Alas, the bubble pops and the dream floats away. After well over a billion dollars of investment, the practical application of the hydrogen fuel cell powering our cars is just not doable. Logically, the costs involved in bringing it to the public just can’t compete with the dynamic duo: Gasoline and Batteries.
Hydrogen fuel cell maker “Plug Power” (NASDAQ: PLUG) was one of the hottest stocks of 2013, rising from a low of $0.26 per share to a high of $11.72 share (a 4,400% increase). The media-hype surrounding this company got investors interested in fuel cell stocks and even competitor “Ballard Power Systems”, was up about 400% at the time that Plug Power was peaking.
With several automakers such as “Honda” and “Hyundai” investing in fuel cells as an alternative to “Tesla Motors” (NASDAQ: TSLA) and battery-powered electric vehicles (EVs), and with Plug Power dropping 63% from its recent highs, investors may be wondering whether or not this is a good time to jump on the fuel cell bandwagon, now that the stock seems closer to the ground floor. However, Plug Power is not only a bad investment, but the entire idea of a “hydrogen fuel cell economy” is pretty much dead-on-arrival.
Why Plug Power is a terrible investment
First let me be clear, Plug Power is not in the auto market (and is really not even a Tesla competitor) but caters mainly to warehouse vehicles, such as forklifts. However, I feel the company is so unfriendly to shareholders and so fundamentally flawed that a brief warning to potential shareholders is warranted.
Plug Power’s run-up form less than $1/share to over $11 occurred in a three-month period after signing contracts with FedEx and Wal-Mart. The company responded with not one, not two, but three secondary offerings in which it diluted existing shareholders (by 271%), and did so at enormous discounts to the share price at the time. In total it raised $150 million despite a mere $30 million in 2013 sales.
Why automotive fuel cells have no future
A lot of big companies, including automakers such as Ford, GM, and Toyota, have spent billions researching fuel-cell cars, with Ford, Daimler, and Nissan forming a partnership to develop a “common fuel cell system” they could bring to the market by 2017.
Toyota actually doubled-down on fuel cells with its North American CEO, Jim Lentz, stating that the company was focusing on hybrids in the short term and fuel cells in the long term (as opposed to EVs). The company recently unveiled a 300-mile range fuel cell concept car that it claims might be available for a starting price “in the neighborhood” of $50,000 in 2015, putting it in direct competition with Tesla’s Model S.
Despite support from these major corporations there are two very fundamental reasons why hydrogen fuel cells will lose to battery electric as the technology of tomorrow:
The cost of building a hydrogen infrastructure to replace petroleum and natural gas would be an estimated $200 trillion. Compare this to the cost of a smart electric grid, #338 billion to $476 billion, which would impart $1.4 trillion to $2 trillion in economic benefits. Updating our aging electrical grid is something that America will need to do anyway to keep our lights on and economy running. In the process we can help expand the existing infrastructure to accommodate electric cars which cost $0.75/gallon equivalent to fuel, as opposed to $4.5/gallon equivalent of hydrogen, which the department of energy believes may drop as low as $3.75/gallon equivalent by 2020.
Which brings me to the second fundamental problem with fuel cells – the fuel. Hydrogen is a store of energy, much like a battery, and not an energy source. Today 96% of hydrogen is made from natural gas, in a process that is 72% efficient. It can be made from water in a process called electrolysis – which is 70% efficient. However, because it is the smallest, lightest, and least dense element - hydrogen must be compressed to be stored. When one considers the energy losses of creating hydrogen (even say from wind or solar powered electrolysis) then compressed into a vehicle’s fuel tank, it will never be as efficient, nor as cheap, as taking that electricity and putting it straight into a battery.
The bottom line is that EVs, such as Tesla’s Model S, will always have the upper hand over fuel cells due to higher efficiency and lower fueling costs. Throw in the lack of hydrogen infrastructure and more expensive price tag to build said infrastructure and it becomes clear that hydrogen fuel cells have a limited future, if any.
Read Article (Adam Galas | fool.com | 06/071/2014)
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