Four Fuel Cell Companies For Pure-Play Investment

by: Mitch Vine

Fuel Cells are widely expected to play a key role in our clean energy future. They have the potential to efficiently convert a wide variety of fuels into electricity.

Major automotive companies such as Toyota (NYSE:TM), Daimler and Honda (NYSE:HMC) are investing in fuel cell research as a automotive power source. Governments are hoping to use fuel cells to feed the grid with less dependence on foreign oil and lower greenhouse gas emissions. Commercial companies are looking at profiting by creating electricity and heat from process by-products.

The development stage has taken longer than hoped, and profits have been elusive, but the companies developing fuels cells are sharpening their strategies, focusing on the successful bits of their business, and managing expenses in an attempt to cross the line into profitability.

Four North American companies, Ballard Power (NASDAQ:BLDP), FuelCell Energy (NASDAQ:FCEL), Plug Power (NASDAQ:PLUG) and Hydrogenics (NASDAQ:HYGS) are all fuel cell technology companies that offer a pure-play fuel cell investment.

Ballard Power

Ballard Power (with $65 million in revenue in FY2010) PEM fuel cells are powered directly by hydrogen. Evolving from their early history of targeting the automotive market, they are now targeting four different markets. In the vehicles sector they are targeting transit buses and industrial lift trucks (through their OEM partner Plug Power). In the stationary power sector they can provide backup power for mobile telecom operators and also continuous power in situations where the grid is not available. The largest potential market in stationary power is distributed generation. Ballard is focusing on cost reduction and expects gross margins to improve from 13% this year to the 30%-35% range next year. They see positive EBITDA potential in 2012. An important part of their future may be providing other OEMs, like Plug Power, with small fuel cells stacks that the partner builds into a system optimized for a specific applications.

FuelCell Energy

FuelCell Energy (with $69.8 million in revenue in FY2010) makes large fuel cell systems (up to 2.4 MW) designed to create electricity to feed the grid or provide power and heat to large commercial operations. The technology is being proven in more than 50 installation sites. Their carbonate fuel cell technology is able to run on a variety of fuel types, such as natural gas, propane, methane, and coal gas. This gives them the flexibility to burn byproducts from industrial processes, such a methane from sewage treatment plants or landfill dumps or gases extracted from chemical plants. It also allows the potential to burn renewal biofuels. The company claims that their power is already cheaper than grid power in some parts of the world, and their vision is to produce clean power at lower than grid cost.

Plug Power

Plug Power, (with $18 million of revenue in FY2010) after several years of development mode, has reorganized and changed to a production mode, with a single application focus. They are making fuel cell systems that replace the traditional lead-acid battery sets that power industrial lift trucks, and claim 85 percent market share. They make three models to fit into the standardized requirements of North American lass 1, 2 and 3 electric lift trucks. Plug has gone through a significant restructuring, resulting in lower operating expenses. They depend on a technology partnership with Ballard Power for supply of the fuel cell stack inside their systems. Their customers are large manufacturers and distribution centers. In the June 30 quarter, the company took orders for 986 lift truck units, and had a shippable backlog of orders for 1,296 units, and the company expects to ship approximately 70% of backlog in the remainder of 2011. They expect to roughly double revenue this year and next, reaching positive gross margins in the 4th quarter, and positive EBITDA in 2012.


Hydrogenics (with $20.9 million of revenue in FY2010) is pursuing an emerging market for on-site hydrogen generation units, called Electrolyzers. These devices can covert electricity and water to hydrogen fuel. They also make PEM based fuel cells that can be used for power systems applications such as buses, forklifts and other fleet vehicles, and target backup power applications such as powering telecom towers. For this, they are working with CommScope, a strategic partner with extensive access and resources in the telecom market. An interesting opportunity for the company is a plan in Germany to build 1,000 hydrogen fueling stations, each of which could use an Electrolyzer hydrogen generating station.

The fuel cell industry is finally coming of age. We are optimistic about its financial future as well as the important role it can play in a greener planet. We expect that once a couple of the fuel cell companies have reached profitability and high volumes, it will help accelerate the entire industry.

Disclosure: I am long PLUG.