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Stocks

Cheap oil marks rude awakening from eco-car dreams

TOKYO -- Tumbling oil prices are walloping companies involved in environmentally friendly vehicles and are even blamed for hampering technological innovation, an engine of corporate growth.

     Builders of such eco-cars as electric and hydrogen vehicles, along with others in the sector, are seeing their shares plunge around the world on concerns that demand will weaken as the cost of owning gasoline-powered autos drops. Such gloom is feared to deflate the ambitions of companies that had endeavored to develop breakthrough technologies to help fight global warming.

     Selling by funds lay behind Tuesday's declines in eco-car-related stocks in Japan, said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.

     Despite the news that Kawasaki Heavy Industries will join forces with energy supplier Iwatani to set up a hydrogen import terminal in Kobe, selling prevailed from the morning for the industrial machinery manufacturer. Kawasaki Heavy lost 4.4% -- more than the 2.3% slip by the benchmark Nikkei Stock Average. Hydrogen station developer Taiyo Nippon Sanso and Yaskawa Electric, which makes motor systems for eco-vehicles, also suffered 4%-plus drops.

     The stock market remains vulnerable to oil price movements, with hedge funds increasingly using cheaper petroleum as the basis for their transactions. "The trend now is a long-short strategy that combines long positions in air freight service companies, which benefit from lower oil costs, and short positions in energy- and eco-car-related businesses, which suffer from plunging oil," Kikuchi said.

     Tesla Motors may best exemplify the industry's woes. Shares of the U.S. electric-car specialist have sunk more than 20% since June 10, when West Texas Intermediate crude futures climbed to a 2015 high, compared with the Dow Jones Industrial Average's slide of a little over 10%. Investors are clearly giving Tesla the cold shoulder.

     In fact, American consumers are already returning to pickup trucks and other gas guzzlers, reports Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities. Small trucks, including pickups, logged a 19% year-on-year gain in U.S. automobile sales for December, while passenger cars declined 3%.

     Some investors speculate that consumer technology giant Apple may be scaling back its rumored electric-car development project.

     "With gasoline this cheap, eco-cars aren't as appealing as before," said Yoshihiro Ito of Okasan Online Securities. "This gives pension funds and other institutional investors no choice but to scale back their exposure to these stocks."

     The plunging price of oil, regarded as the lifeblood of industry, has completely transformed the business environment. The sudden headwind for the green-car industry indicates that even greater, more unpredictable changes may lie ahead.

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