In recent years, the investment community has focused significant attention on alternative energy companies for obvious reasons. From both a geopolitical standpoint as well as an environmental one, clean energy solutions simply find wide appeal. However, not every player in this sector is equal, as Plug Power (NASDAQ:PLUG) and PLUG stock demonstrates.
In many ways, Plug Power stock is an enigma. It has tremendous potential because the world seeks a pivot away from fossil-fuel energy sources. Moreover, the company has inked some impressive deals with big league organizations. Yet PLUG stock is nothing short of speculative. For a brief moment, shares were once trading in four-digit territory.
Now, the tables have clearly turned. Plug Power stock barely avoided sinking deeper into ignominy when it produced its third quarter 2019 earnings report. But again, the results were frustratingly mixed, just like the equity: the hydrogen fuel specialist met analysts’ for per-share profitability (a loss of 8 cents) but failed to deliver on the top line (revenue of $56.4 million against an expected $59.2 million).
Interestingly, Tesla (NASDAQ:TSLA) CEO Elon Musk has labeled hydrogen fuel cell vehicles – Plug Power’s bread and butter – “mind-bogglingly stupid.” And from a traditional angle, I can understand why he said that. If you look at the financial picture for PLUG stock, it’s not pretty. Plus, the ugliness leaves shares vulnerable to equity dilution if the company meets unforeseen challenges.
Yet we all know that Plug Power stocks is super risky. The question is, how viable is the longer-term growth picture? Here are three pros and cons for PLUG that should help you decide:
Pro #1: Unlimited Fuel for PLUG Stock
One of the major headwinds clouding big oil firms like Exxon Mobil (NYSE:XOM) or Chevron (NYSE:CVX) is that they’re levered to finite resources. Hence, over the past several years, we’ve read stories about peak oil. Even if some of the most macabre doom-and-gloom forecasts don’t pan out, the fact is, we have limited oil resources.
You absolutely cannot say the same thing about hydrogen: it’s the most abundant element not just on earth but in the universe. When we start colonizing Mars and other planets, you’d imagine that we’ll use hydrogen-based vehicles.
Of course, I’m talking about stuff well into the future. For the here and now, because hydrogen is so abundant, we won’t have to deal with OPEC or other unfavorable characters. That’s a huge plus for PLUG stock.
Pro #2: Hydrogen Refueling is Almost Like Pulling up to the Pump
Without question, the underlying technologies behind electric vehicle companies like Tesla or Nio (NYSE:NIO) are remarkably compelling. But a huge drawback of EVs is that they take too damn long to refuel or more accurately, recharge.
Right now, the quickest charging station can charge your EV from empty in about 30 minutes. And we’re not talking a full recharge either. Rather, this quickest draw of the electric West will get you to approximately 80% capacity.
We live in an on-demand economy where virtually everything operates at break-neck speeds. So how, pray tell, are we going to expect Americans to wait half-an-hour to recharge their EVs?
On the other hand, hydrogen vehicles will get you in and out at the refueling station in roughly five minutes. That’s almost on par with refueling a big, fossil-fueled SUV, thus not requiring a mass-scale societal shift.
Of course, this is a huge boost for Plug Power stock.
Pro #3: Big Supporters
Hydrogen has a lot of detractors — remember the Hindenburg? Despite valid concerns about hydrogen fuel cells, some huge names in the auto industry have backed this element.
Specifically, both Toyota (NYSE:TM) and Honda (NYSE:HMC) have pegged hydrogen as the energy source of the future. And they’re not paying mere lip service. Toyota is the largest hydrogen fuel cell car producer for the U.S. market, while Honda isn’t too far behind.
Plus, both companies have teamed up with a Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B) subsidiary to develop hydrogen fueling stations in California. Considering that Plug Power has inked deals with major partners, this massive support is a tailwind for PLUG stock.
Con #1: Isn’t It Ironic?
With hydrogen being the most-abundant element ever, you’d expect that hydrogen fuel provides economic relief for converted drivers. After all, Economics 101 dictates that excess supply should lead to lower demand (prices).
But that’s not what’s happening in this market. Instead, hydrogen refueling costs are expensive, even pricier than gasoline prices on an apples-to-apples comparison. According to CNBC contributor Joe D’Allegro:
“The average price for hydrogen fuel in California is about $16/kg — gasoline is sold by the gallon (volume) and hydrogen by the kilogram (weight). To put that in perspective, 1 gal of gasoline has about the same amount of energy as 1 kg of hydrogen. Most fuel cell electric cars carry about 5 kg to 6 kg of hydrogen but go twice the distance of a modern internal combustion engine car with equivalent gas in the tank, which works out to a gasoline-per-gallon equivalent between $5 and $6.”
This is where EVs clearly win out. And it’s also where standard gasoline-powered vehicles emerge victorious, which is negative for PLUG stock.
Con #2: Infrastructure Limits Plug Power Stock
California, where you’d expect the alternative fuel to be popular, has only 39 hydrogen refueling stations, with another 25 due to soon appear on the map. That’s not nearly enough to satisfy driving demand, especially if hydrogen-powered cars proliferate.
But thanks to California green initiatives, the state has a plan to develop 200 hydrogen stations by 2025. While that would be a 413% lift from current numbers, it still wouldn’t be nearly enough.
There are over 12,000 gasoline stations in California and that number could easily grow considering the state’s population growth. Therefore, 200 hydrogen fueling stations would only cover less than 2% of existing gasoline infrastructure.
With such limited coverage, it’s hard to imagine hydrogen cars being anything more than niche vehicles for the rich.
Con #3: Hydrogen-Powered Cars are Expensive
It’s not just the refueling costs that are expensive; the cars themselves are available only to the rich. As D’Allegro wrote:
The biggest problem: The cars remain expensive. Nexo, for instance, is the most expensive Hyundai on sale in the U.S., with a starting price of $59,345 (starting prices for the brand’s comparably-sized Santa Fe start at $24,250). The Toyota Mirai and Honda Clarity fuel cell models have a similar MSRP in the $59,000 range. These car purchases are eligible for government rebates — in California there is a $5,000 tax rebate available.
Among other factors, most folks will likely pay for a high-end, gas-powered luxury car than an essentially experimental hydrogen car. Further, cost accessibility is an issue that could impact the vulnerable PLUG stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.