Photo: Rainbow Restoration 

Plug Power has created many nasty sparks for investors 

For those who do not know of the company Plug Power Inc. (PLUG) is a provider of hydrogen fuel cell turnkey solutions. It was founded in 1997 and provides electrolyzers that allow customers, such as refineries, producers of chemicals, steel, fertilizer, and commercial refueling stations, to generate hydrogen on-site. It focuses on industrial mobility applications, including electric forklifts and electric industrial vehicles, at multi-shift high-volume manufacturing and high throughput distribution sites and environmental benefits; stationary power systems that supports critical operations, such as data centers, micro-grids, and generation facilities, in either backup power or continuous power role and replace batteries, diesel generators or the grid for telecommunication logistics, transportation, and utility customers; and production of hydrogen. 

It had an early mover advantage but that is being eaten away by others claiming to do the same or parts of the same and its execs have continuously promised exceptional results yet delivered little apart from burning through a cash mountain and destroying shareholder value. Plug’s market cap was around $14.6 billion at the end of 2020, at the time of writing this it is $6.35 billion! 

It is a Hold until a change of strategy - especially on pricing - becomes apparent. 

More about the company can be found on PLUG’s website. I would like to use this article to highlight confusing points that have driven the share price down and suggest that more of the same is yet to come. It would be useful for us all if readers can add their views in the comments following this article. For the sake of my investment in Plug, I would like to be proved wrong!

My doubts about the future include a number of questions. 

An un-broadcasted acquirer has not gone ahead. 

On March 10, 2021, Business Korea reported that "SK Group is planning to sell some of its stake in Grove Energy Capital, a special purpose company set up for the purpose of Plug Power acquisition. Specifically, up to 49 percent of the stake is likely to be handed over to financial investors”. SK Group is South Korea's third-largest conglomerate with more than 120 operating companies that have a combined annual revenue of more than $119 billion. SK's operating companies are focused on four major areas: Semiconductors, Telecommunications, Energy, and Life Sciences. It has stated its intention to become a leader in hydrogen. 

It bought a stake of 9.9% at around the market high and despite that collapse in market value and since SK normally has a controlling stake it has not jumped in and bought Plug and that raises the question of why? 

I have another...

Why did insiders sell in a big way?

In late 2020 and early 2021, insiders were big sellers with the CEO being the largest one of those: 

Director dealings

Source of above: Financial Times. 

Note the price he sold at! Soon after the end of that year, results were reported and the plunge in share price started. Today it is $10.57 having jumped a bit recently on more exec promises of good times ahead. 

It is worth noting that the President and CEO was appointed in 2008 and, as far as I have been able to find out, Plug has not made of profit since then despite large increases in sales. 

If fact the more sales increase the larger the losses become because he sells at massive negative gross margins!

Plug had an early mover advantage in a new energy technology and thus could have led on prices that raises more questions as does the fact that the suicidal pricing policy is still in place. 

The following from CNBC’s website shows the story for the 4 years ending in December 2022...

INCOME STATEMENT QUARTERLY ANNUAL

As can be seen from those figures, the more Plug sells the larger the loss becomes! Why? In normal companies, the opposite happens! 

Many other questions can be raised from the company presentations, such as... 

Plug Power (PLUG) said in its shareholder letter that fuel margin remained under pressure in Q1 "due to increased hydrogen molecule cost associated with historically higher natural gas prices and continued supplier disruptions.”

I made bold the words on hydrogen molecule and natural gas prices. The fact is that during Q1 gas prices were mostly under $3/MMBtu, and not far above long term lows. 

Since Plug’s IPO they have historically been much higher for much of the time! Those actual low prices should have have produced better results for Plug. They did for French gases company Air Liquide as the article under that link shows.

But the statement by Plug also raises yet another question. Its whole purpose is about green hydrogen. Plug even uses the color green for its website wording. Green hydrogen does not use natural gas, a fossil fuel! It is made by electrolysis using renewable energy.  

Molecular hydrogen is an abundant energy carrier, mostly produced from natural gas by steam reforming, resulting in grey/gray or blue hydrogen. 

The CFO also apparently made misleading statements after the Q1 results with regards to the company's restricted cash balances which have increased substantially in recent years according to this excellent article on SA; Plug Power: New Multi-Year Lows Following Cautious Outlook And Ongoing Execution Issues. 

In the latest Analyst Day presentation there are many very encouraging points made about happenings in the future but almost nothing about where the money will come from apart from vagaries on the final page. Morgan Stanley raised around $1 billion for Plug. They also have a 1% stake and in October 2021 upgraded PLUG to Overweight from Equal Weight, moving the price target from US$35 to US$40 . Today’s price $10.57! 

Today the rate of cash burn means they will almost certainly need a lot more money by year-end to have any future at all. 

So much for negatives, are there any ...

Plug Positives?

The Analyst Day presentation linked in above tell of many. IF - and it is a big IF - they have changed their pricing policy for those many projects then things could turn around fast and they would find it easier to raise more money. 

Investor Place Insights reported this on June 17.

"Plug Power (NASDAQ: PLUG) markets hydrogen fuel cell engines used to power “e-mobility” products that are utilized in factories and warehouses. Most recently, Point 72 Asset Management, the hedge fund controlled by multi-billionaire Steve Cohen, obtained its first position in PLUG stock last quarter, acquiring nearly 2.3 million of the company’s shares.

Additionally, Citadel Advisors, owned by another very well-regarded multi-billionaire, Ken Griffin, bought 4.56 million shares of PLUG last quarter. Also noteworthy is that the Canada Pension Plan Investment Board obtained over 215,200 shares of PLUG last quarter.” 

My Conclusion 

I mentioned earlier that Plug had lost its early mover advantage. It has as many competitors are moving in. There are reckoned to be around 100 companies trying to get in on all or parts of Plug’s act. They include large companies such as Shell building Europe’s largest renewable hydrogen plant that is now operational and German giant Thyssenkrupp’s Nucera is joining up with De Nora of Italy, a maker of electrolysers. Nucera is now a separately listed company. 

Plug must increase its prices by around 85% to achieve the Analyst Day stated aim of 30% gross margins and more to cover expenses plus make a profit. 

I will maintain my Hold view on Plug until I see evidence of that happening. 

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