(Westport, GM story, updated for comments from ThinkEquity on recent Westport acquisition, GM deal ink)
NEW YORK (
) -- Shares of
led the niche natural gas transportation sector higher after the natural gas engine maker announced a deal with
targeting the light-duty vehicle market.
Westport shares were higher by 9% and nearing their average daily volume of shares traded within the first hour of the market open.
Clean Energy Fuels
, which provides the natural gas refueling stations for the transportation market, was higher by 6% Tuesday morning.
Westport has signed a number of
for its natural gas engine technology. The main focus has been on gaining traction in the heavy-duty vehicle market. Partners include
in Europe and
in China. U.S. companies including
also have signed deals with Westport to develop natural gas engines for their engine technology. In the case of Caterpillar, the deal goes into the area of locomotive engines.
UPS already uses natural gas engines on delivery vans and is now looking to extend its use of natural gas to its long haul-trucks.
Westport also recently announced a deal for the mining market, with
and mining market transportation company
, involving water delivery trucks used in the fracking process. All of these deals focus on heavy-duty vehicles that burn huge amounts of diesel fuel annually. In some cases, such as the mining trucks, Westport says the payback for the customers in converting to natural gas can be immediate versus diesel costs. In other deals, like the Caterpillar deal and the locomotive market, Westport says the opportunity could take a decade or more to develop.
A long road to light-duty vehicle adoption could be the case in the GM deal, but GM already has done work in this area and . Yet the Westport-GM deal is a vote of confidence from a major light-duty vehicle player, even if it won't lead to natural gas-powered vehicles being on the road tomorrow, according to Raymond James analyst Pavel Molchanov.
"This looks like an early-stage R&D deal, so I wouldn't expect it to directly lead to new commercial product sales anytime soon. That said, it provides blue chip validation for the NGV industry, and the importance of that should not be underestimated ... GM working with WPRT is a nice 'seal of approval,'" Molchanov said.
In another sense, the Westport announcement is helping shares at a time of little positive news flow. There hasn't been the big ticker positive news flow item that the natural gas engine stocks were hoping for this year: movement from the federal government on the NatGas Act, which would provide a bigger subsidy for the purchase of natural gas engine-powered heavy duty vehicles.
Last year, Capitol Hill debate over the NatGas Act had been the major trading trigger for these shares. With the lack of action on Capitol Hill -- T. Boone Pickens had predicted earlier this year that the NatGas Act would move ahead by the July 4 weekend -- the natural gas engine stocks only have company-specific announcements to make their case to investors for a road map to profitability and market acceptance.
Westport rose 9.2%, or $1.97, to $23.48.
Shawn Severson, analyst at ThinkEquity viewed the deal between Westport and GM -- and the rise in Westport shares -- as linked to Westport's recent acquisition of Italian natural gas engine components company Emer. Europe has had a large light duty natural gas vehicle market, but when the Emer acquisition was announced Westport, investors doubted the logic in the deal. There is much more competition in the light duty market than on the heavy duty side where Westport has focused. The GM deal shows that Westport's Italian acquisition can be put to work immediately in trying to crack into the light-duty vehicle market before it's too late, ThinkEquity's Severson said. He noted that GM has an existing research effort in the natural gas engine technology space.
"I think the fleet vehicle market depends to a large extent on legislative issues, but I think it could be much more available as a good market by 2013, and that means you have to be providing production in 2012," said Severson. The analyst added of Westport's strategic thinking in making the Italian acquisition and signing the GM deal, "This isn't 10 years out. If you miss this opportunity in the first few rounds then you need to displace the competition in the future. It was now or never," he said.
Votes of confidence from high-profile companies can play a major role in supporting shares of alternative transportation stocks. The new crop of second generation biofuels companies are another example of where research ventures supported by high-profile companies have been able to buffer shares, even if the partnerships are early stage, don't require significant capital investment from the partners, and are far from mass production.
In the biofuels sector,
recently completed a successful IPO. One of its key partners is
, one of the first IPOs among second generation biofuels stocks has also been one of the more successful stocks from a trading perspective, up 78% since its IPO in Sept. 2010, and lists
among its partners.
-- Written by Eric Rosenbaum from New York.