How Fuel Cell Car Roll Out Could Boost Plug Power

May.14.14 | About: Plug Power, (PLUG)

Summary

Plug Power could benefit from fuel cell-powered cars because it manufactures hydrogen gas pumps.

Plug Power is one of the most experienced manufacturers of the infrastructure that fuel cell vehicles require.

The state of California might spend $200 million for building hydrogen fueling stations for cars that could use Plug Power's pumps.

Fuel cell-powered vehicles are about to hit America's streets, and when they do, one of the biggest beneficiaries could be a little company called Plug Power (NASDAQ: PLUG).

Plug Power could benefit from the popularity of fuel cell-powered vehicles because among other things, Plug Power manufactures a hydrogen gas pump for fuel cell vehicles called GenFuel. The current generation of fuel cells runs on hydrogen gas, which they convert to electricity. In a fuel cell-powered vehicle, the electricity powers electric motors that move the wheels.

Plug Power's expertise is building infrastructure for hydrogen-powered fuel cells, which fuel cell-powered vehicles will need. There might soon be a lot more demand for that infrastructure because several major automakers are planning to mass market fuel cell-powered vehicles.

Fuel Cell Vehicles about to Hit the Road

Recent news reports indicate that at least four major automakers have plans to start selling fuel cell vehicles in the next few years.

Honda and Toyota each plan to sell around 1,000 fuel cell-powered cars in 2015, the website NDTV reported. Toyota's vice president of automotive operations, Bob Carter, is so sold on the idea of fuel cell cars that he publicly badmouthed naysayers such as Tesla's Elon Musk and Nissan's Carlos Ghosn at this year's Detroit auto show. Carter thinks fuel cell cars could be as popular as the Prius.

Hyundai is leasing fuel cell-powered Tucson SUVs in the Los Angeles area. AutoBlog reports that the Korean carmaker plans to lease around 100 Tucsons this year and more next year. There are currently between 75 and 100 fuel cell-powered Hyundais on the road in Southern California.

Mercedes-Benz could start marketing F-Cell fuel cell vehicles as early as 2017, the company's head of sales and marketing, Ola Kallenius told the Australian magazine, Motoring, on March 13, 2014. Kallenius didn't give any more details, but she said the company, which tested a fuel cell vehicle in 2010, is looking into the possibility of an F-cell powered SUV for 2017.

Market for Hydrogen Gas Stations Could Be Large

Fuel cell-powered cars could be more popular than battery-powered electric vehicles for two reasons. They put out no emissions except water vapor, and they could have a much longer range than electric vehicles. Auto Week reported that Toyota's F-cell sedan, due out next year, could run 300 miles on a tank of hydrogen.

The money for the hydrogen fueling stations is already partially there; Auto Week reported that the state of California has pledged $200 million for the building of hydrogen fueling stations. Around 20 stations will be built in 2015 and 20 more in 2016. There could be up to 100 hydrogen fueling stations in California alone by 2024.

The U.S. Department of Energy is also committed to bringing fuel cells to market. Scientific American reported that Energy Secretary Ernest Moniz announced $50 million in funding for advanced technologies, including fuel cells, at the Detroit Auto Show.

No Support for Fuel Cells outside California

The roadblock to fuel cell cars is that there seems to be little or no interest in creating infrastructure, i.e., gas stations for them outside of California. Neither the federal government nor any other states have put up any money for building hydrogen gas stations in other parts of the country.

Shell has built a few demonstration hydrogen stations in California. Yet it has not announced plans to roll them out nationwide. Without a large oil company involved, it is hard to see a big market for Plug Power's hydrogen gas pumps.

Even if fuel cell cars work, it could be a few years before there's any demand for hydrogen gas pumps outside California. That makes Plug Power a highly speculative play yet an interesting one.

Plug Power More Than Just Gas Pumps

Fortunately, Plug Power has a lot more going on than hydrogen gas pumps. It has successfully marketed its GenDrive fuel cell power system for forklifts and other warehouse vehicles to major companies, including Wal-Mart (NYSE:WMT), BMW, CVS Caremark (NYSE:CVS), FedEx (NYSE:FDX), Kroger (NYSE:KR), Lowe's (NYSE:LOW), Procter & Gamble (NYSE:PG), and Mercedes-Benz.

Plug Power just bought ReliOn Inc., a company that makes fuel cell stack systems for use as backup power sources for cell phone towers. ReliOn has sold more than 5,000 of the systems, according to a Plug Power press release, and its clients include Sprint (NYSE:S), AT&T (NYSE:T), and Verizon (NYSE:VZ).

With or without fuel cell-powered cars on the road, Plug Power looks like a small company with a big future. Even though its trailing yearly revenue is miniscule-around $26 million-Plug Power has proved it can successfully manufacture and market reliable fuel cell technology. It also owns more than 150 fuel-related patents, which could put the little company in a good position to cash in on the popularity of fuel cell-powered vehicles of all sorts.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PLUG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.