When presliced bread came around, some folks didn't like it, because they wanted to cut their bread thicker...or thinner. And yet, sliced bread is now the benchmark against which new innovations are measured (as in, "the best thing since...").
Will fuel cells be the next "best thing since sliced bread"? Or has the once-promising technology already started going the way of the typewriter and the unsliced commercial loaf? Well, two of the leading fuel cell companies, Ballard Power Systems (NASDAQ:BLDP) and Bloom Energy (NYSE:BE), are working hard to make sure it's the former. Let's take a look at both of them to see which one is the better buy.
Not all fuel cells are created equal
First, a very brief explanation of how fuel cells work (trust me, it's important). Fuel cell arrays are like little stacks of wafers that react when exposed to a chemical -- usually hydrogen that's created from hydrocarbons. The reaction produces electricity, with only heat and water as byproducts.
Because fuel cells create power from their chemical fuel, they don't need to be "recharged" like a battery. Instead, they simply need to be refilled with hydrogen, which is a speedy process. That's why fuel cells are popular as a power source for warehouse forklifts, which could cause bottlenecks if they need to be out of commission for long recharge periods. But Ballard has its sights set on larger vehicles like trucks and trains.
Bloom Energy, on the other hand, isn't in the transportation market at all. It's using fuel cells in a completely different way. Bloom actually fuels its cells with natural gas -- which contains hydrogen -- to generate combustion-free power. Bloom's fuel cell arrays -- packaged as Bloom Energy Servers -- are incredibly efficient and also require less space than other forms of green energy like solar or wind farms. Bloom has been selling its Servers to big corporate customers like Apple, and hopes to make stationary fuel cells competitive with wind and solar as a green power source.
Generating power, not profits
The glaring problem with both companies is that neither one is currently profitable. Ballard Power Systems, which has been around since the '90s, hasn't had a profitable quarter since 2015 (and has only had four since 2000). Bloom, which only went public last year, has never generated a quarterly profit.
That makes it tough to measure the relative valuations of the companies, since the basic price-to-earnings ratio can't be calculated with negative earnings. We could look at enterprise value-to-EBITDA ratio, but neither company is currently generating positive EBITDA either, so that's out.
In terms of operational cash flow, though, Bloom is in better shape. It's posted two consecutive quarters of positive operational cash flow. Meanwhile, Ballard has only generated positive operational cash flow during five quarters since 2000, and hasn't done so since 2017.
On two of the other metrics we can measure -- revenue and debt -- the companies split as to which one's in better shape. Revenue has been increasing rapidly for Bloom Energy, while Ballard's revenue declined 10.7% in 2018. But Ballard has managed to remain debt-free, while Bloom currently has $740.8 million in debt on its books, despite recording only $651.7 million in revenue over the past 12 months. Both companies have diluted their shareholders significantly since their respective IPOs.
So neither company is currently in ideal fiscal shape. We'll need to look at their prospects to see which is the better buy.
Ups and downs
The future isn't certain for either Ballard or Bloom -- nor for fuel cell technology in general. Each has some significant opportunities ahead...and some big potential pitfalls to go with them.
Ballard hopes to get ahead by rolling out a "next generation" series of fuel cells, with specifications that could make the platform more attractive for use in buses, trucks and trains. Indeed, Ballard has formed two joint ventures with Chinese companies to pursue that market: a struggling joint venture with fuel cell maker Guangdong Synergy, and a new JV with Chinese drive train manufacturer Weichai Power. However, if those partnerships don't pan out -- and its Guangdong Synergy deal is off to a rough start -- Ballard could be back to square one.
Bloom, on the other hand, boasts excellent efficiency with its solid oxide fuel cells, which are powered by cheap natural gas and come in a module about the size of a shipping container. Because there's no combustion involved, it's cleaner than just burning natural gas, and also offers the potential to generate power even during an outage. But Bloom hasn't worked out all the kinks yet. Among other issues, the technology still isn't cost-effective in many regions, is subject to degradation from the sulfur in natural gas, and can't yet guarantee power during an electricity outage. Plus, it still relies on natural gas, a fossil fuel that is cleaner than coal, but isn't as clean as wind or solar.
Both companies have to struggle with competition. For Ballard, it's from battery technology, which has eclipsed fuel cell technology over the past decade, and is far more widespread in passenger vehicles. For Bloom, it's solar and wind power that are not only more widespread, but don't rely on fossil fuels at all. And at least for now, both companies rely on pro-fuel-cell government policies -- and in some cases, subsidies -- to make fuel cell economics work. If those policies change or those subsidies go away, both companies' business models could go up in smoke.
And the winner is...
At least right now, the winner certainly isn't hydrogen fuel cells, because nobody seems to be able to turn them into a profitable venture! And there are plenty of other green energy companies out there for investors who want to devote some portfolio space to this important sector.
That said, if I had to pick one of these companies to buy, I'd probably choose Bloom. It may not be profitable, but it's still a very young company, and sometimes it takes a while for a young company to achieve profitability. Also, the fact that its revenue is growing and that it's been able to turn in a couple of quarters of positive operating cash flow speaks in its favor. Ballard, on the other hand, has been unprofitable for decades, with stagnant revenue; it may be wishful thinking to expect it to turn itself around anytime soon.
Either way, I wouldn't invest in this space unless you have a high tolerance for risk.