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Honda Motor Co Ltd (ADR) (HMC), Clean Energy Fuels Corp (CLNE): When Will Natural Gas-Powered Vehicles Take Off?

Natural gas-powered vehicles are one of the most obvious ways of using America’s cheap and plentiful supplies of natural gas. Not only would gas-powered cars theoretically be cheaper, but they would also be more beneficial to the environment, emitting about 25% less carbon dioxide on average than their gasoline and diesel-burning counterparts.

Why, then, has adoption of natural gas-powered vehicles in the U.S. been so excruciatingly slow? And when — if ever — will we see U.S. roads inundated with them?

Challenges facing natural gas vehicles
So far, the widespread adoption of natural gas vehicles has faced two overwhelming challenges — high costs and limited refueling infrastructure.

The cost issue has to do with the fact that the technology behind natural gas vehicles is still in its infancy compared with gasoline- and diesel-powered vehicles and hasn’t been developed and mass-produced to the extent that costs can be brought down substantially.

Eventually, however, as long as natural gas prices remain attractive compared with gasoline and diesel, natural gas vehicle technology will advance to the point that cost savings can be passed on to consumers, which should help sales pick up. After all, many potential consumers are being deterred mainly by financial considerations. Take Honda Motor Co Ltd (ADR) (NYSE:HMC)‘s natural gas-powered offering, for instance.

Though Chrysler, General Motors Company (NYSE:GM), and Ford Motor Company (NYSE:F) have introduced bi-fuel versions of some of their most popular vehicles, such as the Ford CNG F-250 and F-350 Super Duty pickup truck models, Honda was the first car company to offer a light-duty vehicle running exclusively on natural gas in the U.S. market — its Civic Natural Gas, formerly Civic GX.

Honda Motor Co Ltd (ADR) (NYSE:HMC)’s natural gas Civic highlights major challenges
The natural gas Civic has been around for quite some time, yet sales have barely budged since 2008, the first year the vehicle was made commercially available. The model’s disappointing sales highlight some of the crucial challenges natural gas vehicles must overcome to gain more widespread acceptance.

High cost is the most significant of these challenges. At a starting price of $26,305, not only will the natural gas Civic cost you significantly more than its gasoline-burning counterpart, which is priced at $18,165, but it’ll also run you nearly $2,000 more than the Civic hybrid. In addition to shelling out more money upfront, potential buyers can also expect to spend considerably more on maintenance and repair.

Then there are issues with cargo space and range. Because compressed natural gas requires larger, heavier fuel tanks, potential Civic Natural Gas buyers will have to put up with about 50% less cargo space than the gasoline version. They’ll also have to cope with a dramatically lower driving range of around 225 miles, less than half the range offered by the Civic hybrid.

Refueling infrastructure constraints
Another major issue preventing natural gas vehicles from taking off is the paucity of refueling stations across the country. It’s mainly a chicken-and-egg problem: Consumers have little incentive to switch to natural gas cars if there are hardly any refueling stations, while companies have little incentive to build refueling stations if there are barely any gas-powered cars on the road.

Currently, there are just over 1,000 natural gas refueling stations in the U.S., compared with nearly 160,000 gasoline stations. Of these natural gas stations, less than half are available to the public and more than a fifth are located in California.

Final thoughts
In the future, we will almost certainly see many more natural gas vehicles on the road, as long as natural gas prices remain low compared with gasoline and diesel. As the technology behind natural gas-burning vehicles is perfected and natural gas fuel tanks made more compact, consumers will have greater incentives to make the switch.

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