Westport Innovations (WPRT) has taken a beating as the shares are down 10% year-to-date. The manufacture of low-emission engines and fuel-systems utilizing alternate fuels is up against challenges from diverse quarters, such as gaining popularity of electric car maker Tesla Motors (TSLA), and the adoption of fuel-cell technology gaining traction. In such a scenario, what does it have in store for investors?
Re-look at strategies
Westport is going through a series of strategic moves in response to challenges that it faces. Its new key strategies are expected to vault the company to a high-growth stage. First and foremost, transportation and energy segment, the two biggest industries globally, is going through disruptive changes. The high cost of fuel for transportation has opened up possibilities for alternate energy sources. The factor driving this change is the mission for a lower-expense fuel.
In addition, energy sector is going through technology-driven changes in both oil and gas extraction and transportation. The core point here is here is that the oil boom is about having the capacity to extract oil from assets that were unimaginable in the past. Also, the high cost of fuel is forcing the industry to gander at alternative sources.
Westport has made a giant leap forward that has opened up amazing amounts of cheap natural gas. There's a colossal worldwide financing underway to offer that gas for sale to the consumers, and to make it a global energy source like oil, especially in the transportation sector. Driven by this global outlook, Westport is concentrating on where the market is headed for and not where it has been in the past or is today.
The expanding market
Westport is concentrating on emerging markets and aims to build as a global OEM supplier using the conventional car industry channels. This is countering the challenges that rivals pose in the markets where fuels such as propane and natural gas are gaining traction. As to how quickly this would come to fruition, Westport has a pragmatic view, and its plans are focused around the markets segments that offer growth potential going forward.
It has worldwide rising scope on the infrastructure side, and the supply chain is expanding. An apparent shift from business creation and technology demonstration to a conventional business that is centered around customers expansion and bottom line made 2014 a year where Westport is gearing up for the future. The company is accordingly re-aligning its moves towards getting an ideal blend of short and long haul items. As a result, for 2014, it has a substantial lead on rivals and predicts extensive adaptability in its plans in line with market demands.
2014 is perceived as a step forward in heavy duty trucks market in North America. Westport expects to see 3% to 5% business in “Class A” trucks this year, up from practically nil in 2011. Westport would start supplying parts and HPDI units to the Weichai and Westport JV in the current year, as it transitions from market creation to product sales through its Chinese joint venture.
The company is all set to tap the automobile sector as its OEM clients beef up their product offerings globally and generate sales. In addition, Westport sees opportunities in the rail industry and is well-positioned to sell fuel tenders and engine systems in that market going forward.
Westport is investing resources into long-term product development and innovation at the corporate level. It is auditing each undertaking where it is investing and has built criteria to rank and evaluate the returns on its investments. This should help Westport assess the efficiency of its investments and exit from underperforming segments going forward. By the end of 2015, all it investments will be funded by internal operating income, income from its joint ventures, expense recovery from its development partners and is projected to generate substantial financial returns.
Risks from Tesla
Despite all plans and strategies for growth in place, Westport is aware of the credible threats that it faces from Tesla Motors. According to Tesla Motors CEO Elon Musk, 50% of new cars will be electric vehicles in 20 Years. Elon Musk had said, “In 20 years more than half of new cars manufactured will be fully electric. I feel actually quite safe in that bet. That is a bet I will put money on.”
What's more, Tesla declared that it will be building facility known as "Gigafactory." According to Economist, “Due to start production in 2020, the giant factory will be the world’s largest battery-making facility, producing, at its peak, 500,000 lithium-ion packs, more than the entire world’s capacity today. That should be more than enough for Tesla’s car production; the excess will probably supply not only some of its carmaking competitors but also such power sources as backups for neighborhood grids and cellphone towers.”
The bulk manufacturing of lithium-ion batteries at such a scale will result in a monstrous decline in costs, leading to greater adoption of electric vehicles in the market. Accordingly, this can be a tangible threat that Westport might face going forward.
It is evident that Westport is trying to turn its business around. However, the company faces credible challenges going forward. Despite this, investors with a higher appetite for risk can surely take a look at the stock since its earnings are projected to grow at 30% a year for the next five years.