Clean Energy Fuels (CLNE) is a leading provider of natural gas-based fuels for vehicles. The company is betting that natural gas fuels will become more popular in an increasingly eco-friendly world. Given how much more emphasis is being placed on the environment, the future will likely favor cleaner fuel alternatives.
Natural gas fuels are undoubtedly cleaner than more traditional fuels like gasoline or diesel. In the likely scenario that stricter environmental policies are enacted moving forward, natural gas fuels could end up becoming more cost-competitive than traditional fuels. This would put Clean Energy Fuels in a highly advantageous situation being one of the few natural gas fuel companies in the world.
Natural gas fuels are far cleaner than more popular fuels like gasoline.
Greater Emphasis on the Environment
There is growing pressure on governments around the world to implement stricter environmental standards. With unprecedented environmental proposals like the Green New Deal gaining steam, the general public is clearly starting to place greater importance on the environment. According to Pew Research, two-thirds of US adults believe that the government is doing too little to protect the environment.
Clean Energy Fuels is set to benefit from the global push towards cleaner energy. Natural gas fuels are cleaner than more traditional gasoline or diesel fuels. This means that if the price on carbon or pollutants is increased, Clean Energy Fuels will be impacted far less. Moreover, natural gas technologies continue to advance at a relatively rapid rate given the money being poured into the industry.
The general public is starting to place a greater importance on environmental issues.
While Clean Energy Fuels business looks promising in theory, the company has not lived up to its own hype. The company has seen its valuation plummet ~10-fold over the past decade to its current valuation of $568 million. The current pandemic is only making it more difficult for the struggling Clean Energy Fuels to operate. There is no telling how long Clean Energy Fuels’ business will be negatively impacted by COVID-19, given how unpredictable the infectious disease has been.
Clean Energy Fuels did experience a relatively successful Q1. The company’s Q1 revenue of $86.01 million grew 10.7% Y/Y and beat expectations by $12.11 million. The company also reported a GAAP EPS of $.01, beating expectations by $.03. Investors will soon have an even better idea of how the company is faring during this pandemic with Q2 results coming out.
Despite Clean Energy Fuels’ somewhat impressive quarter, the company is still falling behind in a rapidly evolving industry. While natural gas fuels may have seemed somewhat futuristic even a decade ago, they are being outshined by more innovative technologies like lithium batteries. With only 4% Y/Y volume growth in terms of millions of gallons delivered (99.3 million gallons in Q1), Clean Energy Fuels is being outpaced by more promising technologies.
The Growing Threat of Batteries
The rise of cost-effective batteries is seriously threatening Clean Energy Fuels. Tesla (TSLA) has nearly single-handedly popularized battery electric vehicles. Tesla largely accomplished this by investing billions into lithium battery technology in order to make it a cost-effective form of vehicle energy storage.
One of the main selling points of Clean Energy Fuels is its ability to provide relatively clean fuel to vehicles. Currently, Clean Energy Fuels even has an environmental advantage over batteries in certain areas. A near-zero natural gas truck produces around .02 g/bhp/hr NOx whereas a battery electric vehicle connected to the California grid produces around .07 g/bhp/hr NOx.
Unfortunately for Clean Energy Fuels, battery electric vehicles have the potential to be far cleaner than natural gas vehicles. If battery electric vehicles can get their energy from renewables like solar, they will be virtually unrivaled on the clean energy front. Given how fast solar PV technology is advancing, solar-powered battery electric vehicles could become commonplace far faster than anticipated.
Clean Energy Fuels does have an opportunity to cement a strong foothold in the heavy-duty vehicle market. Electric vehicles have yet to make a strong impact on the heavy-duty vehicle market. Given the inherent disadvantages for batteries in this market, including relatively slow recharge times, Clean Energy Fuels is smart to focus on this segment.
However, battery electric vehicles are advancing at such a rapid rate that they could eventually make a large impact on this market. In fact, Tesla is planning to produce the Tesla Semi, its electric semi truck, by 2021. While battery electric vehicles are currently hindered by issues such as range, these issues are rapidly being resolved. With the billions of dollars being pumped into battery research every year, Clean Energy Fuels’ ability to remain competitive diminishes with every year.
Clean Energy Fuels still has a chance to remain competitive in the heavy-duty vehicle market.
Clean Energy Fuels is facing a growing number of obstacles. The company is being impacted by a global pandemic while at the same time facing an increasingly imposing electric vehicle industry. While natural gas fuel can act as an intermediary for a cleaner future, it will likely be outcompeted by batteries in the long term.
Investors should avoid Clean Energy Fuels at its current market capitalization of $568 million and PE (TTM) ratio of 18. With momentum for natural gas fuels slowing down and momentum for batteries picking up, Clean Energy Fuels has very little to look forward to.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.