WFS 2Q21 results +5

11:01 06-Aug-21

The Westport conference call has just concluded.  Management went on at length about the importance of its solutions being available now, and I concur.  Biden just issued an executive order targeting zero-emission vehicles to constitute half of all sales by 2030.  I note that Westport's natural gas engines only fit the bill if powered with RNG.  Green hydrogen would also fit, but neither the fuel nor the engines will be available for years.  Basic durability problems like embrittlement still need to be solved first.  Though I understand the jump in WPRT, today's events and the hydrocarbon pricing that I've documented seem more of a seminal moment for Xebec than Westport to me.  WFS management also warned about semiconductor shortages crimping sales going forward.  So, I remain concerned about this progress fading versus continuing to ramp.

One thing that could make a difference near term is the Chinese market.  Management says the prospects for approval in China are looking better.  Certifications have been publicly verified, but Q&A made it clear that WFS has no communication from WeiChai.  This is no surprise given that the Huawei CFO case is drawing to a close.  I see this as a pivotal point for North American relations with China.  Thus, I expect this to have bearing on MX as well as WPRT.  It was also noted that Westport has no collateral in case WeiChai does not comply with its 25K unit purchases by 2024.

Looking at Westport long term, there are a few upcoming factors to consider.  Westport has been able to defer upcoming principal payments to Canada, and is negotiating to convert its debt to a revolving credit facility.
Discussions on the JV with Cummins are also ongoing.  If it is dissolved at year end, both companies would have full access to IP, though I would like to see an agreement whereby WFS gets some compensation from Cummins for the gas IP, freeing WFS to focus on hydrogen with Scania.

In summary, I hope some subscribers were able to profit from my short term call on WPRT.  The stock does still have potential for the long term with hydrogen, but current pricing fully prices today's good results, in my opinion.  It remains to be seen how those results will progress in the face of significant competition from other technologies.

Westport Fuel Systems has published its second quarter results:

• 11 cents of EPS beats by 9 cents
• from $84.7M of revenue, which beats by $11.8M

As predicted WPRT is seeing a big bounce from these results, though there is significant possibility of them fading rather than growing in the years to come.  The conference call is at 10am tomorrow morning and I am likely to write more after that.