Plug Power – (too) many projects worldwide?

Hyvia van by Renault and Plug, © Hyvia
Hyvia van by Renault and Plug, © Hyvia

Plug Power is benefiting from the fact that a variety of analysts view the company to be a front-runner in an American hydrogen economy in 2023/24 and one that should be very well positioned to produce green hydrogen through the development of its own electrolyzer capacity in the longer term. In nine years’ time, a revenue of USD 9 billion may even be possible. Until then, a hydrogen price of USD 1 per kilogram should be achievable, according to Evercore analyst James West.

The target price for the shares is between USD 42 and even above USD 70. It is clear that Plug will profit from the infrastructure program just agreed in the USA. A lot of money is flowing into R&D. Funds are also being channeled into subsidizing the price of green hydrogen (hydrogen tax subsidies/production tax credits) and supporting the expansion of the hydrogen economy along with associated applications. Plug still also has USD 4 billion in the bank underpinning its growth forecasts. So in 2022 a revenue of USD 900 to 925 million should be possible instead of USD 825 to 850 million.

On the other hand, it seems to me that it is far too highly dependent on individual key accounts like Amazon. Although it is seeing high billing levels (orders to convert forklift trucks), these do not allow it to achieve satisfactory profit margins. Some stacks are being exchanged. Ballard Power is probably still profiting from this as it was in fact Ballard that supplied Plug with stacks in the early years before Plug Power itself started production in “gigafactories” (see Ballard’s last quarterly results).

Business France

Interesting news like the planning of a feasibility study for deployment in the aerospace industry with Airbus should surely be assessed in a very positive light – although in my view orders will not arrive overnight. Clearly positive news is that Plug Power and oil corporation Phillips66 are planning a joint venture to expand hydrogen infrastructure.

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Conclusion: Plug’s valuation at about USD 24 billion is entirely appropriate and has already factored many positives into the share price performance. The shares will track the positive sentiment which is expected to continue compared to the entire market segment of hydrogen and fuel cell stocks. I remain cautious because, to me, many of the words being uttered by companies seem like they are really meaningless. My view remains that Plug should take stakes in Nikola Motor and Hyzon Motors. This is a way that Plug could position itself in the commercial vehicle industry (in addition to the partnership with Renault for cargo and passenger vans) together with expanding the hydrogen infrastructure – although that is only a strategic observation of mine that I have expressed frequently here.

Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Written by Sven Jösting December 7, 2021

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