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Part 2: Doubling Down on the “Green” With HydroPhi Technologies Group (HPTG)

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Recently I brought your attention to a young Georgia-based company called HydroPhi, trading over-the-counter under the symbol HPTG. HydroPhi has developed a patent-pending, bolt-on system that injects hydrogen into vehicle engines called HydroPlant. The aim of the HydroPlant system is to reduce engine emissions and improve fuel efficiency in cars, trucks and other gasoline-burning vehicles. In this second part of my article on HydroPhi, I promised to point out what distinguishes the company and its flagship product, and how the IPO-ish shares have traded during their short time in the marketplace.

If you’ve traded over-the-counter stocks for any length of time, you’ve no doubt read glowing stories about the company whose stock you’re buying, and how big the potential market is for their products. Often these companies are long on promise, but short on delivery—and sometimes never even get a product to market. The opposite appears to be the case with HydroPhi, however.

One of the most noteworthy things about HydroPhi’s HydroPlant system is that it has already undergone successful tests on a large company’s bus fleet, resulting in an impressive 20% reduction in fuel costs based on that company’s evaluation of buses equipped with the technology. The company is Rutas Unidas, the largest association of bus operators based in Mexico City, Mexico. Rutas Unidas plans to continue testing the system on additional transit buses and looks forward to installing the HydroPlant system on additional vehicles within its bus fleets.

Of course HyrdoPhi isn’t alone in its pursuit of a hydrogen-specific fuel and emissions control system, yet unlike previous hydrogen injection systems, HydroPlant extracts hydrogen from water “on the go,” making it unnecessary to store or transport hydrogen—overcoming two of the most cost-intensive and technology-handicapping hurdles in employing hydrogen for fuel in vehicles. And because hydrogen is generated on-demand, HydroPhi’s system is scalable for a wide variety of applications.

Specifically, HydroPlant uses a Proton Exchange Membrane (PEM) electrolyzer cell to separate hydrogen and oxygen from the water molecule. Total production of H2 and O2 is six standard liters per minute. When small quantities of hydrogen interact with diesel fuel, for example, it helps the fuel mix with air in the combustion chamber. That interaction allows the engine to operate on a “leaner” mixture of fuel, has a variety of beneficial thermal effects, and reduces emissions of several different greenhouse gases.

The fact is that clean air standards in the United States are getting tougher, driven by both Federal and State mandates, rapidly multiplying the size of the market for technologies like HydroPlant. In 2010, the U.S. Environmental Protection Agency and the National Highway Traffic Safety Administration announced joint greenhouse gas emissions and fuel efficiency standards for big trucks, buses and other heavy-duty vehicles starting with 2014 models. The first-of-their-kind regulations call for a 20% reduction in heavy-vehicle emissions by 2018.

Phase 1 of HydroPhi’s business plan is to target the Southeast United States—including 20,500 Class 8 trucks. It will offer its HydroPlant system for sale at approximately $14,500, or companies can lease the device for $294 per month over a five-year contract, for a total of $17,640. Current estimates put the net fuel savings per truck at $7,180 per year, which translates into $35,690 over the course of a five-year lease. That means that if HydroPlant is installed on just a smallish fleet of 100 vehicles, that company could realize $3.5 million in cost savings!

Once HydroPhi can penetrate the Southeastern marketplace, it intends to step up its efforts in Europe, which could prove even more prolific as fuel costs tend to be about 3x what they are in the United States. That effort will be followed by the third prong in the company’s expansion plan—exploiting the bus and distributed electricity sectors.

As with any start-up company that has a limited trading history, it’s difficult to come to any hard-and-fast conclusions about the imminent trajectory of HydroPhi’s share price. That said, after a little more than a month on the open market, HPTG shares are trading near the top of their all-time high of $0.79 per share.

 HPTG chart

HPTG shares reached that zenith of February 7, when more than 200,000 shares changed hands, the highest single-day volume of the year so far.

With a unique and potentially game-changing technology that’s already proven effective, coupled with a marketplace that is rapidly expanding due to both legislative mandates and the ever-present need to improve operating efficiencies, HydroPhi appears to be positioned for expansive growth. If the company can continue to make headway in having its technology adopted by high-profile clients, the share price of this up-and-coming penny play may have legs in 2014 and beyond.

 

Warren Gates, Senior Analyst, Oakshire Financial

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