The Street Sweeper

About the Author The Street Sweeper

Sonya Colberg joined TheStreetSweeper in early 2012 as a senior investigative reporter after racking up an impressive pile of journalism awards for her past work at two major daily newspapers. For example, Colberg recently won top honors – recognized by the Society of Professional Journalists and the Associated Press alike – for her performance in the tough investigative reporting field. During her long and decorated career, she has walked away with major prizes for her in-depth coverage of business and healthcare as well. A fearless reporter with incredible writing skills, Colberg has now teamed up with Melissa Davis – another award-winning journalist who serves as senior editor of TheStreetSweeper – to deliver hard-hitting coverage of risky stocks to the investment community.

Ballard Power Systems Inc. (BLDP) Struggling In Extremely Silly Niche

By Sonya Colberg

 

Fuel cell maker Ballard Power Systems Inc. (USA) (NASDAQ:BLDP) has let its best technology slip away and insists on weaving down a long, bumpy road to nowhere on three flat tires.

Shares popped after Ballard announced Volkswagen would pay $50 million for the proton exchange membrane fuel cell patents that Ballard bought last April.

“That’s where the magic really happens,” a longtime clean-tech analyst told TheStreetSweeper. “And that’s what Volkswagen bought.”

But the fuel cell manufacturer would have been wiser to ink a deal to sell its customer, VW, all the fuel cells it wants. However, blinded by the cash infusion, the market excitedly ran up the stock by $1, though the deal was really worth only 38 cents per share ($50m/132m shares).

Ballard’s agreement does include a $30 million VW service contract extension to 2018. Unfortunately, though, that money will get coughed out over the years.

Besides tossing away its prime technology, other issues facing Canada-based Ballard include:

  • No significant opportunity remaining.
  • Expert calls fuel cell cars “extremely dumb.” Volkswagen adds, “decades away.”
  • Google and Apple cars: Electric, not fuel cell, for a simple reason.
  • China prospects fold.

Though investors may read different viewpoints here, we’ll hit other issues threatening Ballard stock with a Hindenburg-esque explosion.

No significant opportunity left.

Some investors may be clinging to the hope that Ballard could strike a deal similar to the VW arrangement with other car companies.

We disagree.

That’s because Daimler Chrysler, Toyota, Honda, Nissan, GM, Ford, Hyundai, and BMW already have their own fuel cell plant in-house.

So Ballard traded its technology – which it bought last year from United Technologies Corp. – for cash. But the arrangement has left Ballard with little more than the ability to sell fuel cells for buses.

Ballard did recently hype a possible deal for supplying fuel cell technology for 10 buses – but this is more of a very slow, low-rev process that’s been going on for a long time with little financial impact.

Experts, even Volkswagen, say fuel cell is decades away.

Bloomberg Business delves into the limited prospects of fuel-cell cars beyond Japan, where handling hydrogen for fueling stations has been found to be challenging, expensive and demanding heavy subsidies.

“It might fly in Japan, but not globally,” Volkswagen Group Japan President Shigeru Shoji said.

Volkswagen Japan spokesman Yasuo Maruta agreed in the Bloomberg piece.

“There are still a lot of questions lingering about how practical it is even though Toyota launches next year,” said Mr. Maruta.

“By the time it gets very usable by the normal customers, it’s maybe still a decade or two decades away,” he added.

Electric car company Tesla Motors’ co-founder and CEO Elon Musk also spoke out recently about fuel cell cars. He dismissed them as irrational, according to MLive Media Group.

“I just think they’re extremely silly,” he said at the Automotive News’ annual World Congress last month.

He said it will become obvious in time that hydrogen is impractical for powering cars.

“If you’re going to pick an energy storage mechanism, hydrogen is just an extremely dumb one to pick,” he said.

A recent Forbes article says fuel cell vehicle sales will likely be even smaller than electric car sales for many years.

In the article, the co-manager of Shelton Green Alpha Fund, Garvin Jabusch, shared his thoughts about the fuel cell space.

“I’ve yet to be convinced … that there is a way to eke a profitable business model out of the space,” said Mr. Jabusch.

Apple rumored to build driverless electric cars; emphasizes fuel cell shortcomings.

Apple Inc. (NASDAQ:AAPL) appears to be secretly working toward an Apple-branded electric car, according to the Wall Street Journal. Some “clean” stocks, like Ballard’s, ran up a bit while numerous reports circulated about Apple working toward an answer to rival Google’s prototype self-driving electric car.

This excitement merely shows that the industry is moving toward electric vehicles over the next decade. Not fuel cells.

The main reason current and future carmakers are going after electric rather than fuel cell is the cost and infrastructure.

Just a few hydrogen fueling stations exist – a sprinkling on both coasts and overseas. According to Alternative Fuels Data Center, only 12 hydrogen fueling stations exist in the U.S.

The hydrogen fueling system would require pipelines, a truck transport system, hydrogen generation plants and hydrogen filling stations across the US.

