Billionaires Bill Gates and Elon Musk have had an ongoing feud for several years. The latest spat has to do with Gates suggesting in August that electrification isn’t a realistic option for long-haul modes of transportation. That’s bad news for Plug Power (NASDAQ:PLUG) and PLUG stock.
“EVs excel at short-haul travel. That means they’re great options for personal cars and even medium-duty vehicles, like city buses and garbage trucks. But even if we develop cheap, long-range EVs that are powered by zero-carbon sources, electrification isn’t an option for many types of transportation,” wrote Gates in his Aug. 24 GatesNotes post.
“Even with big breakthroughs in battery technology, electric vehicles will probably never be a practical solution for things like 18-wheelers, cargo ships, and passenger jets. Electricity works when you need to cover short distances, but we need a different solution for heavy, long-haul vehicles.”
Unless I’m missing something, Gates’ vision doesn’t hold out much hope for Plug Power when it comes to long-haul trucking, leaving the hydrogen fuel cell company to compete for middle-mile and last-mile delivery as well as the company’s traditional beachhead in logistics vehicles such as forklifts.
What’s the Solution According to Gates?
Well, the words above say it isn’t battery-electric power.
“For long-haul, Gates points to alternative bio-fuels and hydrogen, which is typically associated with fuel cells. In this case, Gates supports combining hydrogen with carbon dioxide to produce synthetic gasoline and diesel, also known as electrofuels, which can then be used in existing engines,” stated Commercial Carrier Journal contributor Tom Quimby on Sept. 10.
Tesla’s (NASDAQ:TSLA) CEO responded to Gates’ assumptions about long-haul trucks in a tweet, suggesting he “has no clue” about the subject. If you own shares of Plug stock, you have a vested interest in hydrogen being the fuel of choice.
Barron’s recently discussed the company’s vision for long-haul trucking as part of an article highlighting the sale of almost $300 million in stock to fund further development of its hydrogen technology:
After about 100 kilometers [of range], the [energy] density of fuel cells and batteries, it’s about the same,” Barron’s reported Plug CEO Andrew Marsh saying on its Aug. 6 conference call. “But from that [range] point on, batteries grow at a 10x rate … fuel cells are a distinct advantage because they just don’t take up as much space as batteries will in a truck.
Barron’s also reported Nikola’s (NASDAQ:NKLA) goal to lower hydrogen prices to less than $4 a kilogram where it becomes competitive with diesel.
On the one hand, Gates sees an alternative fuel that’s not pure hydrogen, while other parties with a vested interest in hydrogen fuel cells, such as Plug Power shareholders, see that it’s more than possible.
Who’s right? We’ll know in about 10 years.
In the meantime, if you want to get down and dirty about the subject matter, read this 2017 paper about electrofuels and hydrogen and their relative cost as a marine fuel.
I’ve Said PLUG Stock Will Hit $20 in 2021
In my most recent article about Plug Power, I stated that I thought its share price could hit $20 by the second half of next year. That’s almost 60% upside from current prices. However, I also thought existing shareholders ought to wait for volatility to drop the share price below $10 before buying more.
I finished by suggesting Plug Power will become profitable. However, an article from my InvestorPlace colleague, Thomas Yeung, has me wondering about this premise.
“Take-up rates from Walmart and Amazon have been excruciatingly slow. Since its 2007 release, PLUG’s GenDrive has sold just 35,000 units across 2,800 systems. The terms weren’t that good either. To make its $70 million deal with Amazon in 2017, the company had to offer 19% of its shares as warrants to the e-commerce giant. Its $80 million Walmart sale went for 17% of its shares,” Yeung wrote on Sept. 18.
My colleague argues that the company’s use of operating leases to generate sales puts significant downward pressure on its return on invested capital. Ultimately, that will put pressure on its share price.
At the end of the day, what Bill Gates said about electrofuels, along with my colleagues’ observations, has me wondering if commercial truckers are going to go for the use of hydrogen fuel cells on long-haul trips.
I still like the company’s original focus. However, I wonder if long-haul trucking might not be overstepping its capabilities at this point in its development.
For a margin of safety, I would only buy Plug Power in single digits at this point, or when more information becomes available, that demonstrates the company is on the right track when it comes to long-haul trucking.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.