To say things haven't gone the way investors expected for Ballard Power Systems (BLDP -3.25%) this year would be an understatement. In the first nine months of 2018, revenues and gross margins decreased compared to the year-earlier period, while operating expenses and cash used in operations increased. Making matters worse, the company's all-important, long-awaited growth opportunities in China have failed to materialize.

The business simply wasn't able to maintain the momentum it built in 2017, which has earned Ballard Power stock a 34% haircut through the first 11 months of 2018. But with next-generation products on the horizon and new cash inflows from Chinese partners received since the end of the third quarter, should investors consider the fuel cell stock a buy?

A chart on a chalkboard showing growth and then a sudden decline.

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The bull case for Ballard Power stock

Perhaps this fuel-cell manufacturer is just having an off year due to circumstances largely beyond its control -- but it's impossible to ignore the fact that third-quarter 2018 operating results were horrendous. Revenue fell 32% year over year, while gross margin slipped form 32% to 30%. Operating expenses climbed 6% in Q3, and rose 11% in the first nine months of 2018 compared to the same period of 2017. That said, there are potential catalysts to look forward to. 

One reason operating expenses grew this year was that Ballard Power has been putting the finishing touches on its next-generation fuel cell technology. Expected to launch in 2019 for heavy-duty motive (read: commercial trucks) and material-handling (read: forklifts) applications, the new FCgen liquid-cooled fuel cells are expected to reduce cost of ownership by 40%, and deliver 33% more power density compared to current products. They're expected to have a lifetime of 30,000 hours, or about seven to 10 years.

The new fuel cell technology was key to closing the company's second joint venture in China in mid-November, which is expected to manufacture enough product to power 2,000 commercial vehicles per year by 2021. Ballard Power issued $183.9 million in equity in two transactions to its Chinese partners and stakeholders, which the business can now use to accelerate key growth initiatives, including those in China.

A lineup of heavy duty trucks.

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The bear case for Ballard Power stock

On the flip side of the "this time is different" argument, there's the "here we go again" argument (accompanied by an eye roll).

In the Q3 earnings press release, Ballard Power management said unforeseen headwinds -- specifically, shifts in Beijing's subsidy policies, the languid pace of its refueling station rollout, and delays in the certification of fuel cell vehicles -- affected the ramp-up of the Guangdong Synergy-Ballard joint venture, the company's first in China. That was a significant factor behind the deteriorating year-over-year performance, highlighted by a 65% decrease in sales for heavy-duty motive applications. 

To soothe anxious investors, Ballard Power in mid-November sealed a new collaboration with Weichai Power. In China. For heavy-duty motive applications. While the fuel cell pioneer received gross proceeds of $183.8 million from new equity investments (read: dilution) as a result, that came at the price of transferring technology for its next-generation fuel cells to the new manufacturing venture, of which it owns a 49% stake. And if a third party -- another Chinese company, Zhongshan Broad-Ocean Motor -- executes its right to purchase 10% of the new JV, then Ballard Power would end up owning just 39%. 

For foreign companies -- especially small ones with little bargaining power -- the pursuit of potentially above-average growth in the massive Chinese market has its downsides. Unfortunately, that could be what's happening here.

An investor staring at a drawing of a tangled mass of lines leading to various ends represented by question marks.

Image source: Getty Images.

Investors should pass on this fuel cell stock

If investors squint and tilt their heads just right, they may be able to convince themselves that things at Ballard Power aren't as bad as they seem. However, the most accurate way to read the situation also might be the least comfortable. The fuel cell pioneer reported operating cash flow of negative $32 million through the first nine months of 2018. And after failing to deliver on promises of growth in the Chinese market, the business doubled down by forming a new JV in the country aimed at the same application that has led to its shareholders' misery in 2018.

That's a pretty bold bet, and success is far from guaranteed. That's why individual investors are better off watching this stock from the sidelines until Ballard Power shows clearer signs of sustainable progress.