cummins Inc. (CMI), Westport Innovations Inc. (USA) (WPRT): How to Play Natural Gas Vehicles

It’s a well known fact that with the growing environmental concerns, the demand for clean energy is rising. In fact, the U.S government is promoting the use of clean energy, so that the crude surplus increases, leading to a rise in crude exports, which will eventually improve its trade deficit. Although Tesla Motors Inc (NASDAQ:TSLA) is doing a fine job in providing an emission free mode of travel, the truth is that electric engines can’t be deployed in industrial scale vehicles (yet).

However, natural gas has the required calorific value and low prices to power large scale engines at an economically viable operating cost. Hence, the term “Natural Gas Vehicles” is rapidly getting popular. From what I can see, there are broadly three ways to profit from the booming NGVs.

An engine manufacturer

Cummins Inc. (NYSE:CMI)

One of the prime beneficiaries of this paradigm shift is Cummins Inc. (NYSE:CMI). The company designs, manufactures and distributes mainly diesel and electric engines in over 200 countries. In order to take advantage of the gradual shift to natural gas, Cummins Inc. (NYSE:CMI) and Westport Innovations Inc. (USA) (NASDAQ:WPRT) came together in 2001, to form Cummins-Westport.

Westport Innovations Inc. (USA) (NASDAQ:WPRT) designs and optimizes natural gas engines, and the joint venture has allowed Cummins Inc. (NYSE:CMI) to manufacture NGVs without in-depth technical expertise. This has not only diversified Cummins Inc. (NYSE:CMI)’s portfolio, but also positioned it well with the evolving NGV industry.

Although there are other NGV manufacturers, Cummins-Westport currently dominates the North American industry with a 90% market share. To extend its lead, Cummins-Westport recently unveiled its 11.9 liter, ISX 12G engine, that can operate on either CNG or LNG.

By introducing practical and efficient engines, the management of Cummins Inc. (NYSE:CMI) expects natural gas vehicles to account up to 10% of the total highway market by 2023. Consdering Cummins-Westport is already the market leader in NGV production, it’s not hard to conclude that both the companies will immensely benefit from the booming NGVs.

NGV designer

However, since Westport Innovations Inc. (USA) (NASDAQ:WPRT) doesn’t manufacture engines and does the designing part, it has to rely on an engine manufacturer to generate its revenues. The company signed a deal with General Motors last year, under which Westport Innovations Inc. (USA) (NASDAQ:WPRT) will provide its technical expertise to manufacture light duty natural gas engines.

These light duty engines are mainly deployed in pickup trucks, which are meant for domestic uses. But despite the low prices of natural gas, the sales of these pickup trucks have failed to reach impressive levels. This is because, these natural gas fired trucks cost more than diesel trucks, and the lack of refuelling stations acts like an entry barrier for its widescale adoption.

As refuelling infrastructure develops, these pickup trucks might gain mass attention in the future. But until that happens, I don’t think that Westport Innovations Inc. (USA) (NASDAQ:WPRT) can make a dent in the domestic transportation industry. But there are always better options available in the market.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.