I began writing about the hydrogen economy over a decade ago. Now the promise is real.
Plug Power (NASDAQ:PLUG), which produces fuel cell systems for short-haul transport, has announced a $1.5 billion investment from SK Group of Korea. The cash brings the Koreans about 10% of Plug Power. But it looks like good business, as PLUG stock opens for trade Jan. 7 at $45/share, up from a Jan. 6 close of $35.
Plug Power now has the cash to transform warehouse logistics, where non-polluting vehicles that run all day are highly prized. The market is growing, especially in the Asia-Pacific region. It was worth $14 billion in 2020 and is expected to double in five years.
PLUG Stock Gets Help From Korea
When a company’s market cap increases 10-fold in a year it’s wise to ask whether there’s a sustainable business model. In this case there is.
Hydrogen fuel cells fill an important niche in warehouse automation. Most companies in the crowded space are now powering their units with batteries, which must be recharged every day. Plug Power offers a solution.
Unlike the fuel cells of FuelCell Energy (NASDAQ:FCEL), which are the size of shipping containers and used by utilities for back-up power, Plug Power’s units are small, designed for use in forklifts and other warehouse vehicles.
The problem for Plug Power had been fuel. The primary feedstock was natural gas, which produces what’s called “blue hydrogen.” But Plug Power’s purchase of two small companies in June changed the equation. It can now collect hydrogen as a byproduct of chemical production.
Hydrogen can also be produced with excess solar or wind energy, giving such energy a market and making electric grids more stable. This is called “green hydrogen.”
SK Group is mainly a chemical and energy company. But its SK Hynix (OTCMKTS:HXSCL) unit, originally formed with Hyundai, is the world’s largest producer of memory chips. The group had $213 billion in revenue in 2018. Its chemical operations will let Plug Power scale both fuel cell and hydrogen production on a global scale. Its experience in electronics will also help as warehouse operations are increasingly automated, the vehicles often driving themselves.
The Opportunity
Warehouse logistics exploded during the pandemic as e-commerce replaced stores. After remaining stable for decades, warehouse construction has expanded for use by Amazon (NASDAQ:AMZN) and its competitors.
Plug Power’s biggest deal before this was the sale of warrants to Amazon, which vested for over 55 million shares, roughly a 10% stake. Plug Power is also supplying hydrogen equipment for Walmart (NYSE:WMT) warehouses.
But the market remains competitive, with most companies producing battery-operated lift trucks that can only work a single shift before being refueled. Plug Power says trucks powered by its fuel cells can go 200 miles on a single refueling. Its GenDrive cells can run thousands of hours before being refueled, the company says.
There are risks. Plug Power was sued after an exploding forklift at a Proctor & Gamble (NYSE:PG) facility in Louisiana killed its driver. An explosion last year at another company’s North Carolina hydrogen plant was felt 60 miles away.
Risks like these underlie the importance of the SK deal. The Koreans are experienced with industrial chemicals, with scaled manufacturing, and with warehouse operations.
The Bottom Line
The SK deal is truly transformative, making Plug Power a much better opportunity than FuelCell.
Incoming President Joe Biden has promised a renewable energy revolution, based on union jobs. Companies like Plug Power can fulfill some of the promise.
Our Ian Bezek suggested in December that Plug Power’s roll is about to end. Based on the SK agreement, I respectfully disagree.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/. At the time of publication, he owned shares in AMZN.
