“Life punishes those who arrive too late” is the famous Gorbachev quote. The inverse could be applied to hydrogen at this time: The stock market punishes those who come too early. The shares of H2 companies are trading at a price level as if the supermolecule has no future. Far from it! The stock market wisdom of contrary opinion recommends doing the opposite of what the majority of investors are doing at the stock market.
Warren Buffett would add that you should not change your mind at the stock market if the general mood suggests it. On the contrary: Buy shares whose whole stories are simply “round,” and despite short-term disruptive factors remain unperturbed, as long as the outlook is right. Looking at the current situation, there are many opinions that view hydrogen and fuel cells critically. Also the increasing employment of batteries will then be brought into the field and their advantages underscored, such as energy density, travel range, new materials and recycling. But that is not a convincing counter-argument, because there are real synergies between the battery and hydrogen. However, if we apply the above contrary opinion to shares in the H2 sector, one should buy now and reduce the price or engage this complex of topics completely newly at the stock exchange, as prices have bottomed out and are set to rise gradually and sustainably.
The stock market thrives on dreams, and they are clearly present here – climate change and decarbonization are setting the pace. Every day, projects around the globe are announced that deal with the production and use of hydrogen in various applications and markets. All of this is real, even if the implementation will still take some time and some projects are still in the planning phase. Worldwide, projects with a volume of over 500 billion USD have been announced – and probably only five to ten percent of these are in actual implementation. Note, however: These are clearly defined projects.
Different speeds
The ramp-up and concrete implementation of hydrogen projects are taking place at different speeds – from region to region, from country to country, from business to business. The reasons for this are manifold. It is often regulation that prevents, delays or, on the contrary, accelerates important developments.
Current examples: A few weeks ago, US president Biden launched a program of seven billion USD to support the construction of seven H2 hubs in the USA. The good thing about it: Private capital of an additional 40 billion USD will be stimulated by the the 7-billion-dollar boost through the market economy. And just as the Inflation Reduction Act pragmatically makes capital available to companies, other countries and economic zones should likewise proceed to spark comparable dynamics.
Interesting is the glance at certain markets such as long-haul transport by truck. In agreement are the majority of truck manufacturers that hydrogen will be the energy source especially for heavy goods, whereas on short treks, it’ll be the battery or a hybrid of the two – depending on field of application and radius. Emissions legislation and CO2 levies will make the transition from diesel to hydrogen and batteries necessary. We’re talking about several million trucks that step by step need to be modified for the future.
In parallel, the charging or refueling infrastructure will be established. Tesla with its Supercharger network is a good example for this, because the company itself has solved the chicken-and-egg problem. That the ramp-up will take a few years yet is clear to see. Companies such as Ballard Power, Cummins Engine, Nikola Motors, Hyzon Motors and many others are in the process of positioning themselves perfectly for the ramp-up. And what applies to heavy transport also goes similarly for maritime transport (here again are Ballard, Bloom Energy, Cummins) and rail. Companies that position themselves correctly in terms of technology and create the necessary capacities will benefit from the future development.
South Korea and Japan are leading the way, as is China. In the USA, it is California, as the highest-performing federal state, that has fully recognized the potential of hydrogen. Interesting is also a glance at the world map in terms of ammonia as a basis for the transport of regeneratively produced hydrogen: 177 major projects have been announced worldwide – the production of hydrogen and transport over long distances via ammonia (NH3) will then increase sharply starting 2026, which also ensures that hydrogen will be available in ever larger quantities at falling prices (up to 1 USD per kilogram is the forecast for the next 10 to 15 years).
At the major trade fairs and conferences, spirits were high even though the companies know that the implementation of many projects will take a while – longer than expected. The large number of partnerships and project descriptions makes it impossible not to be optimistic. In my view, a boom will emerge that will be based on and boosted by development in countries such as China.
Analogous to 2020
The stock market, in my opinion, is entering a new phase that can be compared with the period from 2017 to 2020, when there was a price explosion in H2 shares. The difference between the years around 2020 and those from 2024 to 2030, however, is that in the future there will be a steady, long-term and sustainable upturn in the H2 sector – surely again with some price exaggeration upwards as well as downwards, but rising in trend.
Companies have built up production capacities, optimized their products, realigned their business models and are preparing for the ramp-up. They will be able to deliver when the market demands it. The stock exchange will anticipate this step by step, provided the industry proves that it is possible to earn money with regeneratively produced hydrogen. Then, a comparison with the years 2017 to 2020 is inappropriate in that the prices in the future will sustainably rise, because a new megatrend is running its course – worldwide.
There is a need to differentiate between the various FC sectors and individual companies, however. It depends on how one as a company is positioned in the “right markets,” because competition in terms of profit margins is also increasing in parallel. For example, the production of electrolyzers in China is up to 70 percent cheaper than the global competition. Companies that earn money from hydrogen as a consumable and commodity are, in my opinion, better valued by the stock market than pure plant builders. The business models will influence the development of share prices in various ways, since what counts in the end is the return on investment (ROI), the company’s profit.
Book tip, indirectly on the topic (German-language): “Zukunft – eine Bedienungsanleitung” by Florence Gaub (ISBN 9 78323 283724)
But what you need as an investor is composure and time. Buy and leave and buy again little by little to achieve a good average price. Safer than individual investments in this are of course H2 funds (ETFs), of which there are plenty and which do not differ greatly in the composition of the securities. According to the cost-average principle, always buy more. Consider this: Facebook, Tesla, Google and Amazon were also not a success story right from the start, but rather after various numbers of beginning years demanded enormous capital expenditures and also justified logical losses in the start-up phase.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Author: Written by Sven Jösting, December 15th, 2023
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