It's been a difficult few years for Plug Power (PLUG -0.41%), which has seen its stock fall from over $70 in early 2021 to under $4 today.
In November 2023, when it filed its 10-Q for the third quarter, the company issued what is referred to as a "going concern" warning projecting that it may not have enough cash to fund its operations and capital expenditure requirements over the next 12 months. Such warnings are often a prelude to a company filing bankruptcy. However, Plug Power removed the warnings in its 10-K filing in late February.
Let's take a look at Plug Power and see if the company can turn itself around, or if bankruptcy could still be in the cards.
A struggling business
Plug Power is trying to become an end-to-end hydrogen solutions company that offers everything from hydrogen production to storage to hydrogen fuel cells. Currently, the company's main product is a fuel cell used in forklifts and other material handling equipment that's used in high-volume warehouses and distribution centers. It counts well-known companies such as Amazon, Walmart, and Home Depot among its clients.
The problem with its business model is that Plug Power sells the hydrogen fuel to its customers to run these fuel cell-powered forklifts at huge losses. This has led the company to have negative gross margins, and even larger operating losses. As a result, the company has been bleeding cash. In 2023, it had operating cash flows of negative $1.1 billion and it consumed $1.8 billion in total cash including capital spending.
Building green hydrogen production facilities
Plug Power's current business model is not sustainable, which is why the company began looking to build out its own green hydrogen production facilities. The goal is that by producing its own green hydrogen, the company would be able to sell hydrogen fuel to its customers profitably, instead of selling the fuel at a loss.
The problem the company has run into is that the cost to build hydrogen production plants is quite high, and new projects often come with delays. Plug Power was initially aiming to have five hydrogen production facilities up and running by the end of July 2024. Currently, its Georgia plant is the only one operational, while a plant in Tennessee is expected to come online soon. The Georgia plant would be able to handle around 20% to 25% of its customers' material handling fuel demand, with the Tennessee plant handling about another 15%. The company has also formed a joint venture with Olin Corporation to help fund its plant in Louisiana.
Meanwhile, Plug Power is slowing down its investments in facilities in New York and Texas until it can find better financing options. It also plans to reduce overall capex to help lower its cash burn by 70% compared to 2023. It is looking for low-cost financing from the Department of Energy (DOE) to finish its facilities in New York and Texas. In March, the DOE granted the company nearly $76 million toward building the plants, but Plug Power's still waiting on a $1.6 billion loan that it had applied for to finish the projects.
Image source: Getty Images.
Ambitious plans and threat of bankruptcy
Plug Power had previously set out ambitious plans of generating $20 billion in revenue with 35% gross margins in 2030. However, management has lost a lot of credibility with investors given the continued push-out of its hydrogen plants coming online and the issuance of a "going concern" warning.
Moving forward, the company should survive through at least the end of this year. It was able to secure a $1 billion at-the-market security issuance (ATM) agreement to sell newly issued shares through or to financial services firm B. Riley, which will add additional cash to its coffers. Meanwhile, if the Georgia and Tennessee hydrogen plants run smoothly, that should help improve its weak fuel margins. If the company receives the DOE loan it applied for, that will only improve its liquidity more and allow it to continue to build its remaining two hydrogen facilities.
That said, Plug Power remains a very risky stock to own at this point. The company has yet to prove it can generate positive gross margins, let alone profits or cash flow. At the same time, it has plans to further dilute investors and add to its debt load. This is a stock best left to watching from the sidelines.
