How far along is Cummins (CMI) in developing an electric power train?
It’s a big question for investors, given that electric car maker Tesla (TSLA) wants to sell trucks too, and Elon Musk recently teased that it plans to unveil an electric semi truck in September. Should Tesla manage to “pull that off”,” then the electric car make would have the electric vehicle market all to themselves — at least that’s the prevailing opinion among investors, says Stifel analysts Michael J. Baudendistel and Brady Cox.
But late Wednesday, executives at Cummins, which makes diesel and natural gas truck engines, announced on a conference call that the company plans to start production of electric power trains for transit buses in cities around the world in 2019, and expand into other industrial and commercial uses down the road as the battery range for electric vehicles increases.
This is “a big deal,” says Stifel’s Cox and Baudendistel, predicting that Tesla’s electric truck “won’t swim in a blue ocean. It will be Cummins’ shade of red.”
…it demonstrates the company is further along than was previously known in addressing what is likely its single biggest long-term risk: that electric will replace diesel as the dominant fuel source for commercial vehicle powertrains. We believe there are still many unanswered questions (the big three: cost, weight, and range) around electric commercial vehicles in general and that the pace of adoption will be slower than seen in light vehicles. But, no matter the timeline or eventuality, we believe Cummins has demonstrated that it intends to be a major player in that market when it develops and that it will not be caught flat-footed if the market moves away from its core diesel engine business.
How investors feel is hard to gauge. Stifel maintained a hold rating on Cummins, but raised it price target from $155 a share to $160 a share. The stock price, meanwhile, climbed 1% to $161, which doesn’t seem like much. But today, the Dow is down 91 points and the S&P 500 has dropped 0.6%.