Raymond James: California's Increased Electric Bus Adoption Is Bad News For Natural Gas

Electric buses are coming — and while that may be great for the EV industry, it’s not great for producers of natural gas fuels, according to Raymond James. 

California officials recently voted to require completely emissions-free bus fleets by 2040, a move likely to followed by several other states. It’s also one already well underway elsewhere: Shenzhen, China recently announced all 16,000 of its buses are now electric.

The no-emissions trend is bearish for compressed natural gas producers, Raymond James said.

The Analyst

Analyst Pavel Molchanov said interest in emissions-free buses means Clean Energy Fuels Corp. (NASDAQ: CLNE), the country’s largest CNG producer, will increasingly see its revenue put at risk. Raymond James maintains an Underperform on the stock.

The Thesis

“While naturally positive for the EV value chain, this represents a serious competitive threat for both petroleum- and natural gas-fueled buses,” Molchanov said in a Wednesday note.

“We believe that the market is underestimating this risk, which is a key factor behind our Underperform rating on Clean Energy.”

5X Increase In EV Bus Adoption

Raymond James projects the share of new buses being built that are electric — it's currently about 5 percent — could increase fivefold within five years, Molchanov said. 

The trend already outpaces EV car adoption, the analyst said. 

California’s regulation requires all new bus purchases to be zero-emission vehicles by 2029, with emitting buses phased out by 2040.

“We would not be surprised to see other states with environmentally minded regulators follow California’s lead over time, just as 13 other states enforce California-set fuel economy standards for light-duty vehicles.” Molchanov said. “In the meantime, adoption of EV buses —which is already taking place in more than 40 states, albeit at different rates, will remain a matter of individual fleet decisions.”

Raymond James estimates transit fleets make up at least one-quarter of the CNG market. That includes not just buses, but garbage trucks, which are also among the top users of CNG.

“All of this, of course, will take time — the nature of the replacement cycle ensures that — but we think that downside risk for CNG fuel will be impactful well before 2025." 

Price Action

Clean Energy Fuels Corp. shares were up 3.4 percent at $1.68 at the time of publication Wednesday.