The Bear Thesis on Plug Power Stock Misses the Key Points Behind Hydrogen

Even when Plug Power (NASDAQ:PLUG) was trading around $4 early last year, many bears contended PLUG stock was dramatically overvalued. Citing the company’s lack of profitability and its customer-friendly contracts, they warned that the stock would crash and burn.

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That, of course, did not turn out to be the case; actually, in-line with my bullish call at the beginning of 2020, the shares have skyrocketed.

Yet many bears are still highly skeptical about Plug Power. One recent column in particular, written by Kerrisdale Capital on Seeking Alpha, is very interesting. That’s because, unlike most of the bears, Kerrisdale focuses on the company’s business outlook, instead of its past financial reports.

I believe that the owners of Plug Power stock, as well as those investors who are thinking of taking any position in the name, would benefit from reading my take on three important points that Kerrisdale is missing.

The Forklift Business and PLUG Stock

Kerrisdale, which is shorting PLUG stock, contends that “Hydrogen-powered forklifts are a small and cheap niche bet.” Most warehouses still use forklifts that take as many as 20 minutes to charge every four-to-eight hours (lithium-ion batteries are charged in three or so minutes).

Kerrisdale says that lithium-ion batteries can be recharged during “operator breaks,” but fails to consider that, at busy warehouses, operators who are working can operate the forklifts of those who are taking breaks.

As Energy and Capital pointed out, over a year the hydrogen forklifts have meaningfully less downtime than their lithium-ion battery counterparts.

Kerrisdale correctly states that hydrogen fuel is much more expensive and inefficient than electricity, while the infrastructure required to produce hydrogen is also quite costly.

I believe hydrogen fuel cells are economical over time for large retailers that are rapidly expanding their e-commerce business.

Over the last year, Plug Power has added multiple customers, including Home Depot (NYSE:HD), U.K. supermarket Asda, and Fiat Chrysler (NYSE:FCAU).

Asda is a wholly-owned subsidiary of Walmart (NYSE:WMT) but the retail giant has agreed to unload a majority stake in the chain. Walmart announced that it was buying more fuel cells to power its material-handling vehicles.

In Q3, Plug Power’s gross billings jumped 105% year-over-year to $106 million. Meanwhile, the company increased its 2020 gross billings outlook to $325 million-$330 million from $310 million. It also provided 2021 gross billings guidance of $450 million.

After making two acquisitions in the middle of last year, Plug Power increased its 2024 top-line guidance to $1.2 billion from $1 billion.

All of the above points seem to directly contradict the idea, advanced by Kerrisdale, that Plug’s main business is weak and fading.

Hydrogen Is the Best EV Truck Solution

Kerrisdale goes on at great length about why batteries are more efficient than hydrogen fuel cells, but there’s evidence that that just isn’t true.

Hydrogen batteries carry proportionally more energy than their competitors, this increases a truck’s payload capacity. Moreover, hydrogen cells charge much faster (only 15 minutes versus the minimum 1 hour lithium battery recharge time according to Transport Topics).

Transport Topics expects that, by 2030, a truck powered by hydrogen will be able to travel 1,200 kilometers without refueling while a battery-electric truck will have to be recharged after just 800 kilometers.

Interestingly, in 2030, the up-front cost of a hydrogen truck is expected to be meaningfully lower than that of a battery-electric truck. Specifically, a fuel-cell truck is expected to cost €139,000 while the price tag of a battery-electric vehicle is estimated at €167,000.

Over the first five years, the total cost of a battery-electric truck and a fuel-cell truck are expected to come in at €393,000 and €459,000, respectively. Elevated hydrogen costs are at the root of the disparity, but I doubt whether the decreased downtime of battery-electric trucks is factored in the equation.

Government Support and Increased Hydrogen Supply Will Boost Plug Power

Kerrisdale focuses on the fact that hydrogen fuel cells are much more expensive than batteries without government subsidies. As I mentioned, though, battery-electric trucks don’t perform as well as hydrogen-powered trucks.

If companies can’t rely on battery-electric trucks, they’ll have to go with hydrogen. Since many, if not most, governments have become committed to phasing out carbon emissions wherever possible, it’s logical to expect the majority of them to subsidize, if not essentially mandate, hydrogen trucks.

California and the EU have already taken steps in that direction. I expect the U.S. to follow suit during the Biden administration, and China, India, and Japan, among many others, may not be far behind.

As more hydrogen and hydrogen equipment are produced, the prices of both should drop tremendously. We’ve seen a similar trend in solar panels. As the prices related to hydrogen power drop demand will jump, causing supply to climb further, resulting in price declines.

Granted, when it comes to solar modules, that cycle has been greatly enhanced by technological advances. But I would not rule out, as Kerrisdale does, the possibility of similar advances being made in hydrogen fuel cells because the technology is 100 years old. Indeed, solar energy was technically over 170 years old before rapid improvements in the sector made the technology commercially viable in the last decade.

The Bottom Line on PLUG Stock

Bears like Kerrisdale are ignoring important points that should, over the longer term, propel PLUG stock much higher. If the company remains a leader in the hydrogen fuel-cell space, I believe that the shares could climb at least another 300% over the next five years.

On the date of publication, Larry Ramer held a long position in Plug Power. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.


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