WFS 2Q22 results and more scaled back better notes ?3

10:58 09-Aug-22

The Westport conference call is drawing to a close and I am switching over to the Ebix call.  Results were hurt by Putin's war, higher CNG sales prices, and volatility.  WeiChai is unlikely to hit the stated goals and has no immediate clarity in sight.  The company is also paying down debt that was deferred during the pandemic.  Management did point out that LPG vehicle owners save €50 per tank in some markets over petrol, but that's no longer the most relevant comparison in my opinion.  It also is the latest to cite the growing consensus on hydrogen as the way forward, and management expects that path can move more quickly than the original gas-based HPDI.  However, management now thinks that the actual hardware will need to be different rather than upgradable.  Furthermore, all my comments below still apply and I should reiterate that local supply chains and sourcing from agricultural systems like those that Xebec provides look like the best way forward, whereas Westport's niche is being pushed toward long-haul heavy duty.  Appropriately, WPRT has dropped 16%, giving back all its scaled back better gains to trade at $1.30.

Westport Fuel Systems has published its second quarter results:

• a loss of 7 cents per share is in line
  
• from $80M of revenue, which beats by $3.4M
  

WPRT is initially down 9% after hours, but really that's just a give back of today's gains. Still, WFS lost money on an operational basis for the quarter and the balance sheet is deteriorating again.  Furthermore, though management touts its recent deal and positive reception on its hydrogen pilot, it's hard to be certain about a positive long term future for the business.

Although the scaled back better act provides some help for Westport, including $20b to reduce agricultural emissions, and a 50 cent per gallon tax credit, that's more useful to renewable fuel names like Xebec.  Even companies that focus on renewable fuel are still delivering supplies that are mostly from fossil sources.  I continue to believe that Westport's real future is hydrogen, which should also qualify for the EV credits linked above.  However, that will have to wait on scaled up operations from New Fortress and others before we see any significant adoption.  In the meantime, $60b for domestic solar panel and wind turbine manufacturing will continue to drive the trend toward BEVs, which are more efficient than hydrogen fuel cell models anyway, according to this recent study.  The caveat is grid stability, but it sill seems clear that both hydrogen and natural gas transport are being pushed further into a heavy duty application niche.

The conference call is at 10am tomorrow morning.  I will listen and decide whether or not to write more.