The green hydrogen leader fights not only government bureaucracy but its own wasteful ways
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Plug Power (NASDAQ:PLUG) stock is leading the green hydrogen revolution. It has established itself as the only one-stop shop for obtaining fuel cells, electrolyzers and green hydrogen fuel. The problem is, creating the entire infrastructure from top to bottom is expensive. Unfortunately, Plug Power has a long history of being unable to do so profitably.
The company continuously burns through cash forcing it to tap the equity markets and heavily dilute shareholders. PLUG stock burned through $1.9 billion in cash last year but access to $300 million in at-the-market financing let the company eliminate going-concern language from its annual report.
That shouldn’t be enough to assuage investors, though. Plug Power says it will lower its cash burn by 70% in 2024. That would be a significant step forward though it means Plug is still lighting up $600 million a year. The green hydrogen leader needs to make good on its promise to generate positive gross margins in the second half of the year before shareholders cut it some slack.
All talk, no action
There is no reason investors should take management at its word. They have heard grandiose promises from CEO Andy Marsh before. Just last year Plug Power issued guidance saying it would hit $2.1 billion in sales in 2024 and 25% gross margins. It forecast by 2030 it would realize $20 billion in revenue with 35% gross margins. That represents a better than 50% compounded annual growth rate in sales.
Yet Plug Power ended last year with $891 million in total sales. While that was 27% growth year-over-year, it means the hydrogen stock has to grow revenue 135% this year to hit is target. It might expand sales but exponential growth is always just over the next hill. And considering negative gross margins expanded 2.5 times in 2023 from the prior year, just hitting break-even would be an achievement let alone positive gross margins of 35%.
Admittedly, Plug Power says it plans to achieve its profit margin goals by raising prices, cutting costs, firing workers and slowing new product expansion. Yet by hiking prices, the company also says revenue growth will slow. CFO Paul Middleton is right that these are necessary actions in the current environment. However, it does not lend itself to instilling confidence that Plug Power can achieve its goals.
Tripped up by the government
A big part of Plug’s problem is the uncertainty surrounding the U.S. green hydrogen production tax credit. It’s received both favorable and unfavorable guidance on the credits from the misnamed Inflation Reduction Act the Biden administration imposed. That tends to leave customers leery about moving forward with a project until they can get some clarity.
Australia’s Fortescue (OTCMKTS:FSUMF) says the proposed guidelines could kill the nascent green hydrogen industry before it even has a chance to get on its feet. Fortescue’s North America CEO Andrew Vesey testified the proposed rules would require facilities to purchase other higher-priced forms of renewable energy to operate. It would kill the value of the project and no other industry is required to do so.
“Think about that,” he said. “If the EV industry was required to do the same, there would most likely not be a single electric vehicle on the road today.”
Getting the hydrogen industry off the ground is difficult enough and faces daunting hurdles on its own. The government is attempting to throw more onerous roadblocks in its path.
Investors need proof
Plug Power is certainly a green hydrogen industry leader. Its strategy to be vertically integrated provides customers with a single source for all their hydrogen needs. Because the industry is in its infancy, simplifying the process of sourcing the various parts of a project should ease customer concerns about adopting renewable energy as a solution. What Plug Power has achieved so far is admirable, though it doesn’t necessarily make PLUG stock investment worthy.
The green hydrogen company has yet to prove it can make it. It faces significant competition from battery technology and well-funded rivals. As smart as the single-channel strategy is that Plug Power is pursuing, it is also a capital-intensive one. And the company hasn’t shown it has the financial wherewithal to see it through to the end without destroying shareholder value.
For those reasons, PLUG stock is a hard pass.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.