Will Plug Power Be the First Profitable Fuel Cell Company?

Is Plug Power lurching to profitability along the hydrogen highway on forklifts? (Nasdaq delisting notice notwithstanding.)

Eric Wesoff, October 21, 2013

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

Plug Power's CEO, Andy Marsh, is looking for profitability for his fuel cell firm in 2014.

A profitable quarter for a publicly traded fuel cell company would break a 100-year drought in the sector. But several other large fuel-cell firms may be on the brink of profitability in 2013 or 2014, as well.

Bloom Energy's CFO was cited by Dan Primack of Fortune's Term Sheet in 2012 as envisioning profitability in 2013. We haven't heard a lot since then about Bloom's profitability, although its base of premier customers and partners continues to grow. We'll look for the details in the anticipated S-1.

FuelCell Energy CEO Chip Bottone told GTM in an earlier interview that the firm will be profitable at an 80-megawatt-per-year run rate, likely to be achieved sometime in 2014. Lazard's Sanjay Shrestha has promised an "inflection point of its growth curve" for FuelCell Energy for a while now, writing of "a clear path to profitability over the next eighteen months." GTM contributor Chris Nelder spoke to Bottone last month; the CEO said he expects to have a total portfolio of 150 megawatts to 200 megawatts in operation by the end of the year.

Both Bloom and FuelCell Energy build large stationary fuel cells using SOFC and MCFC technologies, respectively.

Plug Power (PLUG), on the other hand, targets its PEM fuel cell system at powering forklifts and other vehicles in the $20 billion materials handling market.

We spoke with Andy Marsh, Plug Power's CEO, last week. He joined the Latham, NY firm in 2008, despite the warnings of his father, an engineer at Bell Labs, to steer clear of fuel cells.

"We sell industrial productivity," said Marsh, citing the 4,000 Plug Power units on forklifts that are now deployed in 42 warehouse and distribution centers. The largest customers include Wal-Mart with 500 units and BMW with 300 units, as well as Coca-Cola, FedEx, and Lowe's.

"When I joined, there were a lot of technology experiments and not enough market focus," said the CEO, adding, "Very few companies could give a reason for why they were using fuel cells."

"But it turns out that fuel cells in a forklift truck made the [customer's] operation run easier. It eliminated the battery room. We sell that value proposition." Marsh said that the firm is focused on forklifts, of which there are 6 million worldwide. (Batteries are still used in the forklifts for surges.)

This is an example of distributed generation that actually takes the customer off the electrical grid, powering the materials handling operation with hydrogen. While Bloom and FuelCell Energy's equipment runs on natural gas and requires a reformer, Plug Power's PEM fuels cells run on "five nines" hydrogen and work most productively with a hydrogen infrastructure at the customer site. Note that industrial giant and JV partner Air Liquide is an investor in Plug Power.

Wal-Mart has 250 forklifts at one location -- and powering that fleet's batteries can account for up to 25 percent of the facility's electric bill. The CEO said it's less about the fuel cell and more about how you're going to get the fuel. He added, "This only works if you have 30 or more forklift trucks." Some facilities are converting natural gas to hydrogen with an on-site reformer.

Plug Power offers product sales, as well as turnkey hydrogen operations and service. "What I'm selling is value," said the CEO, citing a payback of less than a year for an older distribution center. He also noted that Plug Power customer Wal-Mart no longer builds its facilities with a battery room and has purchased a turnkey solution for hydrogen and service. The CEO also notes that most customers have bought service packages and that 30 percent are complete turnkey deals.

Marsh notes that customers improve their rate of "pallets moved per person per hour" by about 6 percent with fuel cells.

So PEM fuel cells in forklifts provide lower emissions and a quick payback despite a high initial cost, along with higher productivity. The economics work best in warehouses with large vehicle fleets and onsite hydrogen infrastructure.

The CEO said that there's the possibility of experiencing a profitable third quarter in 2014. However, he didn't mention that there's also the potential of being delisted by Nasdaq for not maintaining a $1 minimum stock price. Plug will either get a 180-day extension at a hearing or a ten-day notice, at which point the company will likely go through a reverse stock split to shore up the share price.

In March 2000, Plug Power's stock price was $1,400 and the company had a market cap of $6 billion. Today the company has a market cap of $50 million and a stock price of $0.62.

The company had revenue of $24.6 million in fiscal year 2012, along with net losses of $30.3 million. The company's outlook for fiscal 2013 grows revenue to $35.3 million and cuts losses to $14 million. Plug Power might figure out how to make money in the enormous materials handling business by late next year, as per the aspirations of its CEO.

But the firm still has to survive its precarious cash position and grow its sales and margins to make it to that promised land.