What Does Tesla Motors' Elon Musk Think of FuelCell Energy?


Source:  FuelCell Energy

Fuel cell power plant company FuelCell Energy (NASDAQ: FCEL  ) released its earnings on Feb. 3. It was coincidentally the same day Elon Musk, CEO of Tesla Motors (NASDAQ: TSLA  ) , hosted his company's annual shareholders meeting. I've been pulling for the company since last year, while Musk has been scoffing at the mere idea of fuel cell technology. And it looks like he was right again, this time mere hours ahead of FuelCell Energy's earnings report.

The electrifying meeting
Back in October of last year, while discussing Tesla Motors and the future of energy, Musk spit out, "Fuel cells are so bulls**t." He then went and accused the entire industry of only existing as "a marketing thing." I take it Tesla won't be investing in fuel cells anytime soon.

Fast forward to the Q&A session of the annual shareholder meeting that Tesla Motors hosted the other day. Somebody in the audience asked Musk what he thinks of the reemerging competition coming from hydrogen fuel cells. Musk again dismissed the technology as not being viable. He stated, "As people probably know, I'm not the biggest fan of fuel cells. I usually call them fool cells." Fool cells? Ouch.

Musk then gave two examples of cell phones and satellites, both of which virtually nobody is tempted to use fuel cells with. Why not, Musk rhetorically implies. He explains that electrical storage is extremely important, and that if the fuel cells really did work it would provide wireless products ranging from little cell phones to massive satellites a much needed strategic advantage. Yet it seems nobody is going after that lucrative market with fuel cells. "Case closed," concludes Musk.

Fool me once...
There I was back in late 2013 cheering for FuelCell Energy. The company was singing the praises of positive free cash flow in the near future, sporting an enormous backlog and continually expanding profit margins. Chip Bottone, President and CEO, had stated, "Our margins are expanding from higher production levels as fixed costs are absorbed by the greater sales volume and cost reductions flow through the financial statements."

What's not to love about FuelCell Energy, most people probably wondered at the time. Then the results for the quarter ending in January came out...

Gross profits plunged 42% on a sequential basis from the quarter before. Margins slipped from 8.4% of sales to 4.8% of sales. This was in stark contrast to what Michael Bishop, CFO of FuelCell Energy, forecasted around three quarters back. Bishop stated, "When we think about the business model going out a couple of quarters, we're targeting margins in the double digit range." 4.8% is in the wrong direction.

The recent results
More than a year later, you would hope FuelCell Energy would finally be able to make good on its "couple of quarters" out forecast. Nope. On June 3, FuelCell Energy reported fiscal second quarter results for the period ending April 2014. Revenue, backlog, gross profit, and gross profit percentage were all down sequentially even further. Just about the only thing that was up was the staggering net loss of $16.6 million.

Management tried its best to put some spin on it and gave a very optimistic and hopeful outlook. For example, in the press release it stated, "The Company is experiencing heightened interest from large multi-national companies evaluating fuel cell installation opportunities globally."

That does indeed sound quite encouraging. But with Tesla Motor's CEO calling these things "fool cells," and after feeling a little fooled by trusting guidance from FuelCell Energy in the past, I think this Fool will take a "fool me once shame on you, fool me twice shame on me" approach. Show me the money, FuelCell Energy. Until then I'm on the sidelines in Tesla Motor's cheering section.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2014, at 11:59 AM, Pagapa wrote:

    Would it surprise you if the head of Pepsico were to tell shareholders that Pepsi's recipe for cola is better than Coca Cola's?

    It wouldn't surprise me either.

    Nor does it surprise me that the CEO of a company that manufactures and sells battery-based electric vehicles has indicated that he thinks battery-based electric vehicles are better than fuel cell electric vehicles.

  • Report this Comment On July 02, 2014, at 1:08 PM, weaponz wrote:

    @Pagapa - That is nonsense though, Tesla is a car manufacturer and is not married to any form of technology. The reason why they went with batteries is because batteries are superior to fuel cells, simple as that.

    Hence why Tesla plans to build a gigafactory of batteries, not fuel cells.

    Even Toyota, who is the most pro fuel cells out of all the manufacturers is giving "optimistic" dates of 2025 for an affordable fuel cell car. And they still have no solution for the ridiculous cost of hydrogen infrastructure.

  • Report this Comment On July 02, 2014, at 4:34 PM, ToddRLockwood wrote:

    @Pagapa I'll take it a step further. Tesla's "product" from day one has been sustainable transportation. They are not motivated by any particular technology, as long as it gets the job done. For the foreseeable future, the combination of solar energy and electric drive is the one that works best. Fuel cells work okay in the vehicle itself, but creating and transporting hydrogen carries too large an environmental cost.

  • Report this Comment On July 03, 2014, at 10:37 AM, btc909 wrote:

    Still haven't heard what it would cost to fill up a hydrogen vehicle.

    Yet the "industry" probably knows what it would cost today.

