Failure is a necessary precursor to success. You can lose just as easily being early to the party as being late. FuelCell Energy Inc (NASDAQ:FCEL) was early, and the party for FCEL stock never really started.
The company’s product line — hydrogen fuel cells — make sense in theory. You combine two common gases across a chemical membrane to produce electricity and water. Fuel cells are quiet, the basic technology is sound.
In theory fuel cells create a virtuous hydrogen cycle for energy, with water broken down to create oxygen, and the waste product vented where the energy is delivered, making the desert bloom.
The problem is, where do you get the hydrogen from? How do you create the infrastructure necessary to power fuel cells on a massive scale? If the cheapest source of hydrogen is natural gas, why not just burn the gas?
At the turn of this century, the hydrogen fuel cell was in vogue, and despite three stock splits, the last in June, 2001, FCEL stock was trading at over $400. Today, after a reverse split of 1:12 last year, FuelCell opens at $2.
FuelCell and the High Price of Hydrogen
During this decade, several renewable energy industries have developed, and as their supplies have become price-competitive with carbon sources, aid to the clean energy sector has been slowly withdrawn.
This has left FCEL stock high and dry.
Sales began declining in 2014, after peaking in 2013 at $187 million, with a loss of $35 million. The company fought for profit, cutting costs, but sales declined even more rapidly. This year they have collapsed, coming in at just $21.72 million for the quarter ending in July, with a net loss of $11.01 million.
The problem is the hydrogen fuel. Toyota Motor Corp (ADR) (NYSE:TM), an advocate of fuel cell cars, estimated the cost of a hydrogen fill up at $50 in 2014. At the time, the cost to charge an equivalent electric, like the Tesla Motors Inc (NASDAQ:TSLA) Model S, was $10. The car industry’s excitement has been downsized.
Hydrogen does not just cost money to produce, it requires expensive infrastructure to transport. The infrastructure for moving electricity already exists. There are niches where fuel cells can make sense. As utility back-up systems, they’re quiet and can be placed near homes. On trains, fuel can be picked up directly from chemical plants.
But scientists at Stanford and the Technical University of Munich, Germany have concluded that battery-powered cars are not only cheaper in the long run than those running fuel cells, but are better at reducing emissions as well.
Bottom Line on FCEL Stock
With the mass market closed off, and with no economic case to be made for hydrogen fuel infrastructure, fuel cells are looking for niches and the technology is seeking a place to land.
The problem for FuelCell is that the technology is mature. Companies that might want the intellectual property, like General Electric Company (NYSE:GE), are laying off their fuel cell people. China and Japan remain interested in fuel cells, but they have plenty of intellectual property — they don’t need FCEL.
Even the niche markets are starting to close off. Connecticut, where FuelCell is based, recently funded 25 different clean energy projects, none using fuel cells. The group focused on price and reliability for the winning bids, which were all in areas like wind and solar.
This was the last straw for FCEL stock. On Dec. 1 FuelCell Energy announced it was laying off 17% of its workforce, 96 people, reducing orders for materials and making some other cost-cutting moves.
In general, fuel cells are going back to the research stage and companies are in survival mode, and that will be the case until (unless) the underlying economics of fuel cells and hydrogen fuel change.
Not every great idea works out, which doesn’t mean great ideas shouldn’t be tried. FuelCell could have been something, it could have been a contender. But the industry has been knocked down, and FCEL stock may be knocked out.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in GE.
