Summary
Last August, I turned bullish on Plug Power as I believed the company was finally ready to back up its exciting story with some encouraging numbers.
Although Plug Power's topline growth has been encouraging, there have been no positive developments regarding profitability.
In this analysis, I highlight how Plug Power is making progress with strategic partnerships that enable the company to grow sustainably in the future.
I also discuss why these promising developments may not lead to a positive market reaction for the time being.
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Last August, I turned bullish on Plug Power Inc. $Plug Power(PLUG)$ as I believed the company was finally ready to back up its exciting story with some encouraging numbers. Although Plug Power's topline growth has been encouraging, there have been no positive developments regarding profitability. The result is PLUG stock declining 25% in the last 12 months, even after benefiting from a 40% rally over the previous 30 days. The recent rally was triggered by high expectations for the company's Analyst Day event, which was held yesterday. Ever since the Analyst Day event was announced, investors have been reacting to the new hydrogen deals the company has secured and the new plans for growth. After closely monitoring recent developments, Plug Power's cost structure, and the macroeconomic opportunity, I still believe the company has a long runway for growth, which makes it a company worth monitoring. That being said, with no earnings catalyst in sight, PLUG stock seems likely to give back some of its recent gains in the coming months.
The Business
Plug Power provides green hydrogen solutions for various applications, such as transportation, energy storage, and fuel cells. The company offers industry-leading electrolyzer products that can produce hydrogen from renewable energy sources, such as wind and solar. These electrolyzers play a vital role in sustainable hydrogen production, enabling the company to contribute to reducing greenhouse gas emissions. The company also offers trailer solutions to transport hydrogen from production plants to end users worldwide. Plug Power's fully integrated turnkey handling systems ensure safe storage and dispensing of hydrogen in both liquid and gaseous forms. This comprehensive approach enables the company to offer a seamless integration of its fueling systems with a wide range of applications powered by fuel cells. These applications include electric vehicles, forklifts, backup generators, and stationary power units.
Plug Power has recently made headlines with its plans for an investor day, exhibiting the company's operational growth, with a focus on scaling up operations to achieve ambitious revenue goals. CEO Andy Marsh emphasized the near-term revenue target of $1.4 billion in 2023 and a long-term goal of $20 billion in annual sales by 2030.
Exhibit 1: Plug Power's financial targets
Investor presentation
Expansion In Europe And Industrial Partnerships
Plug Power is a leader in the global green hydrogen economy, with partnerships and customers across various sectors and regions. The company has collaborated with Acciona, S.A. $Acciona S.A.(ACXIF)$, Renault SA $Renault SA(RNSDF)$, and SK Group to accelerate the adoption of hydrogen in Spain, Portugal, France, and Asia. Plug Power has also served some of the largest companies in the world such as Amazon.com, Inc. $Amazon.com(AMZN)$, Walmart Inc. $Wal-Mart(WMT)$, Home Depot $Home Depot(HD)$, FedEx Corporation $FedEx(FDX)$, and BMW $Bayerische Motoren Werke AG(BMWYY)$.
Exhibit 2: Key partnerships
Investor presentation
Strategic partnerships play a crucial role in Plug Power's plans for green hydrogen production. The company recently announced ambitious plans to develop three green hydrogen production plants in Finland, with a focus on supplying the European market. By the end of the decade, Plug Power aims to achieve a production capacity of 850 tons per day of green hydrogen, equivalent to 2.2 gigawatts (GW) of electrolyzer capacity. These production plants will utilize Plug Power's state-of-the-art PEM electrolyzer and liquefaction technology to generate green hydrogen, which will be used in the production of ammonia and green direct reduced iron. The establishment of these plants will not only reduce dependence on fossil fuels but also significantly contribute to the decarbonization efforts across Europe.
The investment in the three green hydrogen production plants in Finland is expected to be one of the largest in the European market. For the development of the ammonia plant, Plug Power has joined forces with Hy2gen, a global project developer of renewable hydrogen, ammonia, and hydrogen-based e-fuels. This partnership will not only support the development of the ammonia plant but also enable Plug Power to collaborate on other hydrogen derivative projects in the region, such as e-fuels, methanol, and ammonia. These initiatives will help the industrial and transportation sectors reduce their carbon footprint.