  • Report this Comment On July 03, 2014, at 10:53 AM, Demokrat wrote:

    Where exactly did Elon Musk specifically comment on Fuel Cell Energy?

    He didn't.

    Is Elon Musk able to sustain an institution's energy needs with his electrical vehicle batteries?

    I don't think so.

    He might not approve of Plug Power's energy source for fork lifts and thinks his batteries might perform better but as far as Fuel Cell Energy's fuel cell plants, he's got ways to go before catching up to them, if ever.

    Elon Musk has his hands full enough worrying about propelling his vehicles.

    Now, I was well aware of Elon Musks comments on fuel cells, but why suggest that he had a specific opinion on Fuel Cell Energy?

    And if I understand correctly, given that Elon Musk calls this technology fool cells, you decide that you will remain on the sidelines regarding Fuel Cell Energy, despite the fact that several universities so far this year had fuel cell plants built by them and regardless of the fact that their guidance for the next two quarters calls for $50-60M in revenues up from $39M last quarter?

    In all likelikhood, if those numbers hold up you will not only be on the sidelines but stuck out of FCEL. It is quite probable that FCEL has bottomed and the risk/reward is on the side of the longs.

    Elon Musk projects himself with arrogance. Warren Buffett would have, if asked, answered in a manner more befitting of his legendary status as a gentleman sage and considered the rightful existence and efforts of fuel cell technology.

  • Report this Comment On July 03, 2014, at 11:34 AM, Buzz wrote:

    When the author notes that "he went on to criticize the entire industry" did this include stationary fuel cells? It's not clear from the article, and as currently written is somewhat misleading.

    First, Musk was talking about automotive fuel cells. And his disdain for the technology is probably based on the fact that he's in the battery business.

    Second, the author of the article should know that FuelCell Energy makes large stationary fuel cells for power generation. If he does, it should be stated.

    Finally, and on a personal note, I'd rather not wait 20-30 minutes to recharge my battery vehicle with a limited range, when a fuel cell electric vehicle can be filled up in 3-5 minutes. Now both technologies have infrastructure obstacles that need to be dealt with, but fuel cells offer both range and fast fill times.

  • Report this Comment On July 03, 2014, at 12:24 PM, PeakOilBill wrote:

    Building a nationwide hydrogen fueling infrastructure would probably cost at least a few trillion dollars. Good luck paying for the insurance to cover any hydrogen infrastructure. A mixture of hydrogen with air doesn't just burn, it explodes over a very wide ratio of the mixture. In that respect it is like acetylene, only hydrogen can't be stored in liquid acetone at low pressure, like acetylene can. Hydrogen has to be made from natural gas. It is cheap now, but as soon as more export terminals for LNG are built, the price will triple to the international price, just like oil. That will raise the price of hydrogen a lot. High pressure hydrogen tanks are explosions waiting to happen. No way would I ever park a vehicle containing a tank of hydrogen in my enclosed garage. If a tank of hydrogen is punctured or disconnected in a wreck, the explosion will kill everyone in the vehicle. Hydrogen makes metal brittle as it works its way into the atomic structure of the metal over time. It is called hydrogen embrittlement, and has been recognized as a hazard of working with hydrogen for decades. A hydrogen leak almost destroyed a Space Shuttle on the launch pad. NASA had to retrofit spark generators on the launch pad to keep explosions from happening, should another leak occur. And fuel cells are quite sensitive to any form of contamination. Why deal with all those problems when batteries work fine for 95% of all auto travel.

  • Report this Comment On July 03, 2014, at 1:27 PM, Pagapa wrote:

    @ weaponz, what's nonsense is to say Tesla is not married to any form of technology. As your very next sentence implies, Tesla studied the technologies available in 2008 that could be used to replace the internal combustion engine and chose to use lithium ion batteries. Once that decision was made, the company poured a huge amount of money into developing a car based on that technology and it is now planning a multi-billion investment to further refine the technology and optimize the processes to be use to mass produce Tesla's car batteries.

    I believe that Tesla will be huge success and that Elon Musk will go down in history as one of the people who helped end the era of cars based on internal combustion engine. That said, I don't buy the argument that Elon Musk's decision to base the Tesla on lithium ion batteries tells us anything useful about the long-term viability of fuel cells as a clean technology for cars or -- in the case of this particular article -- as a clean technology for powering buildings.

  • Report this Comment On July 03, 2014, at 3:32 PM, areowewee wrote:

    I find it funny when fuel cell advocates claim that you can fill up in 3-5 minutes. First you have to get yourself to a fuel cell filling station, which is, if you're lucky, 50 to 100 miles away.

    Compare this to waking up to a fully charged car every day.

    No comparison.

