Is This the Spark Green Vehicles Need?

by Susan J. Aluise | March 8, 2012 10:00 am

Don’t like electric cars? No problem, the White House plans to pony up big bucks to help you buy the (clean, green) vehicle of your choice. And it doesn’t have to be electric.

President Barack Obama on Wednesday unveiled his new “All-of-the-Above Approach to American Energy.” The plan would raise the current $7,500 incentive for buying an electric car to $10,000 and — more important — extend it to any vehicle that runs on alternative fuels. That means compressed natural gas (CNG) as well as biofuels. The administration’s plan also includes a $1 billion grant to help communities develop alternative-fuel infrastructure, like fueling stations.

Obama’s dream of having “1 million electric cars on the road by 2015″ took a hit last week when General Motors (NYSE: GM) [1]temporarily suspended production of its Chevy Volt[2] due to slower-than-projected sales, even though it outsold Nissan‘s (PINK:NSANY[3]) Leaf in February. But presidential hopes spring eternal in election years — as does the irresistible temptation to buoy the flagging fortunes of pet projects by broadening their size and scope.

Obama’s fuel-agnostic strategy announcement (and the need to whip up support in a battleground state he nearly lost to John McCain in 2008) brought the president to a Daimler (PINK:DDAIF[4]) Trucks North America plant in North Carolina on Wednesday.

The plant is part of a U.S. Energy Dept. program to cut the fuel consumption of long-haul trucks 50% by 2015. It builds business-class trucks — including natural gas and hybrid models. More fuel-efficient trucks can save $15,000 a year and could cut U.S. oil consumption by 12 million barrels, Obama said.

“If we’re going to control our energy future, then we’ve got to have an ‘all-of-the-above’ strategy,” Obama told his audience[5]. “We’ve got to develop every source of American energy — not just oil and gas, but wind power and solar power, nuclear power, biofuels. We need to invest in the technology that will help us use less oil in our cars and our trucks, in our buildings, in our factories.”

Expanding the incentives to include alternative-fuel vehicles other than plug-in electrics has the potential to boost the market opportunity for (CNG) and biofuels. So far, the few available vehicles like the natural gas version of Honda’s (NYSE: HMC)[6] Civic, have been sold to corporate and government fleets.

But that’s starting to change. General Motors (NYSE: GM)[7] is launching CNG versions of its GMC Sierra HD[8] and Chevy Silverado pickups during the second half of this year. Fiat’s Chrysler has similar plans for its Dodge Ram 2500 HD CNG pickup. And Ford’s (NYSE: F)[9] CNG-capable vehicles include the F-250 and F-350 pickups.

While the average car buyer probably won’t rush to fork over the $10,000 to $12,000 premium for CNG versions of these popular pickups, companies like FedEx (NYSE: FDX)[10], UPS (NYSE: UPS)[11], Ryder (NYSE: R)[12], Verizon (NYSE: VZ[13]), PepsiCo (NYSE: PEP)[14] and AT&T (NYSE:T)[15] are all members of the Energy Department’s Clean Fleets Partnership, which supports the use of alternative fuels by large fleet owners.

A key issue for these and other companies — including federal government agencies — will be how to ensure refueling capabilities for CNG, propane, electric or other alternative-fuel vehicles. Obama’s $1 billion grant program aims to help cities jump-start those infrastructure initiatives.

While biofuels are generating a lot of interest in the transport sector, the biggest alternative fuel play now is CNG. According to the advocacy group NGVAmerica[16], the U.S. now has about 112,000 natural gas-fueled vehicles on the road today, and more than 13 million are operating worldwide. Transit buses account for more than 60% of the U.S. total.

If CNG assumes a greater role as a vehicle fuel, possible winners include Westport Innovations (NASDAQ:WPRT[17]), which converts gasoline engines to CNG for companies like Daimler, and Fuel Systems Solutions  (NASDAQ:FSYS[18]), which makes engine components. Both stocks rose more than 2% on Wednesday. Shares of Clean Energy Fuels  (NASDAQ:CLNE[19]), which builds and operates CNG fueling stations, rose nearly 6%.

Still, despite the hoopla, it will take time for these companies to realize any substantial gains. If you’re a conservative investor at or near retirement and looking to protect capital and pursuing a dividend capture strategy, these stocks probably aren’t your best bet.

The revolution in CNG — as well as liquefied natural gas (LNG) and liquid petroleum gas (LPG) will start bearing fruit in the five- to seven-year time frame — after some of the daunting fueling infrastructure challenges are resolved.

So if you’ve got a longer investment horizon and don’t mind the risk of some short-term volatility, these three stocks might be worth a second look.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

  1. (NYSE: GM) :
  2. suspended production of its Chevy Volt:
  3. NSANY:
  4. DDAIF:
  5. Obama told his audience:
  6. (NYSE: HMC):
  7. (NYSE: GM):
  8. CNG versions of its GMC Sierra HD:
  9. (NYSE: F):
  10. (NYSE: FDX):
  11. (NYSE: UPS):
  12. (NYSE: R):
  13. (NYSE: VZ:
  14. (NYSE: PEP):
  15. (NYSE:T):
  16. advocacy group NGVAmerica:
  17. WPRT:
  18. FSYS:
  19. CLNE:

Source URL:
Short URL: