Ballard's Power Drain

It's not easy living on tech's bleeding edge. Companies that set out to change the world often learn to their chagrin that it's an expensive task, and one that frequently transforms today's technological wunderkinder into tomorrow's bankrupt acquisition targets.

Much to the regret of "green" investors, each passing quarter makes that fate more and more likely for hydrogen fuel cell innovator Ballard Power (Nasdaq: BLDP), one of a group of companies that aims to replace the internal combustion engine with a clean, hydrogen-powered engine that uses no petrol and produces no smog. Ballard reported its fiscal 2004 earnings results yesterday -- or rather, it kind of reported some of the results. The bulk of the really useful information -- stuff like how much cash the company still has in the bank and exactly what it's been spending that cash on over the past 12 months -- remains shrouded in mystery, locked away on balance sheets and cash flow statements that the company declined to provide its investors with. (By the way: That's not a good sign. But the company will eventually have to reveal this information in a Securities and Exchange Commission filing here.)

There's a reason that those two bits of information are of particular importance to Ballard and its investors. Ballard is one of a class of companies that investors term "cash burners." Like peers Plug Power (Nasdaq: PLUG) and Fuel Cell (Nasdaq: FCEL), Ballard is perennially unprofitable, losing money with admirable consistency quarter after quarter and year after year (Ballard, for example, burned more than $85 million in 2004). Any investment in Ballard necessarily involves a calculation weighing (1) the time needed for Ballard to become profitable again, (2) the amount of time that the company's cash will support its operations, and (3) the number of rounds of share issuances needed to finance the difference between (1) and (2). The less cash the company has on hand, and the greater the speed of "cash burn," the more shares that investors have to expect will be issued. That will further dilute whatever shares they currently own.

These dynamics were probably what spooked investors yesterday so much that they sold off Ballard's shares by nearly 10%. Just as nature abhors a vacuum, investors abhor an information vacuum.

Learn more about the prospects (or lack thereof) for eventual profitability in this Rule Breaking industry in:

• Plug Power Burns It Up
• Ballard Has Its Day
• FuelCell's Burning Cash
• Plug Power Dissipates

Fool contributor Rich Smith has no position in any of the companies mentioned in this article.