Ballard Power is selling on growing headwinds (NASDAQ: BLDP)


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Ballard (BLDP) is down 53% since my last bullish article. My thesis at the time was that Ballard’s bet that China would be a hotbed of hydrogen energy growth would drive Ballard’s revenue up in 2021. My thesis was partially correct. China is still a hotbed for the hydrogen economy, but Ballard may not be able to establish a foothold in the hydrogen supply chain there.

Hydrogen activity in China

China announced the Beijing-Tianjin-Hebei region (led by Beijing) as the first demonstration cluster for their new hydrogen project. The goal of the project is to develop the complete hydrogen supply chain in the region and implement ten scenarios designed to achieve global influence using hydrogen energy. Unfortunately, the Ballard-Weichai JV (located in Shandong province) is not located in this region, which is essential to be part of the project. However, the demonstration regions are not the only places where the hydrogen market is booming. There have been activities in other parts of China as well as

  1. The delivery of 100 heavy trucks for a construction project by FTXT Energy,
  2. Signing of a memorandum of understanding between Hyzon and HongYun for 500 49 ton fuel cell trucks, 29 trucks delivered,
  3. Testing a hydrogen-based hybrid locomotive in the Inner Mongolia region for the transportation of coal.

This is real business in China’s hydrogen fuel cell industry and, sadly, Ballard sees no slice of that pie. In fact, according to their last report, approximately $20.4 million in revenue for Ballard Power is unrecognized as this inventory is still unsold in the JV’s warehouses. Overall, the hydrogen fuel cell market did not slow down in 2021 as evidenced by the activities listed above. It’s just that the BLDP had no role in it.

Growth of Ballard in other regions

Among other regions, Japan is invest big on hydrogen energy to get rid of its dependence on imported energy. Ballard dissolved its joint venture with Ebara in Japan in 2009 and today Ballard has no presence in the Japanese hydrogen economy. India too announcement a hydrogen program in 2021 aimed at producing green hydrogen. To begin with, Ballard has bagged a contract to supply 15 fuel cells to TATA Motors, which will supply hydrogen fuel cell buses to IOCL, a public oil refining company, for a feasibility study. Meanwhile, Reliance, one of India’s largest companies, has announcement the conversion of plant units in their refinery to produce blue hydrogen. In the long term, however, based on Prime Minister Modi’s self-sufficiency initiative, it is more than likely that the fuel cell will manufacturing will be carried out by India.

This leaves Europe as the last market that can be captured by Ballard. Over the past six to nine months, Ballard has received a few project orders, such as a fuel cell for a ferry in Norway by Norled A/S, additional fuel cells for the Canada Pacific hydrogen locomotive program, orders to supply 31 fuel cell engines to a world leader in construction, manufacturer of electric and off-road equipment and collaboration with Caterpillar (NYSE: CAT) and Microsoft (NASDAQ: MSFT) to set up a 1.5 MW back-up power supply for data centers. All of this is great news as different projects are testing Ballard’s fuel cell in different energy requirement environments, which in turn strengthens the reliability of Ballard’s fuel cell technology. However, the bad news here is that Ballard has been receiving commissions for such feasibility projects for many years now. Although he has been in the fuel cell business for over 40 years, he has not developed technological leadership in any hydrogen fuel cell use case. In fact, compared to some companies supplying fuel cells in the Chinese market, Ballard’s fuel cells are lower in power density in volume (lower watt/litre) and also in weight (lower watt/kg). Current political tensions between East and West could restrict Chinese manufacturers’ access to Western fuel cell markets and allow Ballard to slip between the two to fuel demand in Europe. However, in the long run, developing core segment leadership is paramount to business success.