  • Report this Comment On July 03, 2014, at 5:35 PM, AllAboutFacts wrote:

    regardless of Musk's comments about FC tech, if i wanted to buy a vehicle today that runs on alternative energy, i have 2 choices - NGV and electric, right? if i don't like fossil fuel for obvious reasons, i am basically stuck with electric.

    i could go to nissan or tesla (maybe others too) and get me an electric vehicle today.

    electric charging infrastructure seems to be making progress and there does not seem to be major technological obstacles to this. BMW joined in the rat race now, so what does this tell you?

    given that FC is not projected to be competitive in the car business in the next 5 years - what exactly are we arguing about?

    Electric is here and now (for passenger cars), FC is not here and significant obstacles remain in the path of its commercial introduction.

    30 min charging is an issue, but i don't need to be forced into a nice cup of coffee on the road, i could even have ice cream - what's so bad about that? if time is critical - leave home 30 minutes ahead of time...does not seem like an insurmountable difficulty to me as is and will prob improve some in the future (including battery swap options...).

  • Report this Comment On July 04, 2014, at 10:56 AM, chuckwalla56 wrote:

    What a BS article Nickey, insinuating that Musk was talking about Fuel Cell Energy a company that makes large scale power plants. He was obviously referring to fuel cell powered cars which have a very solid track record unlike the Tesla. Does Musk feel threatened by fuel cell vehicles? Since just about every large auto manufacture has thrown his hat in the ring to manufacture fuel cell vehicles I would say yes and he should be. Here's what one of your bloggers said about Tesla's product. As the odometers climb on the Tesla Model S units out there on the highway, the truth is finally emerging about these battery-powered cars. The early fan-buyers of Model S are becoming increasingly disgruntled. Edmunds reports that the high performance drive train in the Model S breaks down about every 10000 miles. Meanwhile, Tesla is paying dearly to keep their sold units rolling while they are under warranty. Search the NHTSA database for the honest truth about Tesla's Model S many quality issues. NHTSA is more objective than the googly-eyed journalists who fantasize about Elon Musk being a real-life Tony Stark. I don't see a car that wears out special $1000 tires every 10,000 to 15,000 miles catching on with the general public. That mileage figure comes from the Tesla owners web blog.

    The warranty cost for a Tesla is also 9-to-10 times higher than Ford or GM warranties. The reason for that is that Teslas require heavy maintenance when driven for practical usage.

    Customers of Tesla are also complaining about their Teslas "stopping abruptly", sometimes inexplicably, but particularly when water is spilled inside the passenger compartment.

    Customers are also still posting photos of charred Tesla charger connectors even after Tesla claimed that they had "fixed" that hazardous problem.

    Is the Model S really Green? No, says one industry analyst (Unit Economics) who pointed out that when, "CO2 emissions of Model S production and charging inefficiencies are included, an 85 KWH Model S produces 547 g of CO2 per mile, higher than a large SUV such as Jeep Grand Cherokee, which emits 443 g per mile."

    I will gladly provide links to documentary support of each claim in this post.

    You should write an apology or be sued for slander Nickey FUEL CELL ENERGY has nothing to do with fuel cell cars. I submit you were paid to write a hit piece.

  • Report this Comment On July 05, 2014, at 10:07 PM, nickeyfriedman wrote:

    @ chuckwalla56,

    "He was obviously referring to fuel cell powered cars"

    Musk gave two examples of cell phones and $200 million satellites not using fuel cells. In a previous interview, he specifically said "fuel cells are such bull**** except in a rocket."

    He didn't say "except in a rocket or a stationary power plant.

  • Report this Comment On July 07, 2014, at 11:43 AM, HvyOnEzFool wrote:

    “Fuel Cell Vehicles Spells Significant Trouble for Elon”

    Just as TESLA begins to complete with the automotive establishment, Elon Musk shocks the world and champions the fuel cell vehicle – yeah right.

    The bottom-line is that fuel cell vehicles spell significant trouble for Elon, which is a significant reason, if not the main reason why Elon freely offers-up his prized technology.

    Love TESLA!

    P.S.

    Since you’re publicizing opinions, how about publicizing these…

    GM's Billion-Dollar Bet

    http://archive.wired.com/wired/archive/10.08/fuelcellcars_pr...

    Toyota Takes on Tesla, Nissan Over Hydrogen Fuel Cell Cars

    http://investorplace.com/2014/01/toyota-tm-stock-fuel-cell-c...

  • Report this Comment On July 11, 2014, at 2:24 PM, jimbob50 wrote:

    check out H Y G S .

  • Report this Comment On September 08, 2014, at 3:33 PM, MNDLBRT wrote:

    FCEL makes stationary power plants, as others mentioned. In the future, they will have fuel cells for mobile devices, like submarines. Many auto majors are exploring fuel cells for vehicles, and there are many technical reasons.

    As for TSLA, and Solar City for that matter, both are very reliant on a helping hand from big government. I will admit, govt. is supporting FCEL to some extent as well.

    The original article is not a technical analysis, as stock price goes, or a technical analysis as the underlying technology goes, so what is it?

    I am long FCEL, and am not short TSLA, yet.

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