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Weichai Power: Strong share price increase

Weichai Power: Strong share price increase

The share price of Weichai Power has risen by almost 50 percent in the last few weeks. The reason is the partnership with BYD in the electrification of large vehicle fleets. A perfect joint venture, it seems. Weichai Power with BYD could – my guess – be pushing the door open to fuel cells, since alongside battery-electric trucks and other commercial vehicles, the fuel cell is perfect for long-haul journeys.

Weichai has a joint venture with Ballard Power in China (51:49), with a capacity of already 20,000 FC modules per year. And Weichai will be one of the main beneficiaries when in China a large subsidy program for fuel cells and hydrogen comes – maybe 2024 or 2025. Weichai is China’s largest diesel engine manufacturer, which is now moving towards e-mobility – comparable with Cummins Engine in the USA. Weichai is also cooperating with Bosch.

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.

Plug Power: Facts offer little hope

Plug Power: Facts offer little hope

The turnover in the amount of 198.7 million USD in the third quarter lay considerably below expectations, the loss per share amounts to a minus of 0.47 USD per share with the expected minus of 0.30 USD per share – in the negative sense. The loss for the first nine months of the financial year lies over 725 million USD. But the cash on hand at the quarter end of still only 567 million USD is rather irritating, as the board always spoke of sufficient liquidity.

It is now certain that at least 500 million USD in new liquidity – in the short term – must be obtained in order to be able to adequately finance all projects, is the opinion of the specialist analyst from Morgan Stanley, Andrew Percoco. This then puts further pressure on the share price – if it happens, – since institutional investors want a discount on the entry price.

Has the Plug Power management overestimated themselves and started too many projects at the same time? There’s talk of seven to nine giga-projects (production facilities for FC stacks, electrolyzers, hydrogen, cryogenic technologies, etc.) in the USA and four others around the world. For this, the capital drain is very high. At the same time, certain regulations are not yet in place. And the credit expected from the Department of Energy (DOE) as part of the Inflation Reduction Act in the amount of 1 to 1.5 billion USD not be ready until 2024 at the earliest, as there are extensive tests and conditions involved.

Plug itself does not yet produce liquid hydrogen, but buys it on the market. This has led to further problems, as it is associated with high costs and losses. Parallel is the frozen cash of over one billion USD (restricted cash), which in turn, in my estimation, could be connected with the major customers mentioned here.

Tight liquidity situation

Still only 567 million USD was the amount of cash in the bank for Plug Power at the end of the third quarter. The many parallel projects, however, require further financial support before sales and the associated profits can be generated. That will take some time. The hyperboles uttered under CEO Andy Marsh to influence the stock exchange via investor relations are backfiring.

It is now to be expected that Plug will attempt to raise new equity by issuing shares and/or convertible bonds, which in view of the figures will no longer be so easy. Based on current share prices, any major capital increase (share issue) will only be possible at low prices. The board has stated a number of internal problems, from the situation with the purchase of hydrogen to delays in the start-up of production facilities as well as problems with supply chains.

The strong order intake in the electrolyzers segment may be reassuring, but it should be feared that competition will increase sharply, causing profit margins to shrink. Direct quote from the company: “Unprecedented challenges in the supply of hydrogen in North America.”

Short Interest

This figure – in December 158 million Plug Power shares – I always look at very closely, because it shows in which form speculation against a company and its share price is taking place. If the news is good, a price turbo (squeeze) could come about, but in Plug’s case it shows that the short sellers are correct in their assessment. I assume, though, it’s exactly big customers such as Amazon and Walmart who may have hedged their option rights via short selling. Both together have received over 100 million of these rights as a gift and can change them with very low conversion rates into shares. Theoretically, both have several billion USD (book) profit in their books if they go short at 70, 60, 50, 40, 30 USD per share – their purchase prices were are about 1.29 to 13 USD per share via exercise of the warrants. But that’s just a guess on my part – no guarantee.

I have always been critical of this deal because Plug has “baited” customers with it. And restricted cash of one billion USD is directly related to these major customers. The reason: This involves guarantees, warranties, security for technical support, spare parts and much more. Plug Power must provide such guarantees to customers such as Walmart and Amazon so that it can soundly implement orders, meaning operates H2 refueling stations for forklift trucks and ensures that there is always enough hydrogen available. The result is around one billion USD in restricted cash, frozen financial resources that cannot be used in any other way. Will companies like Amazon remain forever exclusive customers Plug Power regarding forklifts and their H2 refueling stations? The question arises because there are fewer orders from Amazon for the retrofitting of forklift trucks. Why?

Plug loses power-to-X project in Denmark

Via the consortium partner Plug Power Idomlund Denmark, Plug had actually been awarded the contract for the first power-to-X project in Denmark with a total of 280 MW of electrolysis capacity over six projects in its pocket. Then came the setback on November 20, 2023: Plug did not manage to provide a bank guarantie within the specified timeframe. It is probably about 28.3 million euros – no guarantees.

Summary: I had advised restraint until the figures for the third quarter were on the table. They are now here, but a buy still does not present itself, because it will still take time until the company creates clarity. On the contrary: Wait and see. Traders, however, can become active, since price fluctuations driven by the news will remain very high (high volatility), because the stock market has already severely punished the company (minus 40 percent alone on Nov. 10, 2023).

The question also arises as to whether Plug Power cannot avoid including partners in some projects, as it has already done with Fortescue. But that would come at the wrong time, because the possible conditions would be determined by the partner and investor rather than Plug Power itself. Will assets now possibly even have to be squandered?

