The so-called hydrogen economy is an appealing thought at first. Cars zipping around the roads without producing carbon monoxide exhaust and a U.S. free of its dependence on imported oil are both enchanting thoughts. Unfortunately, reality has proven considerably less exciting.
Despite its acknowledged leadership in the development of fuel cells for vehicles, millions spent in R&D, and years of time, Canadian company Ballard Power (NASDAQ:BLDP) still lacks any viable product. And with the fourth quarter in the bag, little has changed on that score.
Since the company is essentially the industrial version of a biotech company, I don't believe revenue is especially important. What is important, though, is cash consumption. To that end, the company consumed $85 million in cash during 2004 and expects even more in 2005. With about $280 million in cash, the company is clearly running out of time before a major financing event is needed.
During 2004, the company made a controversial decision to modify its alliance with Ford (NYSE:F) and DaimlerChrysler (NYSE:DCX). Under the new alliance, Ballard will focus its attention on developing the fuel stack and electric drive for fuel cell-powered vehicles, while Ford and Daimler will own the "balance of plant" assets. In simpler terms, Ballard will be focusing on roughly 60% of the anticipated content of fuel cell vehicles and is ceding the remaining 40% to its partners.
This Fool thinks that this is a risky maneuver. While it will reduce Ballard's costs and simplify some research and development efforts, it leaves the company open to commoditization. Although no one can say with certainty what the final fuel cell car design will look like (or when it will arrive), there is every chance that the fuel cell stack itself will be a commodity and the "balance of plant" will be the proprietary aspect of the vehicle.
Certainly Ballard has already accomplished a great deal. Its development efforts in fuel cells have been impressive and the company has achieved many noteworthy accomplishments in manufacturing and working with advanced materials. Nevertheless, a fuel cell-powered vehicle may have been too robust a goal. Unlike other players that focused on more intermediate goals, Ballard went for the whole enchilada right off the bat.
So, should risk-loving Fools wanting a piece of the hydrogen economy (whenever it arrives) take a chance on Ballard?
In my view, the insider ownership (or lack thereof) says it all. While you have to do a bit of hunting to find the insider holdings (going into the Canadian regulatory filings), it's worth it in this case, since they seem to own less than 1% of the shares outstanding.
If Ballard was really on the right track toward a major role in the energy of tomorrow, wouldn't they want a big piece of that? Given that the company insiders know more about the company than you or I ever will, maybe they're telling us something about just how likely we are to see Ballard Power(ed) cars in the future.
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Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.
