Get ready, Scandinavia. Plug Power (PLUG 1.11%) wants to help foster the development of hydrogen solutions in the region.
The fuel cell and hydrogen specialist announced several deals in late May, most recently with regard to Finland, that illustrate an ambition to bring hydrogen solutions to the region. Plug's clearly successful in finding partners to collaborate on the development of hydrogen projects, but will these projects translate to material improvements in the company's financials? That's the big question that investors want to know.
The deets on the deal
With regard to the recently announced planned expansion in Finland, Plug has not one, not two, but three green hydrogen production projects in the works. In total, the three projects are estimated to result in daily green hydrogen production of 850 tons as well as production of up to 700 kilotons of ammonia annually. The development of these projects, however, is not set in stone, and Plug expects final investment decisions to be made in 2025 or 2026.
Addressing the opportunity in Finland, Andy Marsh, Plug's CEO, said: "Already one of the largest players in the European hydrogen market, Plug is accelerating its commitment to Europe at an unprecedented scale with these three planned historic industrial sector projects collaborating with both financial and industrial partners. We are proud to commit our know-how and turnkey hydrogen solutions toward helping Finland deliver on its vision to become a European leader of the green hydrogen economy."
Plug has also signed memorandums of understanding with electric and natural gas utilities in Finland to make certain that the proper infrastructure is in place to support the future hydrogen production.
This news shouldn't energize bulls to click the buy button
On the day Plug announced its deals in Finland, shares of the fuel cell company closed more than 7% higher -- a feat that's not all that surprising. Plug has set lofty goals for its hydrogen production over the next few years. In 2025, it's targeting green hydrogen production of 500 tons per day in North America, growing to 1,000 tons per day globally by 2028, and the three deals in Finland, seemingly bode well for the company to achieve these targets.
What Plug's proponents are missing is that there's no guarantee that the company will succeed in developing the announced projects. In fact, investors have to wait until 2025 or 2026 for final investment decisions.
Plug has also reported two major disappointments over the past year regarding the development of projects. In late January, Plug declined to continue in a joint venture with Fortescue to construct a massive facility in Australia, the largest of its sort in the world, for manufacturing electrolyzers. Several months earlier, in November, news broke that a development consortium in Egypt no longer planned to partner with Plug on an ammonia production project that would see Plug supply a 100-megawatt electrolyzer.
Even more reason to be suspicious
Skepticism regarding the company's ability to develop the projects in Finland isn't the only thing that should give investors pause. Assuming the projects are completed, investors have no assurance they will be profitable. For one, management provided no insight into how the projects will affect the company's financials. That would be acceptable if the company had a track record of generating profits from its sale of hydrogen -- but it doesn't even have that.
In 2022, Plug reported a negative-240% gross margin on its fuel delivered to customers and related equipment business, representing a decline from the 171% gross margin it reported in 2021. This business includes hydrogen that Plug generates as well as what it purchases from third-party vendors. While Plug doesn't disaggregate the data to reveal whether the business it generates from producing its own hydrogen is profitable, it's not farfetched to surmise that generating hydrogen isn't a profitable endeavor, and it doesn't seem the company is on the path to making it profitable.
Hold this hydrogen hopeful at arm's length
In light of its consistent pattern of celebrating newly inked deals and forecasting an auspicious future, Plug has repeatedly failed to deliver on producing a bottom line that's not colored red. Therefore, investors should be extremely circumspect about picking up shares of this hydrogen stock. Fortunately for those who are enthusiastic about the burgeoning hydrogen economy, there are plenty of other companies to consider.
