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April 8,
2024
By Geoffrey Seiler
Will Plug Power Survive 2024?
Key
Points
Plug Power issued a "going concern" warning late
last year, before removing it earlier this year.
The company has been plagued by poor gross margins
and project delays.
It's currently looking for government financing to
finish two hydrogen production facilities.
The company issued a warning last year that often precedes a bankruptcy
filing.
It's been a difficult few years
for Plug Power
(PLUG
3.85%), which has seen its stock fall from over $70 in
early 2021 to under $4 today.
In November 2023, when it filed its 10-Q for the
third quarter, the company issued what is referred to as a "going
concern" warning projecting that it may not have enough cash to fund its
operations and capital expenditure requirements over the next 12 months.
Such warnings are often a prelude to a company filing bankruptcy.
However, Plug Power removed the warnings in its 10-K filing in late
February.
Let's take a look at Plug Power and see if the
company can turn itself around, or if bankruptcy could still be in the
cards.
A struggling business
Plug Power is trying to become an end-to-end
hydrogen solutions company that offers everything from hydrogen
production to storage to hydrogen fuel cells. Currently, the company's
main product is a fuel cell used in forklifts and other material
handling equipment that's used in high-volume warehouses and
distribution centers. It counts well-known companies such as
Amazon, Walmart, and Home Depot
among its clients.
The problem with its business
model is that Plug Power sells the hydrogen fuel to its customers to run
these fuel cell-powered forklifts at huge losses. This has led the
company to have negative gross margins, and even larger operating
losses. As a result, the company has been bleeding cash. In 2023, it had
operating cash flows of negative $1.1 billion and it consumed $1.8
billion in total cash including capital spending.
Building green hydrogen production
facilities
Plug Power's current business model is not
sustainable, which is why the company began looking to build out its own
green hydrogen production facilities. The goal is that by producing its
own green hydrogen, the company would be able to sell hydrogen fuel to its
customers profitably, instead of selling the fuel at a loss.
The problem the company has run into is that the
cost to build hydrogen production plants is quite high, and new projects
often come with delays. Plug Power was initially aiming to have five
hydrogen production facilities up and running by the end of July 2024.
Currently, its Georgia plant is the only one operational, while a plant in
Tennessee is expected to come online soon. The Georgia plant would be able
to handle around 20% to 25% of its customers' material handling fuel
demand, with the Tennessee plant handling about another 15%. The company
has also formed a joint venture with Olin Corporation to
help fund its plant in Louisiana.
Meanwhile, Plug Power is slowing
down its investments in facilities in New York and Texas until it can find
better financing options. It also plans to reduce overall
capex to help lower its cash burn by 70% compared to 2023. It is
looking for low-cost financing from the Department of Energy (DOE) to
finish its facilities in New York and Texas. In March, the DOE granted the
company nearly $76 million toward building the plants, but Plug Power's
still waiting on a $1.6 billion loan that it had applied for to finish the
projects.
Ambitious plans and threat of bankruptcy
Plug Power had previously set out ambitious plans of
generating $20 billion in revenue with 35% gross margins in 2030. However,
management has lost a lot of credibility with investors given the
continued push-out of its hydrogen plants coming online and the issuance
of a "going concern" warning.
Moving forward, the company should
survive through at least the end of this year. It was able to secure a $1
billion at-the-market security issuance (ATM) agreement to sell newly
issued shares through or to financial services firm B. Riley,
which will add additional cash to its coffers. Meanwhile, if the Georgia
and Tennessee hydrogen plants run smoothly, that should help improve its
weak fuel margins. If the company receives the DOE loan it applied for,
that will only improve its liquidity more and allow it to continue to
build its remaining two hydrogen facilities.
That said, Plug Power remains a very risky stock
to own at this point. The company has yet to prove it can generate
positive gross margins, let alone profits or
cash flow. At the
same time, it has plans to further dilute investors and add to its debt
load. This is a stock best left to watching from the sidelines.
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