By Gary Simon
Three months ago, I offered some thoughts on this industry as an insider. Let’s look at how those observations held up.
1. The fuel cell sector has been underperforming on investors’ expectations for some time. This trend continues. A new threshold was passed as Ballard Power became the first fuel cell company to report an aggregate total loss since inception of over $1 billion. The top four in sales (FCEL, BLDP, HYGS and PLUG) are also the top four in annual losses. These three account for the majority of all fuel cell revenue, a total of $191 million in the last twelve months—a figure which is still growing. The total fuel cell sales per year are up to about $300 million including private and public companies, a new record. Yet, there is still no profitable public fuel cell company. These four leaders spent about $448 million to sell that $191 million.
2. There may be a substantial market for PEM fuel cells in portable power applications. MCEL and MKTY are bellwethers in this space. The past quarter was not kind to these two and most others like them. MCEL terminated all officers and employees on May 12, indicating it had run out of cash. NASDAQ suspended trading in its stock May 27, seeking more information on the company’s plans. MCEL has not filed for bankruptcy yet, but may.
MKTY did an 8-for-1 consolidation of its shares (a “reverse split”) to boost its price back above the $1 minimum price required for a NASDAQ listing, but has less than one year’s cash on hand at the current burn rate. Their auditors gave them a negative opinion on whether the business could remain a “going concern”. They clearly need to do something to raise cash or cut back their cash use.
A similar portable power company in the UK, Voller Energy on the London market (VLR.L), is also in the throes of a possible sale or liquidation with a share price below 6 pence.
Medis Technologies (MDTL) has yet to show any significant sales of its 2 watt power pack for one-time cellphone and laptop recharging. It has a mass production line ready to meet a huge demand, but so far meaningful demand has not materialized. The unit faces serious competition from a simple and cheap emergency recharger that uses AA batteries. The company showed losses of $48 million in the last twelve months, and $19 million cash on hand. Its share price recently hit a new 52-week low.
On a more positive note, portable fuel cell maker Protonex (PTX.L) has a nice pile of cash (about $30 million) that it is using slowly.
So the score at this point is four in trouble, one doing reasonably well in the portable space.
3. The main competitor to the PEM is the solid oxide or ceramic fuel cell. Several companies have made advances faster than expected. Ceres Power (CWR.L) and Ceramic Fuel Cells Ltd. (CFU.L) are the bellwethers so far in this race. Both have seen a significant drop in their share prices. CFU.L dropped 26% from 27 pence on the London market to 20 pence. CWR.L dropped 32% from 220 pence to 150 pence. Both bounced back a bit. However, most of the solid oxide fuel cell companies are still private and their performance is yet to be seen.
4. FCEL stands out with its large fuel cells and needs volume to get to breakeven, with 2008-2010 a very telling period. FCEL is the leader in backlog for fuel cells, with now $134.7 million on the books. However, its selling price per unit is still 40% below its costs, so volume only deepens its losses. The hope is that with volume costs will decline. The company has about 4 quarters of cash on hand, and it is likely it will need to raise more in order to make it to profitability. That creates a race to get more cash before it is all gone. It has already lost $482 million getting this far.
5. There is at least an equal number of small private fuel cell companies [to the 23 public companies] churning away, hoping one day to make it to the public market [and become the market leaders]. Still true and the ray of hope in this industry. Expect to see at least two IPOs of fuel cell companies in 2009.
Gary Simon is a venture partner with Velocity Venture Capital in Folsom, CA (www.velocityvc.com) . He is the CEO of Acumentrics and a board member of Jadoo Power. Both companies are deeply involved in commercializing fuel cells. Gary is also an advisor to Camino Energy.
