Navigant Research Blog

Clean Energy Fuels and Navistar Agreement: More than Marketing Hype?

Dave Hurst — May 30, 2012

In February, Clean Energy Fuels and Navistar announced a marketing agreement under which fleets can purchase a Navistar natural gas powered truck at the same cost as a diesel truck with a fuel purchase contract with Clean Energy Fuels for natural gas.  Essentially the agreement allows fleet operators to purchase trucks and fuel all in one package.  On the back end, the extra cost of the truck is subsidized to some degree by Clean Energy Fuels, which recovers the cost through the fuel.

The incremental cost for natural gas trucks over diesel trucks varies significantly based on the size of truck and type of fuel (liquefied vs. compressed natural gas).  The extra cost of the NG trucks can be anywhere from $10,000 to $45,000.  Though the market is divided on whether the Navistar/Clean Energy Fuels package is the right tool to accelerate growth of NGVs in the United States, no one doubts that it will help.  Predictably, though, Navistar’s competitors see this as more a marketing gimmick than a game-changing financing tool.  As Freightliner officials correctly pointed out to me at the Mid American Truck Show in March, it might actually be cheaper for fleets to finance the full cost of the truck right now because interest rates are so low, rather than finance it through a fuel contract.  Of course, the counter to that argument is that the natural gas fuel costs are also low, so that contract cost would presumably be pretty low.

In the end, I suspect this will play well among fleet managers who still have to buy the fuel somewhere; with this contract they can remove the incremental cost from their truck purchase budget.  It’s all a bit of a shell game because the costs are simply shifted from the “hardware” (the vehicle) to the “software” (the fuel).  But as long as natural gas prices remain well below diesel, burying the cost of the truck in the fuel contract makes sense because it all comes out as a wash in the total cost of ownership.  Fleets who purchase NG trucks without this contract (from other brands, like Freightliner or Autocar) will still end up recouping their costs in the total cost of ownership calculation.  The advantage for Navistar is that fleets that separate budgets for truck purchases and fuel contracts may be able to buy more NG trucks with this strategy.

Ultimately, this deal may do more for Clean Energy Fuels and their goal to build 150 LNG stations at Flying J truck stops than it does for Navistar.  It seems probable that Navistar would be able to market and sell NG trucks at about the same pace without this deal, but Clean Energy Fuels will likely be bolstered by an influx of new fuel contracts.

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