Safety concerns

Hydrogen can ignite from static electricity and leaks easily, sometimes with tragic results. So specially trained emergency responders would have to respond to accidents involving fuel cell-powered cars or any incidents that might occur along the hydrogen system itself.

It would be no surprise if, when they hear “hydrogen,” people think “Hindenburg” rather than water, fuel cell’s mild byproduct. Those fears were likely reinforced by the explosion at a Rochester, N.Y. hydrogen filling station in 2010 that occurred during a fuel transfer.

Then there are the engineering challenges. Either sturdier vehicles or lighter-weight hydrogen would have to be developed to accommodate relatively heavy hydrogen.

And other countries are unlikely to match car subsidies like those in Japan, reaching $28,500 per vehicle.

So expensive cars and steep infrastructure investment are slamming the brake on fuel cell development.

Another loss: China sale fails to materialize.

The company thought it had knocked down a China bus deal worth “approximately $6 million over the 2014-2015 period,” Ballard trumpeted last June 19.

“The Telecom Backup Power market is a key growth driver for our business and is also a significant opportunity in China given the scale of the market and China’s growing focus on clean energy technology,” said John Sheridan, Ballard’s former president and chief executive.

Ballard would be “the exclusive supplier of subsystems” to China’s Azure Hydrogen, Ballard announced in various press releases.

Then Ballard backed out.

Instead of pocketing millions – an SEC filing reflects an $11 million value in the first year – Ballard terminated the two licensing agreements amid Azure’s “material breaches” that it broke to investors fresh from the New Year’s holiday on Jan. 2.

Ballard warned that it would miss its 2014 revenue guidance of an increase of 20 percent or $73.5 million. It also plans to take a $4.5 million impairment loss. Details will come during the earnings conference call later this month.

Meanwhile, after Ballard’s embarrassing hype proclaiming the Azure deal as a stepping stone into the China market, a big question remains. What now? Unfortunately, the answer is that investors should forget about seeing Ballard get into the China market.

Conclusion:

Ballard can’t ride this fuel-cell jalopy much farther. Along with the preceding list of problems, the company has a history of restated earnings, consistent losses and top executives who received $3.3 million compensation in 2013 – an unspeakable figure for a company that makes nothing and threw away its greatest hope for decent future revenues.

A big blowout is just around the bend!

  • Torsten

    For several years now Ballard has moved away from the automotive fuel cell (FC) market, focusing on other, more near-term applications for their fuel cells such as telecom back-up and residential. Therefore, selling out their automotive fuel cells to VW seems a bargain in the eyes of Ballard. As the author rightly pointed out, all other automotive manufacturers have started to develop their own fuel cells. Ballard has probably only sold those patents that might apply to the automotive applications, and it says a lot about the state of VW that they have contracted Ballard. VW has for years developed the “wrong” (high-temperature) type of fuel cells for automotive applications, and now they need to learn about low-temperature fuel cell from a company that could not keep up with the other automotives (note that each of them has spent more than 1 billion in FC development by now – money that Ballard does not have).

    If VW claims that fuel cells are still “decades away”, why did they buy VW patents at all? The lifetime of a patent is 20 years, and it may be safely assumed that the average age of an automotive fuel cell patent held by Ballard is around 10 years, so it makes no sense at all for VW to buy them unless the technology is a lot closer to commercialization than they let on.

    Finally: The biggest threat to E. Musk and Tesla are fuel cell cars which is exactly why he never misses an opportunity to lash out. In the end we will see a mix of batteries and FC cars. Currently, there is a lot of research dedicated to battery cars with a fuel cell “range extender”, but for that hydrogen refueling stations will be needed as well.

  • Tom Sperrey

    There’s a lot of misinformation going on here. Hyundai have already rolled out their ix35 fc and Toyota will release their FCV this autumn. Of course Volkswagen say it’s ten years away – they don’t have a product. FCVs are a threat to Tesla, so that’s why Elon Musk is being so defensive. This is basic stuff – you just have to look at the vested interests of those making brash comments.

    As to safety, it’s irresponsible to spread FUD in this way. Hydrogen is a safer refuelling prospect than gasoline (with around equal potential for both ignition and explosive force) but has the benefit of being extremely bouyant. This means that in the event of a leak, the explosive gases get away from ground level very quickly, whereas gasoline vapour, being heavier than air, sinks to ground level to await ignition around your knees. I know which I’d prefer.

  • Veverka

    I work in this industry, so I’m used to reading misinformed stories/information such as this, but seriously, this author needs some technology background before writing about a tech sector. My favorite quote from above, “Then there are the engineering challenges. Either sturdier vehicles or lighter-weight hydrogen would have to be developed to accommodate relatively heavy hydrogen.”

    Does she mean lighter hydrogen storage materials/tanks(?), because last time I checked (high school chemistry), hydrogen is the lightest element in the universe.

    I feel like she copied that sentence from somewhere else and replaced the word “batteries” with “hydrogen.” Batteries are very heavy, hydrogen is not.