Shares of Plug Power (PLUG -0.30%) sank after the company reported its second-quarter results. But with the passage of U.S. budget reconciliation legislation (referred to by some as "One Big Beautiful Bill") this summer and its support for the hydrogen industry, the question arises: Are better times ahead for Plug Power and its investors?
Let's take a closer look at the company's results and its commentary to find out.
Plug Power tries to transform itself
Plug Power's original core business was manufacturing a hydrogen fuel cell used in forklifts and other material-handling equipment. Such forklifts are generally used in high-volume warehouses and distribution centers, and the company counts large retailers, such as Amazon, Home Depot, and Walmart, among its customers.
To entice customers to use its fuel cells, the company also supplies the hydrogen fuel to these customers. This might seem like a great recurring business model, but unfortunately for the company, it has long sold the hydrogen fuel at a large loss. This has resulted in negative gross margins and cash flow.
Plug Power originally bought its hydrogen from third parties and then resold it at a loss to its fuel cell customers. To try to change its margin profile, it began building out a network of its own hydrogen plants.
The company currently has three hydrogen plants in operation with a combined total capacity of 40 tons per day. It is looking to take on a partner and begin building a fourth plant in Texas with a capacity of 45 tons per day by the end of this year.
But demand from its customers is still higher than its own production capacity, which has continued to lead to a negative gross margin. It did see a big improvement in the second quarter, as its gross margin went from negative 92% a year ago to negative 31%. The only area of positive gross margins has been with services; its fuel cells are also being sold for less than cost.
The company forecasts that it will be gross margin neutral in the fourth quarter and that it is looking to become positive as measured by earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter of 2026.
It said its Georgia and Louisiana plants are operating well and that a recently extended long-term hydrogen supply agreement will lead to "substantial" cost savings due to better pricing and improved network efficiency. The company is also reducing operating costs through its Project Quantum Leap restructuring plan.
Plug Power did see a revenue increase in the quarter, rising 21% to $174 million. Equipment revenue jumped 29% to $99.2 million, with electrolyzer revenue tripling to $45 million.
The company had operating cash flow outflows of $191.8 million in the second quarter and $297.4 million in the first half. Its free cash flow was a negative $230.4 million for the quarter and a negative $376.5 million for the first half. It ended the quarter with $140.7 million in unrestricted cash and about $300 million in capacity left on a debt facility. That doesn't leave a long runway, given the amount of cash it is burning through.
Looking ahead, Plug Power maintained its forecast to produce around $700 million in revenue this year. It said the recent legislative clarity from the One Big Beautiful Bill on a production tax credit and an investment tax credit is a tailwind and should allow it to continue to build out its own hydrogen capacity.
Image source: Getty Images.
Can the stock rebound?
Plug Power continues to be in a difficult spot. It still has negative gross margins, it's burning through cash, and its liquidity is dwindling. As such, an eventual bankruptcy is not off the table.
That said, there is still some hope. If the company can indeed get to neutral gross margins in the fourth quarter and work its way toward EBITDA profitability, it would be on much better footing.
Meanwhile, hydrogen was one of the few green industries to benefit from the One Big Beautiful Bill. With tax credits secure, the company has a much better opportunity to find a partner to help build its Texas plant. A reworked hydrogen supply agreement should also leave it in a much better position.
The stock is very much in the category of high risk, high reward at this point, and only those willing to lose all of a speculative investment should buy Plug Power.
