Recovering from yesterday’s growth stock sell-off, shares of hydrogen fuel cell companies Plug Power (PLUG) and Bloom Energy (BE) — both of which both produce fuel cell systems and are building hydrogen production businesses to fuel those cells — and also Nikola Corporation (NKLA), which is building fuel cell-powered trucks, bounced back in Friday trading.
As of noon ET, Plug stock is up 7.7% and Bloom is gaining 5.2%, and both of these stocks are trading above where they were before yesterday’s sell-off. Nikola isn’t quite back to where it was pre-sell-off, but it’s close — and it’s up 6.5% today.
A report on the state of the fuel cell industry from global technology research and advisory company Technavio may be behind the rally.
Technically published Wednesday, but according to Google only released onto the wires yesterday, Technavio’s report mentions both Plug and Bloom (and Ballard Power and FuelCell Energy besides) by name, and it contains both good news and bad news for renewable energy investors.
The good news is that the hydrogen market is still growing by leaps and bounds, and predicted to average 23.4% compound annual growth through 2025. The bad news is that that’s a bit slower than the 27.2% that the hydrogen market grew last year. The other good news, though, is that Technavio thinks the world can use another 1,585 megawatts of hydrogen-sourced power over the next three or so years — and that more than half of this growth will be centered in the Americas, where Plug, Bloom, and Nikola are all based.
But now consider the other bad news — the part Technavio doesn’t emphasize so much: Fuel cells have been in existence for some 60 years already, and growing all that time. But while some companies — Nikola for instance, which was founded only eight year ago — are relatively new to this technology, others — Plug and Bloom for example, have been in this business for more than 20 years now.
And whether young or old, none of these companies has yet found a way to earn a profit from selling fuel cells.
Now this doesn’t mean that these companies won’t ever figure out a way to earn a profit. In fact, according to analyst forecasts collected by S&P Global Market Intelligence, Plug and Bloom might turn profitable under generally accepted accounting principles (GAAP) as early as 2024, and Nikola could start breaking even just a few years later, in 2027.
That being said, reviewing the trends in profit margins at all three companies, I see no clear movement toward increasing levels of profitability (or decreasing margins of losses). To the contrary, gross profit margins at all three of these companies are worse today than they were back in 2019, before the pandemic struck, which is the opposite of what you’d expect to find if this industry was truly preparing to turn the corner.
Given the hydrogen industry’s track record to date, I’d be more inclined to bet against their succeeding than for it.