January 05, 2015


  • The overall fuel cell market is slated to grow rapidly, and Plug Power is focusing on one of the key growth areas in this industry.
  • Plug Power's forklift solutions are being adopted by a variety of customers, and by deploying new technology, the company should gain more clients.
  • Hydrogen fueling is yet another key growth market that could propel Plug Power's shares higher.

The last six months have been tough for Plug Power (NASDAQ:PLUG) as its shares have dropped 35%. This is not surprising, as the company's performance has not been up to the mark in recent quarters, as it has missed bottom line estimates by big margins. In addition, the company has reduced its growth forecast more than once, and this has further weighed on its stock price performance.

Forklifts and fuel cells will drive growth

But, as investors, we need to look beyond the short-term issues that are affecting Plug Power as the company operates in a fast-growing industry. Take a look at the following chart for example:







From the graphic above, it is evident that the fuel cell market is expected to grow at a tremendous pace in North America in the next five years. Now, the market's growth will be driven by several applications as the following graphic suggests:





Apart from the different applications, the above graphic also tells us the potential of the fuel cell market on a more long-term basis. Now, the good thing is that Plug Power is focusing on one of the biggest end-market opportunities in the fuel cell market -- Forklifts.

Tapping a strong customer base effectively

Plug Power's forklift solutions are gaining good pace, as the company had sold 857 GenDrive units to key material handling customers in North America last quarter. More importantly, the company has built up an impressive portfolio of customers, including the likes of BMW, Mercedes-Benz, and Volkswagen, who leverage its GenDrive fuel cells in their lift trucks for supporting the vehicle assembly operations.

The good thing is that these customers are now ordering more products, as in the previous quarter, Plug Power landed bookings worth $25.6 million, which is half of its revenue in the trailing twelve months. Also, customer interest in Plug Power's solutions is rising, as it now has another 8 potential customers in the pipeline from varied sectors such as food, retail, and auto. One of these, Newark Farmer Market, was brought on board last month and has already ordered 110 GenDrive units in order to run forklifts in its refrigerated meat warehouse.

On the back of these new customer wins, it is not surprising to see that Plug Power sees shipments of 900 to 1,000 GenDrive units in the current quarter. In the future, this number can grow further as the company improves the technology used in its products, as this will allow customers to further reduce costs and improve efficiency. For instance, Plug Power will launch its first Class 3 GenDrive units, powered by an air-cooled stack. The liquid-cooled stack is primarily manufactured for its GenDrive Class 1 and 2 products, but its usage in class 3 products will improve efficiency and help Plug Power attract more customers.

Hydrogen fueling: Another catalyst

Additionally, Plug Power's GenFuel system is also gaining pace, and this will allow the company to tap the growing demand for hydrogen fueling. The company has already struck up a partnership with Praxair (NYSE:PX) for supplying the liquid hydrogen for its GenFuel customers. As a result, the company now has a ready supply of hydrogen that it can dispense to customers at a minimal cost.

The hydrogen fueling market is expected to grow at a good pace in the future. According to a report:

Stationary fuel cell markets at $1.2 billion in 2013 are projected to increase to $14.3 billion in 2020. Growth is anticipated to be based on demand for distributed power generation that uses natural gas. Systems provide clean energy that is good for the environment. Growth is based on global demand and will shift from simple growth to rapid growth measured as a penetration analysis as markets move beyond the early adopter stage. The big box retailers including many, led by Walmart, the data centers, and companies like Verizon are early adopters.

Eventually hydrogen will be used as fuel in the same stationary fuel cell devices.

As such, Plug Power is doing the right thing by making an early move into this market. The company has already delivered GenFuel sites to 5 new sites, and is working on deploying another 5 sites soon. Plug Power is the only company around the world that has successfully deployed 10 sites in just one year. Since it is delivering a high-throughput to customers, which are leveraging on an average 6 tons of hydrogen daily, it is not surprising to see that this particular product is gaining traction.


Plug Power might have lost 35% of its value in the last six months, but the company's strong end-market prospects, diversified customer base, and foray into hydrogen fueling will allow it to get better in the long run. As such, investors should consider using the company's weak performance as a buying opportunity, since Plug Power looks set to appreciate in the long run.

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