Plug Power: Creating a Path for Global Green Hydrogen Economy

31 Jan Plug Power: Creating a Path for Global Green Hydrogen Economy

Plug Power Inc. (NASDAQ: PLUG) provides turnkey hydrogen fuel cell (HFC) solutions for the global green hydrogen economy.

Plug Power Inc. (NASDAQ: PLUG)

Market Cap: $2.26B; Current Share Price: 3.73 USD
Data by YCharts

The Company and its Products
The Company’s innovative technology powers electric motors with hydrogen fuel cells amid an ongoing paradigm shift in the power, energy, and transportation industries to address climate change and energy security while providing efficiency gains and meeting sustainability goals. Plug created the first commercially viable hydrogen fuel cell (HFC) technology market. As a result, the Company has deployed over 60,000 fuel cell systems for e-mobility, more than anyone else worldwide. It has become the largest buyer of liquid hydrogen, having built and operated a hydrogen highway across North America.

Plug delivers a significant value proposition to end customers, including meaningful environmental benefits, efficiency gains, fast fueling, and lower operational costs.

Plug’s vertically integrated GenKey solution ties together all critical elements to power, fuel, and provide service to customers such as Amazon, BMW, The Southern Company, Carrefour, and Walmart.

The Company is now leveraging its know-how, modular product architecture, and foundational customers to rapidly expand into other key markets, including zero-emission on-road vehicles, robotics, and data centers.

We will discuss the rationale for covering this Company.

1. Growing Market Opportunity

Plug is the Company behind the end-to-end green hydrogen ecosystem that offers products and solutions ranging from fuel cells to electrolyzers to the production, storage, handling, transportation, and dispensing of liquid green hydrogen. Plug aims to make hydrogen adoption easy for its customers and is helping customers meet their business goals and decarbonize the economy.

Until the green hydrogen economy reaches maturity, a limited supply will be available. During this maturation process, most extensive, hard-to-abate industries are expected to consume significant percentages of the green hydrogen produced, if not all of it.

In most applications, there is a sizeable societal value in deploying green hydrogen. However, in some areas, it can make an outsized impact. Plug is doing the work to carefully understand where, how, and when it should deploy green hydrogen to grow the business and benefit society most significantly.

In creating the first commercially viable market for hydrogen fuel cells, the Company has deployed more than 60,000 fuel cell systems for forklifts and more than 180 fueling stations.

Plug has made many investments to capture the green hydrogen opportunity presented through decarbonization.

The Company is utilizing various methods to expand its business.

For example, Plug is partnering with Fortescue to build the Green Hydrogen economy. Plug is the preferred supplier for a 550 MW PEM electrolyzer supply contract for Fortescue’s Gibson Island Project in Brisbane, Queensland, Australia, and has entered into an MOU for supplying a range of capital equipment, including electrolyzer, liquefier/other cryogenic equipment, and potential co-investments in US green hydrogen plants.

The Company has also taken steps to accelerate the Korean hydrogen economy.

From 2020 till now, Plug’s manufacturing capacity has grown from 50,000 square feet to nearly 1 M square feet, translating into 1900% more capacity. Over the same time, the Company’s product system has evolved from a Class 1 10KW system to a 1MW Fuel Cell System, which means 150 times more power. Moreover, compared to 2020, the Company has several hydrogen plants to its credit today. These include the following:

Operational

Tennessee – 10TPD

Final Commissioning

Georgia – 15TPD

Under Construction

Louisiana – 15TPD Texas – 45TPD

New York – 74TPD

Under Development

Antwerp – 35TPD

Finland – 3 sites

– 85TPD H2 + 70 kt ammonia

– 2 mt DRI/HBI/100TPD H2

Denmark – 1 site

France – 40TPD

Thus, Plug has a vast market opportunity since green hydrogen is critical to decarbonizing hard-to-abate industries, such as long-haul transportation and heavy manufacturing of steel, chemicals, concrete, and more. Moreover, the Company is well-poised to benefit from this opportunity – this is evident from the progress it has made since 2020.

2. Sound Business Strategy

Plug aims to grow revenues from approximately $1.2 billion in 2023 to $6 billion in 2027 to $20 billion in 2030.

The Company’s goals are based on its business strategy, which is focused on the following:

Expanding hydrogen production, with a focus on both output capabilities and geography. Plug has announced several new hydrogen plants for New York, Georgia, Texas, California, Louisiana, and Port of Antwerp-Bruges. The Company broke ground on the plants in New York and Georgia. Plug plans to begin producing green hydrogen in 2023.

Scaling production through electrolyzer and fuel cell gigafactories. In 2021, Plug opened a 155,000-square-foot gigafactory in Rochester, New York. In 2022, Plug expanded manufacturing capacity at the Rochester location. It broke ground on and subsequently opened its 407,000-square-foot facility in Slingerlands, New York, within the year, which includes a 350,000-square-foot world-class fuel cell manufacturing facility to support the growing demand for fuel cells.

