It’s not easy being green.
Railpower Technologies Corp., the Vancouver-based maker of hybrid “Green Goat” locomotives, saw its shares plunge as much as 38 per cent during trading today after the company warned that its fourth-quarter earnings would include a $23 million to $28 million charge. The stock ended up closing the day down 27 per cent to $4.20.
The problem? The company said it had to increase warranty reserves and had higher locomotive development costs and losses on its third-generation Green Goat contracts. While 28 of the models have been delivered to customers so far and 67 more are on order, the company said “experience with a number of units in heavy use since delivery began has revealed possible battery life issues for which the company is proactively making improvements.” Railpower also said it will replace key components as required, and stands behind its guarantees and customer promises.
To make matters worse, the company said there have also be delays in production and cost overruns for some of its early contracts.
If you take a negative spin on this, you might think there are deeper issues for Railpower and more problems to come, and that this warning will cause its top-tier railway customers to lose faith in the company and confidence in the product. If you think this way, then Railpower in your mind is at the beginning of a downward spiral and it’s time to bail.
Now, on the other hand, you could argue that with any new technology these kinds of problems are bound to emerge and Railpower, by acting decisively, is doing the right thing to prevent this from happening on future orders and locomotive models. The company pretty much says as much in its release: “These issues have no impact on, and are not related to, any other product design, contracts or future orders. Other contracts are expected to be profitable later this year. The prototypes for our newest locomotive models, the road switchers, are scheduled to be completed this spring with a production run of 98 units beginning shortly thereafter. We continue to be extremely optimistic about our products and the strong market opportunities,” said Jos