Additionally, Plug Power has partnered with GravitHy, an industrial company dedicated to decarbonizing the steel value chain, for the development of the DRI/HBI plant. GravitHy, in which Plug Power was a founding partner, is also working on an integrated site in the south of France that aims to produce 2 million tons of DRI/HBI. This partnership aligns with Plug Power's commitment to green steel production and supports the transformation of the steel industry toward a sustainable future.
The selected locations for the green hydrogen production plants in Finland are strategically chosen to leverage the country's abundant decarbonized and clean energy sources, including nuclear, wind, and hydropower. Each site has a specific focus: the Kokkola site will generate liquid green hydrogen and green ammonia for local use and export, the Kristinestad site will produce green hydrogen for green steel production, and the Porvoo site will cater to local mobility and pipeline injection to Western Europe. These sites will contribute significantly to Finland's goal of achieving carbon neutrality by 2035.
Plug Power's collaboration with Fingrid, Finland's electricity transmission system operator, and Gasgrid, Finland's natural gas transmission system operator, further highlights its commitment to developing the necessary infrastructure for the success of these projects. These partnerships will ensure sufficient electric grid capacities and the development of hydrogen infrastructures, facilitating the smooth operation of the green hydrogen production plants.
By undertaking these historic projects in Finland, Plug Power has strengthened its position as a leader in the green hydrogen economy in Europe. The projected growth of the hydrogen storage market from 2023 to 2032 is a testament to the increasing demand for hydrogen in various sectors such as oil refineries, metal refining, and fuel cells. The World Bank predicts the demand for hydrogen will surge to 500-680 million metric tons by 2050, emphasizing the importance of effective hydrogen storage technology in advancing fuel cell applications in stationary power, portable power, and transportation.
Further, The European Union has proposed the RePower EU plan, which aims to produce 10 million tons of renewable hydrogen in Europe by 2030. Currently, hydrogen accounts for less than 2% of Europe's energy consumption and is primarily used in chemical production with a significant carbon footprint due to natural gas-based production. The European Commission's ambitious goal of producing 10 million tons of renewable hydrogen by 2030, coupled with the import of an additional 10 million tons, underscores the urgent need to shift toward sustainable hydrogen production methods. As the demand for hydrogen continues to grow, Plug Power's leadership and investments in green hydrogen production and storage infrastructure position the company at the forefront of the industry, driving the adoption of renewable energy solutions and reducing carbon emissions on a large scale.
Moreover, the company's recent collaborations with Ardagh Glass Limmared AB, Hydro Havrand, and the APEX Group highlight the versatility and potential of green hydrogen in glass manufacturing, aluminum recycling, and steel manufacturing processes. Plug Power's 5MW containerized PEM electrolyzers, the only ones available in the market, play a crucial role in enabling these projects.
Ardagh Glass, a Swiss company, aims to embrace sustainable packaging solutions and plans to generate 2.1 metric tons per day of green hydrogen by the end of the year, replacing a portion of the natural gas used in the glass manufacturing process. Utilizing hydroelectric power and Plug Power's electrolyzer technology, Ardagh Glass will significantly reduce carbon emissions while maintaining its position as a leading glass packaging producer in the Nordic region.
Hydro Havrand, a subsidiary of Norsk Hydro ASA $Norsk Hydro ASA(NHYDY)$ $Norsk Hydro ASA(NHYKF)$, plans to integrate a 5MW Plug electrolyzer module by June 2024 to displace natural gas in the plant's burner, replacing it with 2.1 metric TPD of green hydrogen.
In Bremen, Germany, Plug Power, and The APEX Group are partnering to demonstrate the feasibility of producing green steel. ArcelorMittal's local blast furnaces will undergo decarbonization using two 5MW electrolyzer modules, capable of producing 4.2 metric TPD of green hydrogen. The project's long-term objective is to achieve full decarbonization of the steel industry in Germany and Europe. Through collaboration with SWB, Bremen's public utility company, Plug Power aims to showcase the potential of green hydrogen in revolutionizing the steel manufacturing sector.
