Westport Innovations has an Audacious but Potentially Accurate View of the Future

I admire Westport Innovations Inc. (Nasdaq: WPRT) for going out on a limb in the earnings call. It really was nothing that special, but it stuck with me. The CEO stated without qualification that the world is undergoing a major shift from oil to natural gas. Doubts are shoved aside and the course of energy is clearly delineated. The shift does not mean rapid adoption of the new system and dumping the world one. This is not DVD replacing VHS. There will be a time of two primary energy sources. However, the enormity of the change is considerable since the world has been on oil for many, many decades after the transition away from coal.

Obviously the statement plays right into Westport’s hands, but it is not just political hyperbole. I believe it is a real event that is transpiring. I do not know if it the solution of the century, but natural gas will become an ever increasing part of the U.S. economy. It is too useful, abundant, and for now cheap to be unused. Even exporting it would be a mistake, because we need that energy here. It might not be time to sound oil’s death knell, but it definitely needs to take a backseat. Now I think a new fossil fuel is a temporary fix, and I hope that its availability will not divert focus from renewable sources.

Westport really laid out a heavy plan and it makes me think they want to become the name in natural gas when it comes to both distribution and usage. It sounds like it wants to make the tanks that store the natural gas and the engines that burn it. So far though there are only partnerships with companies building stations. However, Westport is leasing out mobile refueling stations for remote sites or while stations are being built. I think that is a great strategy for bring in some regular income.

As the build out happens across major transportations corridors those temporary refueling devices will be exceptionally useful. Particularly if you want truckers to know that a location has natural gas as an option. Having the leased device while building makes sure that when the full station comes online some customers are already built in. At least that is the hope. Right now though the focus is on capturing as much of the market share as possible considering the projected breakneck growth. Diversifying into other avenues is a secondary thought at best. For now the focus should be on scale, cost, and outreach. The CEO focused on all the right points and if I think of anything I found lacking I will mention it some other time.

The earnings call really broke it down and it had lofty views for the future. Aside from Westport’s fortunes, which I think most are expecting it bodes well for other companies as well. Fuel Systems Solutions, Inc. (Nasdaq: FSYS) is a natural gas component maker that is far smaller than Westport. It also has agreements with GM and Ford to probably name a few. The company is small so agreements are not yet plentiful or numerous, but from what I have seen so far it seems to be a solid company doing solid work. Unlike Westport’s earnings call Fuel Systems’ focused more on past and current laurels rather than a bold picture about the future. Luckily for us, everything Westport said about the natural gas fuel market applies to Fuel Systems as well. The goal is for the company to capture the growth. This last quarter the company posted some losses. Does that mean that it will fail to capture future growth? No, but margins contracted and I would want to see that turnaround. The explanation is that local European competitors were putting a downward pressure on margins. I hope economies of scale will eventually price out locals. It seems harsh, but it could mean lower costs for all whilst boosting margins. Other than watch those developments carefully there is not much to say until we get a lot more info on the size and profitability of the automotive deals.

I really do think natural gas will be big in the long-term, but early in the long-term. I am a bigger fan personally if not financially of hydrogen or electric cars. I would love to see hydrogen viable, if only for the sheer sci-fi nature of powering a car with hydrogen. Sure it’s not a micro-fusion reactor, but baby steps. The universe of natural gas is a large one. Westport is one of the best known names. However, I do not think it is overpriced or too hot considering it is closer to its 52-week low than its high. With the powerful growth expected in the future I think it is priced low enough to make a long-term investment viable. Fuel Systems is the riskier option being the smaller option, but it sounds like there are solid deals in place. We will never know all we need to know, at some point you need to take a position or walk away. However, these are just two possibilities in a sea of possibilities. I think both have their merits, and I was consider splitting my positions. However, one would gain at the loss of the other. So it is a question of what percentage is allocated to what stock not a case of putting more money into both. That is what I would do, however I do not know what I will do just yet.