Ballard Power Systems is one of the world’s more promising green energy companies in more ways than one.
A leader in hydrogen fuel cell technology, Ballard (TSX:BLD; Nasdaq:BLDP) is promising to be profitable by 2012.
BMO Capital Markets analyst Brian Piccioni is skeptical.
“Although we continue to believe there is a significant value that can be attached to the company’s technology, we believe the company will either become very successful over the next few years commercializing its fuel-cell technology, or exhaust its funds and die, or become one of the numerous ‘living dead’ that occupy the fuel-cell sector,” Piccioni writes in a May 3 report.
At last week’s Hydrogen + Fuel Cells 2011 conference, Michael Goldstein, Ballard’s chief commercial officer, told Business in Vancouver that he understands the criticism.
“We went through a hype cycle where expectations were set out of line with what was reality and because of that people were disappointed,” he said. “We are still unprofitable, but we are marching very quickly toward profitability. It will happen next year.”
According to the company’s 2011 first-quarter report, Ballard’s revenue ($15.3 million) was up 29% year over year, but BMO reports that the company’s operating net loss was “worse than our forecast, driven by lower-than-expected gross margin of 16% compared to our forecast of 26%.”
Goldstein said the company is profitable on a gross margin basis, but that revenue is offset by “fairly large infrastructure costs.”
Five years ago, Ballard was focused largely on hydrogen fuel cells for cars. In 2007, however, the company sold its automotive fuel-cell division to focus on utility power generation and fuel cells for forklifts and buses.
Ballard is now making two kinds of hydrogen-fuelled generators: stationary and mobile, or “distributed.”
The company sold one of its distributed generators to an American company last year – FirstEnergy Generation Corp. – and just recently announced a deal with Toyota Motor Sales in the U.S. to build a stationary generator for Toyota’s 5,000-person headquarters in Torrance, California.
The one-megawatt power plant – which will cost between $2 million and $4 million to build – will use hydrogen derived from landfill gas.
Goldstein said the average price for power in North America is $0.12 kWh. The Toyota power plant will produce power at $0.06 kWh.
“We can come in in such a way that our customers make a return on this.”
Piccioni said Ballard has been “significantly reliant” on small companies to buy its products so far, so landing a larger client like Toyota is positive.
“Certainly you could do worse than having a customer like Toyota,” he said.
And while he remains cautious about Ballard’s potential to become profitable, he said the company seems to be moving in the right direction.
Goldstein believes there’s a potentially big demand for mobile hydrogen-fuelled generators for backup power in developing countries, where grid power is unreliable.
He said that hydrogen is widely available in many countries, (it is a byproduct of some chemical processes) and, when it isn’t, it can be “reformed” on site from “ubiquitous fuels” like methane, natural gas or propane.
Ballard is working with an American company to develop a reformer system that would be built into the generator unit. It would refine hydrogen from some other fuel on site.
So if the only fuel available in a region is natural gas, methane or propane, it can be used to produce hydrogen for use in a fuel cell.
“When that happens, the fuel-cell industry will grow immensely in the stationary power segment,” Goldstein said.
He also believes there is a good market for hydrogen fuel-cell-powered buses. Widespread installation of fuelling infrastructure has been a major impediment for the commercial viability of hydrogen-powered cars.
However, the same is not true for buses because most transit authorities centralize their fleets and can easily set up central fuelling stations for a fleet of hydrogen buses.
Piccioni remains skeptical. His May 3 report on Ballard concluded: “The company remains a development-stage entity, and we believe any investment should be considered speculative in nature.”