It almost felt like someone knew Plug Power's (PLUG -8.71%) news would be bad. Shares of hydrogen fuel cell pioneer Plug Power plunged more than 14% in daily trading Monday morning, ahead of the company's Q1 2022 earnings report released after market close. Once the news came out, Plug stock proceeded to sink a further 6% in after-hours trading.

How bad was the news? Well, Plug Power management had to come up with a brand-new financial metric -- one nearly unique in the annals of financial reporting, according to Google (part of Alphabet). Instead of the $144.5 million in sales and $0.16 per share loss Wall Street had forecast for it in Q1, Plug Power recorded Q1 sales of only $140.8 million and lost a whopping $0.27 per share -- more than twice the money Plug lost a year ago, a big "earnings miss" in Wall Street parlance.  

The larger loss was largely attributed to natural gas prices that were up 13% sequentially in Q4 2021 (and which have continued to increase since) had "a direct effect on the average price paid per molecule by Plug." And more expensive natural gas means more expensive hydrogen molecules bought by Plug Power -- which hurt profit margins in the company's hydrogen fuel business.     

Tanker truck labeled H2 Hydrogen next to a solar panel and a wind turbine.

Image source: Getty Images.

A brighter future

The good news is that although management expects "margins to remain under pressure in Q2 2022 driven by continued increase in natural gas prices," Plug Power believes that as it ramps up its "green" hydrogen business -- using renewable energy to split off hydrogen molecules from water (H2O), rather than relying on natural gas to provide its hydrogen -- "the cost of molecules [should] decline by more than half.

Plug Power expects this happy event to happen in 2023 and believes it will help advance the company toward its goal of doing $3 billion in annual sales by 2025, earning 30% gross profit margins on those sales, and generating a 17% operating profit margin.

What investors need to know

Unfortunately, this brings us to the other piece of bad news: The rising cost of hydrogen "molecules" is not Plug Power's biggest problem -- not by a long shot. Fact is, while Plug has big ambitions for its green hydrogen fuel business, currently "fuel delivered to customers" accounts for less than 10% of sales at Plug. "Sales of fuel cell systems," on the other hand, accounts for 77% of Plug's business. And while sales of fuel cell systems boomed in Q1 -- up 132% -- the cost of building those fuel cell systems more than tripled year over year.

That was the real reason Plug Power's losses were so much worse than feared in Q1 -- costs rising much faster than sales at Plug's biggest business. And that's the real reason Plug Power stock got destroyed on Monday.