In short: There is currently no need for action, because the expected figures for the current fourth quarter could again be disappointing. In 2024 and in the following years, however, the positive turnaround may come, when Plug has realized the in-house production of hydrogen on a large scale and benefited here from the Inflation Reduction Act, among other things, and also made good money with it. A DOE loan can be a game changer, but it takes time. There is no guarantee of this, even if it can be assumed that the Biden administration will not abandon prestige projects and players like Plug.

Further issues of shares are now even considered necessary and will not be implementable at ideal conditions. Six analysts have already radically changed their assessment – in a negative sense. I didn’t think my forecast would come true so quickly that the value of Bloom Energy would exceed that of Plug Power. Unfortunately, buy on bad-news is not yet suitable here. A buy limit for buying the share at three euros would be a first step. This stock is contemplatable if Plug offers institutional investors a discount on the purchase of new shares as a concession – as a risk discount.

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.

Hyzon Motors: Sensible withdrawal from Europe

Hyzon Motors: Sensible withdrawal from Europe

The numbers for the third quarter and the outlook promise a very exciting future for Hyzon Motors and its 200‑kW FC modules for trucks. Series production will begin in the second half of 2024. The activities will be concentrated at one location in the USA. Hyzon with its subsidiary is withdrawing from Europe. That is the right step, since a young company should concentrate on the market that is most important to the company, in order to use the limited capital resources in a targeted way.

Hyzon, however, is still looking for a fulfillment partner in Europe who can independently bring to use the company’s FC stacks, comparable to the partnership with Fontaine Modification in the USA or one like Quantron with Ballard Power. Hyzon is focusing on the USA and Australia/New Zealand, where a hydrogen-powered waste collection truck was recently delivered to Remondis. The FC modules are produced in the USA, which makes sense given the subsidies.

Hyzon will also benefit from the development of the H2 hubs, because the MACH2 project in the Midwest lies in the vicinity of its own production facility and belong to the projects of the DOE subsidized as part of the seven billion-dollar hydrogen hub program (awards of one billion dollars for each hub).

At the same time, Hyzon announced that they have agreed with the SEC to a payment of 25 million USD, payable in three installments over the next few years. This concludes this unspeakable issue, which is based on the misconduct of the former board of directors (accounting scandal). The cash burn per month can be massively reduced, and for ramp-up of module production only about five million USD is required. At the end of the third quarter are still 137.8 million USD in the bank, at a capital requirement of 10 million USD per month.

With the parent company and majority shareholder Horizon from Singapore, the IP license agreement was able to be extended until 2030 and could also be extended to other activities: So Hyzon is also planning to introduce new 300‑kW FC single stacks into the stationary energy supply of data centers and hospitals. Ballard Power and Bloom Energy are already active in this area.

Parker Meeks, CEO of Hyzon, responded to a question about why his company was focusing exclusively on fuel cells and not electric vehicles: „The experience with battery-electric trucks for many has been one in which the usable range is not what they imagined, especially when going uphill, which is the case even in the Los Angeles Basin. If you know the area, if you’re going somewhere where there’s a long distance, you’ll probably have to drive up a hill. Fuel cell trucks do not lose power, and this is the crucial factor that makes them particularly suitable for heavy transport as opposed to transporting drinks.”

Summary: In the USA Hyzon is working on establishing and expanding capacities in order to ramp up production of the 200‑kW FC modules. The partnership with Fontaine Modification suggests that a large sales market is emerging here, as Fontaine rebuilds trucks or retrofits vehicles and Hyzon as a technology partner in this comes perfectly into use with its FC modules. In this context, we can also well imagine that Fontaine through parent company Marmon Holdings has a direct stake in Hyzon. There will surely be capital measures (new issue of shares), and the entry of a strategic partner would be the ideal way to achieve this.

A highly speculative, very interesting investment. Hyzon is suitable as an admixture to Ballard Power and Nikola Motors, as these three companies can be jointly assigned to the area of fuel cells in commercial vehicles.

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.

FuelCell Energy: A turnaround at last?

FuelCell Energy: A turnaround at last?

Here, I am cautious. The company, in my opinion, does not yet offer any convincing prospects, expressed in terms of expected growth, orders and sales through the use of its technology, which was also supported by the share price drop to 1 USD. From this very low level, the price has now turned around, driven by the news. It looks as if a gradual rise in the share price is now imminent. FuelCell Energy reports a number of projects in Africa, the USA and Canada. Nigeria for example, plans to generate at least 30 percent of its energy from renewable sources by 2030 (MoU with Oando Clean Energy).

FuelCell Energy speaks of projects, but so far without naming order values; however, it is clear that demand for FC technologies such as solid oxide fuel cells (SOFC) is increasing. In Canada, a project with FuelCell Energy as technology partner was nominated for the Innovation Fund Award. Together with the companies Kinetrics and Bruce Power, the energy production of Ontario Power is to be expanded by hydrogen. And FuelCell Energy is about CO2-free hydrogen in commercial vehicles and about using electricity from nuclear power plants for hydrogen production (surplus electricity). Although this is only a pilot project, orders for high-temperature electrolyzers from FuelCell Energy are expected in the future.

Summary: The company has a healthy balance sheet structure and sufficient equity for financing. Unfortunately, FuelCell Energy does not yet have a long-term strategy that we can understand as to how FC technology and IP are to be used profitably. Cooperations such as that with ExxonMobil and IBM in the field of carbon capture sound very exciting, but how is money to be earned with such? The share will go its way, especially as support programs (Inflation Reduction Act) and the need for safe, clean energy form the basis for this. An own electricity portfolio (own plants, energy sales via PPA) will form the basis of the company’s earnings in the long term. A perfect FC/H2 share for traders.

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.

Hydrogen shares sustainably on course

Hydrogen shares sustainably on course

“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