Scaling Plug’s electrolyzer program to provide comprehensive and economical solutions focused on the 5-megawatt (MW) and 10MW offerings, and using these building blocks to reach into the gigawatt-scale electrolyzer market.

Expanding into the on-road vehicles market, including delivery vans/light commercial vehicles with the joint venture with Renault (HyVia), while continuing to explore the aviation market (commuter and cargo planes and drones) and the expansion of available applications in the on-road vehicle market (such as yard tractors, cargo vans, buses, and Class 6, 7 or 8 trucks).

Expanding into the large-scale stationary power market, including backup and continuous power applications, data centers, microgrids, distribution centers, and electric vehicle (EV) charging.

Expanding into new regions that require decarbonization, including in Europe and Asia. Plug entered into joint ventures with Renault SAS (Renault) in France, Acciona Generación Renovable, S.A. (Acciona) in Spain, and SK E&S Co., Ltd. (SK E&S) in South Korea.

Partnering with or acquiring companies with solutions that are integral to building Plug’s green hydrogen ecosystem. In 2022, Plug acquired Joule, an engineered modular equipment process design and procurement organization. It acquired two subsidiaries of Cryogenic Industrial Solutions, LLC, Alloy Custom Products, LLC, and WesMor Cryogenics, LLC, to bolster the cryogenic tanker and storage tank business resulting from the 2021 acquisition of Applied Cryo Technologies. Plug also created a joint venture with Niloco Hydrogen Holdings LLC, a wholly-owned subsidiary of Olin Corporation (Olin), named “Hidrogenii” to support supply reliability and speed to market for hydrogen throughout North America.

Plug’s operating strategy objectives include decreasing product and service costs while expanding system reliability, as shown below.

Thus, Plug has definitive revenue goals and is making solid strides to achieve them through efforts in multiple spheres. Given its progress, the Company will likely achieve its aim.

3. Financial Performance

For Q3 FY23, revenue was $199M, compared to $189M for Q3 FY22, up 5% YoY. Overall, the Company’s gross margin was negative 69%, compared to negative 24% for the third quarter of 2022.

Unprecedented supply challenges in the hydrogen network in North America negatively impacted 2023 overall financial performance. This hydrogen supply challenge is a transitory issue, especially as the Company expects Georgia and Tennessee facilities to produce at total capacity by year-end.

For FY23, the Company has provided a revenue outlook of approximately $1.2B.

During the previous year, the Company had reported $701.4M revenue for FY22 with $220.7M in Q4 FY22 — up 40% and 36%, respectively, YoY.

The Company achieved a gross margin of (28)% in FY22 versus (34)% in FY21 and a gross margin of (36)% in Q4 FY22 versus (54)% in Q4 FY21.

Though FY23 was a lackluster year, the Company is poised to ramp up revenues and profits in the upcoming years.

Risks
The Company’s success depends on the successful execution of its business strategy. If Plug fails to do so, its financial condition and results of operations will be severely affected.

Secondly, if Plug experiences delays in meeting development goals (including delivery of electrolyzers to customers, as well as the completion of hydrogen generation projects), its products exhibit technical defects, or if Plug is unable to meet cost or performance goals (including power output), useful life and reliability, the profitable commercialization of products will be delayed. In this event, potential purchasers of Plug’s products may choose alternative technologies, and any delays could allow potential competitors to gain market advantages.

Conclusion
The entire world is walking the path to decarbonization, and green hydrogen is expected to play a vital role in the process of achieving net zero by 2030. Plug is fully equipped to take advantage of this opportunity – the Company created the first commercially viable hydrogen fuel cell (HFC) technology market and has become the largest buyer of liquid hydrogen. The Company is now leveraging its know-how, modular product architecture, and foundational customers to rapidly expand into other key markets, including zero-emission on-road vehicles, robotics, and data centers. Plug expects to achieve revenues of $20 billion by 2030.

Nevertheless, Plug’s success depends on the successful execution of its business strategy and its ability to meet development goals on time; otherwise, its financial and operational performance may be negatively impacted. Hence, potential investors must proceed with caution.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Reference:

https://s29.q4cdn.com/600973483/files/doc_presentations/2023/Oct/11/plugsymposium2023_slides_f.pdf

https://www.sec.gov/ix?doc=/Archives/edgar/data/1093691/000155837023002599/plug-20221231x10k.htm

https://www.sec.gov/ix?doc=/Archives/edgar/data/1093691/000155837023018601/plug-20230930x10q.htm

https://s29.q4cdn.com/600973483/files/doc_financials/2023/q3/3Q23-Investor-Letter-w-tables-11-9-2023-FINAL1-LOAD.pdf

https://www.ir.plugpower.com/press-releases/news-details/2023/Plug-Power-Announces-2022-Fourth-Quarter-and-Year-End-Results/default.aspx

https://s29.q4cdn.com/600973483/files/doc_financials/2022/q4/PLUG-4Q22-Investor-Letter-FINAL.pdf