Gasoline is a driving force for the economy, largely because it and its variants power most of the vehicles on the road. It's one of the reasons why a technology like Tesla's (NASDAQ: TSLA ) all-electric vehicles face such an uphill climb. But by focusing on the industrial sector before the retail arena, Plug Power (NASDAQ: PLUG ) is solidifying its position as a hydrogen supply leader well before trying to push hydrogen into the mass market.
The real fight
Tesla's Elon Musk recently announced that his company was opening up its patent treasure trove to competitors. Why share proprietary technology? Because, in Musk's own words, "Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world's factories every day." In fact, "far less than 1%" of the autos being built by the major car makers are electric or powered by other noncarbon technology.
That's because of all of the infrastructure in place to support our carbon-based world, and specifically gasoline-powered vehicles. There's little incentive for companies or customers to start again from scratch. When you look at it this way, Elon Musk's efforts at Tesla take on a truly Herculean light.
That said, Musk is a big thinker and likes a challenge. But that doesn't change the fact that he started a car company before there was a reliable way to fuel the car on the road. That's why Tesla built a coast-to-coast quick-charge network (around 100 "stations" right now) at its own expense. By the end of next year, it hopes to have "98% of the United States" covered. These recharge "stations" are analogous to a gas station and give a half charge in a still relatively slow 20 minutes. It's building similar networks in Europe (56 "stations") and Asia (13).
To be fair, Tesla has created a well-known and respected brand, which has immense financial value. But in many ways it put the cart before the horse and is still fighting an uphill battle to change the world's gasoline focused mindset. It looks increasingly likely that Tesla will succeed in its efforts to push all-electric cars into the mainstream, but the process of attacking the consumer market has required Tesla to build out the supporting, and costly, infrastructure on a large scale.
A different approach
That's where hydrogen player Plug Power has taken a different approach. Hydrogen-powered automobiles are often cited as a clean alternative to gasoline-powered cars, and Plug Power CEO Andrew Marsh recently told Bloomberg that he sees this as a long-term opportunity. But it isn't where the company has focused.
Instead, Plug Power has keyed in on the $5 billion U.S. market for forklifts. That's a $40 billion worldwide market. And it pales in comparison to the U.S. and global auto markets. But where Tesla is essentially trying to sell a niche vehicle to a general public still largely pleased with gasoline, Plug Power is selling a niche vehicle to industries willing to spend money for a better product.
And as hydrogen technology has improved, Plug Power's sales proposition has gotten pretty compelling. For example, Plug Power's Marsh believes Wal-Mart (NYSE: WMT ) will see a payback time of about a year for its recent purchase of Plug Power gear. Along the way the notoriously cheap retailer will improve its green footprint and get more reliable forklifts. (Batteries can be destroyed if overcharged by careless employees and cause unpacking delays if they are left uncharged.)
Like Tesla, Plug Power is starting to build out a hydrogen fueling network to support its customers. Only unlike Tesla, Plug Power has a smaller and more focused customer base and fleet around which to construct a fueling network. Thus, the network doesn't have to span the entire world, it can start small and build naturally, one customer at a time. If hydrogen autos come to fruition, Plug Power will be ahead of the curve. If hydrogen never takes off in passenger cars, as Elon Musk suggests it won't, Plug Power still has a nice, and expanding, niche and the infrastructure to serve it.
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