Plug Power: Big Amazon Order and Investment

Amazon
Amazon also has interest in solar, © Amazon

First-quarter figures this year differed from expectations. You could say: They were abysmal. A net loss of USD 24.1 million attributable to common shareholders, meaning a loss of USD 0.13 instead of USD 0.07 per diluted share. Plug’s possibly very disadvantageous Walmart business (forklift retrofits financed through leasing) is still making an impact that shows on the balance sheet. But a change in contract terms sometime this year seems very likely and would take the pressure off Plug.

In contrast, the conference call that took place after the publication of the figures seems to have brought back some optimism in that the second half of the year would be entirely different and that the positive outlook was here to stay. The revenue guidance of USD 130 million for 2017 was left unchanged and the profit margins are said to increase considerably. The good news could not completely prevent a fall in prices, but shares remained above USD 2.00, trading much higher than just a few days prior, when stock quotes plummeted below USD 1.00. You could also say: Leave the past behind to focus on the future.

Amazon recognizes potential

Then there was this bombshell: Amazon made it clear that fuel cell forklift trucks have great potential by not only placing a years-long order worth more than USD 600 million with Plug Power (NASDAQ: PLUG), but by additionally being granted the right to purchase a 23 per cent stake in the fuel cell manufacturer. This could mean around USD 70 million.

Last year, Amazon started operating a test unit of an H2 filling station that should be viewed as the reason for placing an order with Plug. While shares had been under pressure only a few days before, dropping below USD 0.90, the Amazon deal was the start of a run to the top, with trades peaking at USD 2.80 in between. What should be highlighted about this transaction is that a large corporation such as Amazon intends to make broad use of fuel cells in day-to-day operations, putting its “green conscience” into practice. It may be understandable now why the exercise of early-issued warrants had led to USD 36.6 million in new capital, after Plug had invested more than USD 35 million (e.g., because of a swift expansion of H2 filling stations). The plan is to add 5,500 systems and 25 filling stations this year. The cash required ranges from USD 25 million to USD 35 million. Bookings are expected to top USD 325 million in 2017.

FedEx collabo underway

The collaboration with FedEx seems to make good progress in the test-stage retrofit of courier vans. A battery would offer a range of around 100 kilometers or 62 miles, while a fuel cell range extender could increase mileage to more than 275 kilometers or 171 miles. In around 12 months’ time, Ballard expects to ramp up deployment (bookings) from this project.

Hydrogenics is collaborating with UPS in this field. Deutsche Post relies on its in-house battery developments – StreetScooter – and on Daimler.

Will Amazon soon get to Ballard too?

Since large corporations such as Amazon – as well as Apple, Facebook, Google and others – are also large consumers of energy because of their IT centers, the Amazon-Plug deal lets me assume that additional corporate departments could be interested in fuel cell use. The obvious choice for Amazon would be Ballard Power, Plug Power’s supplier of fuel cell stacks for forklift trucks and indirectly already tied into the deal. And Canadian-based Ballard Power has a subsidiary, Protonex, (article revised August 7th) with important know-how of drones, another application for fuel cell use. Here, too, Amazon has taken the lead globally, with intentions to use drones in as many logistic tasks as possible.

Forging a Plug-like deal with Ballard would not just be a theoretical scenario. It would be possible for Amazon to request Ballard’s services in drone research, seek a stake in the stack manufacturer (for the many important patents) and secure drone supply (bookings) through Protonex. I could imagine the same to unravel if a deal were struck with Apple, as the corporation has interests in various potential fuel cell markets, considering the patent portfolio it has acquired over the years. Reportedly, Apple is planning to design its own electric car; it’s not known yet whether it will be a purely battery-driven one or a fuel cell hybrid.

Risk warning

Investors must understand that buying and selling shares is done at their own risk. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small and mid-cap ones, i.e., they do not represent stakes in big companies and the volatility is significantly higher. This article is not to be taken as a recommendation of what shares to buy or sell – it comes without any explicit or implicit guarantee or warranty. All information is based on publicly available sources and the assessments put forth in this article represent exclusively the author’s own opinion. This article focuses on mid-term and long-term perspectives and not short-term profit. The author may own shares in any of the companies mentioned in this article.

Author: Sven Jösting, written May 2017

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