With these recent partnerships, it is clear that the development of the industry's first 5MW electrolyzer module has garnered significant attention from customers. The successful production of PEM electrolyzer stacks in Q1 2023 further demonstrates Plug Power's capacity to meet growing demand and contribute to the advancement of specialty applications. In Q1, the company produced 122MW of its 1MW electrolyzer stack platform, setting a new record for both Plug Power and the industry. Furthermore, the company shipped nearly 1,000 stacks for specialty applications, ranging from a few hundred watts to 150kW, totaling 5.7MW. Plug Power is on track to ramp up its gigafactory to produce 100MW per month by mid-Q2 2023, with plans for further increases in output in Q3 2023.
Exhibit 3: Plug Power's position in the hydrogen economy
Investor presentation
Furthermore, Plug Power formed a new partnership and software collaboration with Energy Vault Holdings, Inc. $Energy Vault Holdings, Inc.(NRGV)$. This partnership is set to revolutionize the microgrid market with a groundbreaking carbon-free solution. Energy Vault has designed a hybrid microgrid system for the city of Calistoga, featuring an 8 MW hydrogen fuel cell stationary power alongside battery storage. This innovative microgrid will provide backup power during emergencies, such as wildfires, and marks the largest planned hydrogen-powered fuel cell installation in the United States. This collaboration represents a significant step forward for hydrogen fuel cells in the microgrid market and showcases the future of utility power backup while addressing the challenges of power interruptions in vulnerable communities. With construction set to begin in late 2023 and commercial operation expected by mid-2024, this project demonstrates the potential for hydrogen and fuel cells to transform the energy storage landscape.
Revolutionizing EV Fleet Charging
Plug Power's introduction of the high-power stationary fuel cell system for charging commercial EV fleets comes at a crucial time when the adoption of electric vehicles is expected to skyrocket. With this innovative solution, Plug Power addresses the key challenges faced by operators, such as grid power capacity limitations, clean power requirements, and delays in infrastructure upgrades. By offering a clean and efficient hydrogen-powered fuel cell system, the company not only enables operators to cost-effectively charge their EV fleets but also supports the deployment of zero-emission vehicles, aligning with sustainability goals. The company expects this offering to be one of the largest applications for stationary use in the current year.
According to IEA, the demand for electric cars is experiencing exponential growth worldwide. In 2022, global sales of EVs exceeded 10 million, with China leading the market, followed by Europe and the United States. These figures reflect a substantial shift in consumer preferences towards electric vehicles. As the market continues to expand, there will be an increased strain on the electricity grid. This is where Plug Power's high-power fuel cell system emerges as a game-changer, providing a scalable solution that can cater to the growing needs of EV fleets.
Exhibit 4: Global electric vehicle market size between 2021 and 2026, by region (in 1,000s)
Statista
The company has already garnered significant interest from various stakeholders, including delivery van fleets, rental car companies, telecom providers, public charging networks, and EV charger manufacturers. By combining its liquid hydrogen tank with the megawatt-scale PEM fuel cell solution, Plug Power's system can deliver over 60 MWh of instantaneous energy, allowing for the charging of more than 600 EVs. This level of scalability and power demonstrates the potential of Plug Power's technology to transform the EV industry.
The Missing Earnings Catalyst
As a business, I believe Plug Power is doing a lot of things right by focusing on making the most of the long-term growth opportunity. However, earnings estimates for the next fiscal year - a key metric followed by us at Beat Billions - are continuing to trend lower, which is an ominous sign.
Exhibit 5: EPS revisions
Seeking Alpha
Unless we see a reversal in this trend, I believe PLUG stock will remain under pressure in the foreseeable future despite the company making progress by securing key partnerships to drive earnings growth.
Takeaway
Plug Power continues to accelerate the adoption of green hydrogen on a large scale with strategic partnerships and its expansion plan in Europe. As countries strengthen their policy support schemes to reduce their carbon footprint, Plug Power is poised to gain a significant market share in the green hydrogen industry. The company will play a key role in electrifying the global vehicle fleet too. In the absence of an earnings catalyst to drive the stock price higher, I will remain on the sidelines for now as I believe the recent rally will lose steam in the coming weeks.
Source: Seeking Alpha
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