We are short shares of Plug Power, a $40 billion provider of hydrogen fuel-cell solutions that’s set to generate a paltry $300 million in revenue in 2020 and trades at 40x its own aggressive revenue projection for 2024. The company’s stock has almost doubled in just the last few weeks, and has risen by 15x in the last year, on the naïve excitement of uninformed investors over the prospects of the “hydrogen economy,” or the idea that hydrogen and the fuel-cells (FCs) it can power will be a critical part of the transition from fossil fuels to “green” energy. But it’s all just a pipe dream, because “green” hydrogen is too expensive and too inefficient to produce, store, transport, and burn. That’s not because of manufacturing inefficiencies or an imaginary technology S-curve that has yet to be scaled. It’s because of the laws of physics, which we don’t expect Plug can successfully defeat.
For the time being, Plug Power has found precisely one use-case for its FCs: forklifts. That’s almost comical for a company with a market value greater than any of the oligopolists dominating the diesel truck engine market. But the material handling market, as the company calls forklifts in its presentations, is much less than meets the eye. For one thing, the FCs sold to large warehouse customers Amazon and Walmart have been linked to warrant issuance that leaves them owning close to 15% of Plug in return for virtually nothing. Hundreds of millions of dollars’ worth of fuel cell “revenue” from Amazon and Walmart over the last few years has been exchanged for ownership stakes now worth billions of dollars. The revenues from selling these forklift fuel-cell systems have also been attached to service and refueling agreements that consistently result in negative gross profits, which begs the question: if Plug can’t even provide “black” environmentally-unfriendly hydrogen at a profit, how does green hydrogen stand a chance?
More importantly, despite the $30 billion total addressable market (TAM) and 1.5 million annual forklift purchase volume that Plug claims it can penetrate in the material handling market, the real problem is the same one with which the “hydrogen economy” will never be able to contend: lithium ion (Li) batteries have already demonstrated their value proposition for forklifts and are quickly coming to dominate the market. Hydrogen-powered forklifts are a small and cheap niche bet on the part of large corporations, either directly on Plug’s stock price, as in the case of Amazon and Walmart, or on the ESG bragging rights that come along with the false perception of “being green.” But aside from the reality that Li-powered forklifts, in contrast to those powered by hydrogen, can actually turn environmentally friendly over time, batteries will also almost always be more economical than fuel-cells – in any application – because electricity is much more efficiently produced and stored than hydrogen. And that’s without considering the plant-altering capital expenditures required to use fuel-cells.
Recent weeks have seen investor enthusiasm about hydrogen reach astonishing levels, aided by two strategic partnerships Plug has entered. Both partnerships, though, should be seen as signs of weakness rather than strength. The first, with SK Group, is just an opportunistic capital-raise on the part of Plug from South Korea’s utility monopoly, which is struggling to find its place in a decarbonized future given the region’s lack of solar and wind resources. The other, with Renault, is a desperate attempt to stay relevant on the part of one of Europe’s weakest auto manufacturers by entering a costless JV with Plug. Renault will supposedly be making FCEV light vehicles that are already miles behind their BEV competition. Both deals contemplate finalizing actual details at a later date, but by the time that’s supposed to happen, we expect Plug’s stock price will have collapsed, along with the once-a-decade recurring myth about a “hydrogen economy.” SK and Renault might be able to afford the trifling write-off, but Plug investors are in for a shock.
Read the full report here [1].