Fuel cell power plant company FuelCell Energy (NASDAQ:FCEL) released its earnings on Feb. 3. It was coincidentally the same day Elon Musk, CEO of Tesla Motors (NASDAQ:TSLA), hosted his company's annual shareholders meeting. I've been pulling for the company since last year, while Musk has been scoffing at the mere idea of fuel cell technology. And it looks like he was right again, this time mere hours ahead of FuelCell Energy's earnings report.
The electrifying meeting
Back in October of last year, while discussing Tesla Motors and the future of energy, Musk spit out, "Fuel cells are so bulls**t." He then went and accused the entire industry of only existing as "a marketing thing." I take it Tesla won't be investing in fuel cells anytime soon.
Fast forward to the Q&A session of the annual shareholder meeting that Tesla Motors hosted the other day. Somebody in the audience asked Musk what he thinks of the reemerging competition coming from hydrogen fuel cells. Musk again dismissed the technology as not being viable. He stated, "As people probably know, I'm not the biggest fan of fuel cells. I usually call them fool cells." Fool cells? Ouch.
Musk then gave two examples of cell phones and satellites, both of which virtually nobody is tempted to use fuel cells with. Why not, Musk rhetorically implies. He explains that electrical storage is extremely important, and that if the fuel cells really did work it would provide wireless products ranging from little cell phones to massive satellites a much needed strategic advantage. Yet it seems nobody is going after that lucrative market with fuel cells. "Case closed," concludes Musk.
Fool me once...
There I was back in late 2013 cheering for FuelCell Energy. The company was singing the praises of positive free cash flow in the near future, sporting an enormous backlog and continually expanding profit margins. Chip Bottone, President and CEO, had stated, "Our margins are expanding from higher production levels as fixed costs are absorbed by the greater sales volume and cost reductions flow through the financial statements."
What's not to love about FuelCell Energy, most people probably wondered at the time. Then the results for the quarter ending in January came out...
Gross profits plunged 42% on a sequential basis from the quarter before. Margins slipped from 8.4% of sales to 4.8% of sales. This was in stark contrast to what Michael Bishop, CFO of FuelCell Energy, forecasted around three quarters back. Bishop stated, "When we think about the business model going out a couple of quarters, we're targeting margins in the double digit range." 4.8% is in the wrong direction.
The recent results
More than a year later, you would hope FuelCell Energy would finally be able to make good on its "couple of quarters" out forecast. Nope. On June 3, FuelCell Energy reported fiscal second quarter results for the period ending April 2014. Revenue, backlog, gross profit, and gross profit percentage were all down sequentially even further. Just about the only thing that was up was the staggering net loss of $16.6 million.
Management tried its best to put some spin on it and gave a very optimistic and hopeful outlook. For example, in the press release it stated, "The Company is experiencing heightened interest from large multi-national companies evaluating fuel cell installation opportunities globally."
That does indeed sound quite encouraging. But with Tesla Motor's CEO calling these things "fool cells," and after feeling a little fooled by trusting guidance from FuelCell Energy in the past, I think this Fool will take a "fool me once shame on you, fool me twice shame on me" approach. Show me the money, FuelCell Energy. Until then I'm on the sidelines in Tesla Motor's cheering section.