Westport looks to China to drive clean-engine demand

By Ashutosh Pandey and Sneha Banerjee

(Reuters) - China's quest for clean air will be the main driver of growth for Westport Innovations Inc in the next two years, creating new demand for engines that run on natural gas, the company's chief executive said.

Westport, yet to turn a profit since listing in Toronto 15 years ago, is betting on Chinese trucks and buses snapping up its technology with more urgency than its lackluster home market of North America.

"China is highly motivated and, with their energy policy in place to encourage domestic natural gas, that's very clearly something we have to take seriously," Chief Executive David Demers told Reuters in an interview.

Air pollution has figured high on Beijing's agenda since a choking smog dubbed the "airpocalypse" engulfed key Chinese cities in January 2013, leading Premier Li Keqiang to announce a "war on pollution" in March this year.

China became the world's No. 3 gas consumer in 2013, with consumption rising 14 percent to 167.6 billion cubic meters (5.9 trillion cubic feet) - driven in part by demand for cleaner fuels such as liquefied natural gas (LNG).

Adoption of Westport's technology has been frustratingly slow in the United States and Canada, where natural-gas fueling stations remain scarce and diesel engines, already cheaper, have also become more efficient.

North America accounted for 42 percent of Westport's revenue in 2013. Asia contributed just 11 percent.

Westport's Toronto-listed stock has lost more than half of its value in the last 12 months. The company's market value has shrunk to $795 million.

Of the 17 analysts covering the company's Nasdaq-listed stock, only six have a "buy" or higher rating. Two have a "sell" and the rest a "hold," Thomson Reuters data shows.As well as supplying its patented technology, Westport makes components such as pressure regulators and injectors used by car makers including Volkswagen AG (VOWG_p.DE), General Motors Co and Fiat SpA.

The company has a 35 percent stake in a Chinese joint venture that makes natural gas-powered engines and parts used widely in city buses, coaches and heavy-duty trucks. It launched a 12-liter natural gas-powered engine this year.

'THE WILD CARD'

Westport's heightened expectations of China come at a time of concern about the health of the world's second-largest economy. Higher wholesale natural gas prices are also eroding end-user demand for LNG as a transport fuel.

Demers said the development of China's shale gas resources would be "the wild card" in the next few years.

Westport forecasts its consolidated adjusted core earnings will turn positive by the end of 2015. Adjusted EBITDA from operations turned positive in the quarter ended June 30, six months earlier than the company had forecast.

Its sales, however, have been below analysts' expectations in five of the last eight quarters.

As North American truckers have been slow to embrace the switch to clean-burning fuels, Clean Energy Fuels Corp and Blu LNG have also scaled back development of their fueling station networks.

Demers takes a longer term view.

The number of natural gas-powered trucks and buses on roads worldwide will grow to 3.7 million by 2022 from 1.5 million in 2014, clean-technology consultancy Navigant Research said in a report published in April.

"We have to accept there are some investors ... that were here for shorter term reasons," Demers said. "Ultimately, we believe our technology, our company, our results are going to prove out over the next decade."

(Editing by Robin Paxton)