When I wrote about Plug Power (NASDAQ:PLUG) stock last week, I admitted there is long-term promise in hydrogen. I worried about short-term speculation.
It turns out speculators knew more than I did. After seeing its value cut in half from a January high, PLUG stock is on the move again.
It moved up 25 cents over the weekend and will open today around May 3 at about $26.60.
The reason is a deal announced about the time my story appeared, a framework to work on hydrogen buses with BAE Systems (OTCMKTS:BAESY), the British defense contractor. The companies will integrate Plug’s fuel cells into BAE’s electric drives, targeting bus systems in the North American market.
Plug Power is also negotiating a similar deal with Groupe Renault (OTCMKTS:RNLSY) in France for Europe.
Big Bus Deal and Plug Stock
Buses are a big market, $38.2 billion last year, growing at nearly 10% each year. The big trend is toward electric buses, and mass-market adoption would put a strain on electric utilities.
Municipal bus systems usually have their own fueling infrastructure., but it’s tough to fill a bus “gas tank” with electricity overnight, even at 480 volts. An electric bus uses 2 KwH of power with each mile.
A bus is efficient, but it uses a lot of fuel. The buses at the head of my block get less than five miles per gallon. Many were recently converted to use natural gas, cheaper than diesel and with fewer emissions.
Orange County in California has a $22.9 million pilot program to run 10 hydrogen buses. It’s part of a study from the National Renewable Energy Laboratory. India’s Tata Motors (NYSE:TTM) recently introduced a 30-passenger hydrogen bus so there is global interest.
Scaling Green Hydrogen
What hydrogen needs to compete is scaled distribution of “green hydrogen.” Most of the current product is “blue hydrogen,” derived from natural gas. The buses on my street cut out that middleman.
As I noted last week, Plug Power has a deal to take waste from an Olin (NYSE:OLN) ammonia plant in Tennessee and turn that into hydrogen. Ammonia is currently the biggest alternative feedstock to natural gas for producing hydrogen. Plug Power also has a deal with a Pennsylvania dam operator, using its electricity to separate oxygen and hydrogen from water.
Plug Power began as a producer of fuel-cell forklifts, which operate in enclosed warehouses. Some of its current financing comes in the form of warrants from Amazon.Com (NASDAQ:AMZN) and Walmart (NYSE:WMT), both of which need a lot of forklifts.
But the promise of forklifts is tiny next a potential hydrogen infrastructure. This market is projected to grow at 22% per year, to nearly $50 billion in 2027. Plug Power needs to close a lot of deals and execute on them to make the promise reality.
But make no mistake, hydrogen offers real promise. A mass market for hydrogen would also produce water at the point of use. Harvested water could prove valuable if there’s enough of it.
The Bottom Line on Plug Stock
We are still in the early innings of the hydrogen revolution.
Every company in this market is going to disappoint investors, probably several times, before the promise of hydrogen is fulfilled.
As a forklift maker, Plug Power did $230 million in business in 2019. But it’s currently valued at $16.8 billion on its promise as a hydrogen fuel play.
That price seems to assume PLUG stock will be a big winner. You have no such guarantee. Right now, it’s a long shot whether you’ll get your money out. In the mean time, keep an eye on Plug Power. This market will happen. I just want shorter odds.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN.
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/.
