Plug Power Inc (PLUG 0.64%) touts its success in hydrogen fuel cell systems by flaunting the 4,500 GenDrive fuel cell units that are deployed to major U.S. material handling corporations. As the number of power units supplied by Plug Power grows, the company has the potential to make a huge profit and expand the reach of the technology beyond just material handling. Can the company live up to its potential, or will it run out of juice before the technology can completely catch on?
Existing sales are small but meaningful
Apple sold 237,000,000 products (iPhones, iPads, and Macs) in 2013. Plug Power has deployed 4,500 units since the company was founded. Though it may sound like a menial number when compared to sales from the electronics giant, 4,500 is substantial in the field of fuel cells. Plug Power is beginning to establish a sturdy base of notable material handling customers that should enable the potential for more substantial future sales if it is able to deliver on the performance claims expected from the GenDrive units.
Plug Power's attention to material handling applications has allowed the company to optimize a fairly uniform set of products rather than try to expand to a wider spread of markets, as has been the approach of a major competitor in Proton Exchange Membrane (PEM) fuel cells, Ballard Power (BLDP 0.29%). While there are advantages to reaching a wider market base, Ballard Power needs to simultaneously advance the technology of each of the related but still different fuel cell applications of material handling, backup power, public transportation, and distributed generation. The available markets are multiples greater in magnitude than that for just materials handling, but the broadened range of needs and specifications for each separate market makes technological dominance in any one field much more difficult.
By narrowing its focus initially to materials handling applications, Plug Power will better be able to focus its development efforts. In establishing limited sales but at the same time providing the entire fueling infrastructure and servicing for every unit deployed, Plug Power is ensuring that every sale made is a meaningful sale. If existing customers can make a relatively seamless transition from lead-acid batteries into hydrogen fuel cells, continued sales and servicing contracts to these customers will provide a strong base on which to grow, while brand reputation will translate to new contracts with new customers in materials handling.
New contracts will be key
Existing sales and the corresponding servicing will keep Plug Power viable in the short term, but generating new contracts is the only way the company will be able to live up to its growing $400+ million market cap.
The recent announcement of a new multi-site contract with an unnamed retailer to provide 1,500 GenDrive units along with the accompanying GenFuel hydrogen, GenFuel fueling infrastructure, and GenCare service is one such agreement that shows the company's potential. The deal will substantially expand Plug Power's presence in materials handling and provide additional exposure that is likely to draw attention and interest from other major retailers. Where there is additional interest, there will be additional sales.
The takeaway
Plug Power and Ballard Power are two commercial-scale players in PEM fuel cells worth considering as an investor. The two companies approach the field with different business plans: Plug Power focusing initially on the narrower materials handling market and Ballard Power broadening its reach to more diverse applications. Put simply, Ballard Power is seeking market reach, while Plug Power is seeking market domination. While the grander vision of Ballard Power may have promise, Plug Power's refined focus and all-inclusive implementation should lead to steadily increasing sales and more stable long-term growth.
