Natural Gas Vehicles Get a Boost From Washington

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The final corporate average fuel economy (CAFE) rules for 2017 to 2025 have been released and the big winner may surprise you. Automakers will have to reach average fuel economy of 54.5 miles per gallon by 2025, a mark that the industry expects will add $1,800 to the cost of each vehicle.

General Motors, Ford (NYS: F) , Chrysler, and Hyundai were all in on the negotiations last year but some companies complained that the agreement helped U.S. companies take a competitive advantage. Honda was placated somewhat yesterday when natural gas vehicles were given extra credits in the final rule to go along with electric vehicles.

A boost for natural gas and EVs
Honda is the only automaker selling natural-gas-powered cars to U.S. consumers, but that may soon change. The 54.5-mpg average will be hard for some automakers to meet and the addition of natural gas to their fleets would make sense if the infrastructure to fuel these cars is there.


By the time these rules start to go into effect in five years, the natural gas business may be completely different than it is today. Clean Energy Fuels (NAS: CLNE) , Chesapeake Energy (NYS: CHK) , and General Electric are building fueling stations around the country and natural gas itself already has infrastructure reaching even further into the market than oil.

Electric vehicle manufacturers will also stand to benefit from the rules. Small automakers like Tesla Motors (NAS: TSLA) can now opt in to the regulation, allowing them to sell credits to companies that can't hit the quota themselves. Since Tesla only makes EVs, it will allow the company to sell any credits it gets.

Technology gets a boost
Natural gas won't be the only winner in the new standards. Automakers will have to make vehicles lighter and more efficient to hit 54.5 mpg and some are predicting a renaissance in auto innovation as a result.

The Natural Resources Defense Council and BlueGreen Alliance say the rule will create as many as 570,000 jobs because new technology will be needed. That's a lofty estimate but the concept is that if companies have to develop new technologies to meet standards, it will be people that will do it.

Honeywell, for one, is expecting its turbocharger business to benefit as light trucks and cars add turbochargers to boost fuel economy. I would also expect high-end materials like fiberglass, titanium, and even aluminum to be used more extensively.

Impact on oil imports
This could also have an impact on oil imports. I highlighted earlier this week that net imports are down dramatically in the last seven years and part of that is a reduction in consumption. The recession has something to do with that, but consumption has fallen since 2010, even as the economy recovered.

The White House expects the standard to reduce U.S. oil consumption by 12 billion barrels of oil. To put that in context, that's 648 days of net imports at our current rate.

Foolish bottom line
The macro trends are all trending toward natural gas as a viable fuel moving forward. This would be a big boost for Clean Energy Fuels, which I mentioned above, but it would also help Westport Innovations (NAS: WPRT) , which works on the side of the automakers, providing technology to build natural gas vehicles. If automakers have the incentive to make natural gas vehicles, and it makes economic sense for consumers, then the "snowball effect" with regard to infrastructure should take place.

This is just another boost to natural gas and another reason to take a closer look at Clean Energy Fuels. To help you in your analysis we've created a premium report highlighting the company's opportunity and the risks it faces. Find out more about this great report by clicking here.

The article Natural Gas Vehicles Get a Boost From Washington originally appeared on Fool.com.

Fool contributorTravis Hoiumdoes not have a position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of Clean Energy Fuels, Westport Innovations, Ford Motor, Chesapeake Energy, and Tesla Motors.Motley Fool newsletter serviceshave recommended buying shares of Clean Energy Fuels, Ford Motor, Tesla Motors, Westport Innovations, and General Motors.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Ford Motor. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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