In conclusion, Ballard’s fuel cells have proven themselves in a variety of applications, but they are not leaders in any of them. From marine applications to commuter rail applications, Ballard’s fuel cells have proven themselves over the past few years. Many of these projects may succeed in the future, but none have yet. By success, I mean converting a project to a positive VAN project generating repeat orders for Ballard. For example, the Siemens led Mireo Plus H The prototype train in Bavaria and Baden-Württemberg will begin trials from 2023 and is expected to be operational in 2024. This particular project was announced in 2019. Similarly, the CP locomotive project was announced in March 2021 and Ballard is expected to deliver the fuel cells (14 x 200kW modules) in 2022. Anglo-American is aiming for deployment in 2024. The common factor in all these projects is the extensive testing process required by companies prior to deployment (from initiation from the project to the delivery of the fuel cell) . Even after deployment, there is no guarantee that future orders will be placed with Ballard, as there is simply no product differentiation. It’s more of a commodity than a brand.

Financial situation

Ballard has two strong financial pillars that allow it to remain a going concern. One is the huge cash balance and the other is the absence of long-term debt. Regardless of the negative cash activity, Ballard’s cash burn at running the run rate spans a period of just over 15 years that Ballard can cover without raising funds. Meanwhile, the challenge for Ballard is to keep its product technology up to date with the latest product offerings on the market and to hope that the hydrogen economy moves from project study stages to development stages. application within the next two years. As explained above, Ballard is currently only in the hydrogen feasibility project business, which means there is no guarantee or even indication that the revenue changes in 2022 are permanent. . If income does not increase, expenses can probably decrease.

In the third quarter earnings presentation, Ballard’s CEO responded to a question posed by analyst Aaron MacNeil about Ballard’s goal to cut expenses by 70% by 2024.

Yes. So we have internally a target this year for a very significant increase already in 2021, we will not just beat that, but beat it significantly in 2021. So we are ahead of the cost reduction plan for products for our program tranche in 2021. So who does very well in total for the 70% cost reduction for 2024.

Cost reduction was one of the main objectives announced by Ballard during its Investor Day in September 2020. However, based on quarterly data since the announcement, the outcome remains to be seen.

Bar chart showing quarterly CGS as a % of Q3 2020 CGS, when Ballard's spending reduction program was announced

CoGS as % of Q3 2020 CoGS (Author)

The graph above shows the cost of goods sold per dollar of revenue. In the third quarter of 2020, Ballard’s costs were 81 cents on revenue of $1. In the last report, Ballard’s cost of product sold was 89 cents per $1 of revenue. The announced plan was to source BOP parts from cheaper manufacturers, but as you can see from the table above, there has been no progress on this front since their announcement. Today, gross margins are not enough to cover operating expenses even without R&D expenses.

The third and final measure that can result in a positive return for the Ballard shareholder is reducing the cost of capital. Ballard currently has no debt on its balance sheet and has not paid any dividends or cash returns on its equity. So technically his cost of capital is zero. In fact, a 1% stake in Ballard in December 2016 has now been diluted to 0.527%. In this way, the cost of capital for Ballard is negative as shareholder shares are diluted to fund operations and excess cash is idle (0.33% return in 2021 through Q3). I think I’ll have readers’ support when I say there’s no way Ballard will initiate dividends or return money in free shares in 2022. Although they have the money and in the absence of a good project, it should be returned to their investors, but I don’t think they will.

Financially, Ballard is solid and there is no reason to worry about his continued presence.


The hydrogen ecosystem grows in all places where the demand for household energy is greater than the availability of household energy. It looks like it will continue to do so because so far no accidents have occurred involving hydrogen fuel cells and so far the use of hydrogen for power generation at the using fuel cells seems harmless. Unfortunately, for Ballard, his participation in these projects in the East is very limited. Europe is the only region where Ballard has had significant projects. Almost all projects are in the trial phase. Moreover, in 40 years of activity, Ballard has failed to carve out a niche in the field of fuel cells. Their technology is advanced but does not differentiate itself from other manufacturers. Financially, Ballard is solid. Why they maintain such a high cash base, however, is a mystery. Revenues are stagnating, the cost of goods has gone up, and their return on investment is zero. However, management takes stock of a significant increase in order books from Q1 to Q3 in one segment.

Taking all of these into consideration would surely result in a sell recommendation, but their stock price is so low that it can’t go any lower. Their stock price is only 2 times their book value per share. At present, Ballard does not appear to be an investment that will return positively in 2022.


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