Plug Power: The Story Is Not As Strong As It Sounds And Numbers Are Missing

Plug Power Inc. (PLUG) is an energy stock that became very popular among investors in 2020. President Biden’s appointment to the Oval Office led to a sharp improvement in investor sentiment toward Plug Power because of its roots in the clean energy industry, and the stock has appreciated a staggering 745% in the last 12 months. Plug Power, however, has shed approximately half of its market value since reaching a 52-week high of $75.49 per share in February. Many factors played a part in this substantial decline of the stock price, including a non-cash warrant charge, an earnings miss, and the restatement of financial results. The company, however,  is aggressively expanding its operations in tandem with the growth of the renewable energy industry and is positioning itself to benefit from the expected boom of the clean energy industry. If investing was all about finding a company that could grow in the future, I might have invested in Plug Power. Investing, however, is about finding a good company that is fairly valued too, and I believe Plug Power is very richly valued in the market to an extent that risks far outweigh the expected rewards.

Business Description

Plug Power is an American company that develops and distributes hydrogen fuel cell systems in The United States, Europe, and Canada. The business is centered around the company’s objective of replacing traditional batteries used in commercial equipment and making inroads into the lucrative electric vehicle industry. The Company has deployed over 40,000 fuel cell systems for e-mobility, which is more than any other company in the world. GenKey, GenDrive, GenFuel, GenCare, and ReliOn are some of the products offered by the company. 

The company has announced 3 financial objectives for 2024.

  1. Improving annual sales to $1.2 billion (from l$230 million in 2019).
  2. Operating income of $200 million.
  3. Adjusted EBITDA of $250 million.

All these financial goals, in our books, seem very ambitious given that the company is already facing significant challenges to improve revenue.

Plug Power’s vertically integrated GenKey solution connects all essential components to power and fuel, and the company provides its services to many leading companies in the world including, Amazon, BMW, The Southern Company, Carrefour, Nike, Home Depot, and Walmart. Plug Power pioneered the commercialization of hydrogen fuel cell technologies. By 2024, Plug Power intends to generate more than half of its hydrogen electricity solely from renewable sources.

Industry Outlook

The renewables industry has a promising future for 2021 and beyond, thanks to several factors that support the continued ambitious growth of wind, solar, and battery storage. According to the International Energy Agency, many of the projects that were put on hold due to the pandemic are expected to be completed in 2021, resulting in a turnaround in renewable capacity additions. Because of this, energy additions in 2021 are expected to almost double those in 2019.

Source: IEA
Source: Allied Market Research

Even the hydrogen fuel cell vehicle market is expected to grow strongly in the foreseeable future. The global Hydrogen Fuel Cells market is projected to expand at a CAGR of approximately 14.97% between 2021 and 2026, reaching a value of approximately $2.17 billion by 2026, up from $0.82 billion in 2019.

Since hydrogen fuel cell vehicles do not emit greenhouse gases, they can help attain zero emissions. This, in particular, is predicted to boost the hydrogen fuel cell market demand by 2026. One of the reasons assisting the market growth is the fact that hydrogen fuel cell vehicles are low-maintenance vehicles that operate quietly without making a lot of noise. Additionally, the positive government initiatives that we might hope to see from Biden Administration to encourage cleaner technology can be expected to push the industry forward in the coming years.

Recent Developments

Plug Power recently announced a partnership with the third-largest conglomerate in South Korea, SK Group, whose most important feature is its energy and chemical division. On February 25, SK Group announced the completion of its $1.6 billion investment in a joint venture with Plug Power to expand hydrogen energy in the Asia region. South Korea and other Asian markets will benefit from this collaboration, which will include hydrogen fuel cell systems, hydrogen filling stations, and electrolyzers. The joint venture is scheduled to start up this year.

The CEO of Plug Power, Andy Marsh said in a statement,

“Plug Power has been aggressively building out the hydrogen economy in North America, and it is clear that our partner, SK Group, shares the same vision to build out a big hydrogen economy in Asia.”

Furthermore, the company intends to expand beyond forklifts and into heavy-duty vehicles such as trucks to service ports in the United States and Europe, as well as stationary fuel cells to support data centers and logistics hubs. Although Plug Power aims to increase the use of fuel cells in more vehicles, some are dubious about its viability in heavy-duty vehicles such as trucks. Elon Musk, the CEO of Tesla, has been a vocal opponent of hydrogen fuel cells, calling them impractical. Others, however, such as General Motors, Toyota, and Nikola, are ready to welcome hydrogen, although it is unclear how Plug Power can move forward with its ambitious plans without incurring significant costs that could eventually push the company into the deeply loss-making territory.

Plug Power’s existing partner, Brookfield Green, owns and operates one of the world’s leading publicly traded renewable power platforms. Together, they recently unveiled plans to construct a green hydrogen processing plant in South-Central Pennsylvania, using 100% renewable energy from Brookfield Renewable’s Holtwood hydroelectric project as part of a previously announced collaboration.

The plant’s construction will commence in Q1 2022 and is expected to be completed in late 2022. The plant is expected to deliver about 15 metric tons of zero-emission liquid hydrogen per day.

Commenting on these expected developments, CEO Andy Marsh said:

“This is another step in our quest to build the green hydrogen economy in the USA and globally thereafter. We are proud to be able to bring quality jobs and invest in the local economy in Lancaster County, PA through this green hydrogen production facility.”

The company is making some progress in positioning itself to benefit from the expected increase in demand for sustainable energy solutions, but the company faces significant challenges in achieving profitability, which would be discussed separately.

Challenges looming on the horizon

Hydrogen fuel cells can be thought of as an alternative energy source that could potentially replace non-sustainable energy sources such as fossil fuel, but the industry is very likely to face stiff competition from electric batteries when it comes to the transportation sector. Although Plug Power has ambitious plans to gain market share in the automobile industry, both government and private institutions will have to invest billions of dollars to replace the existing technologies and to build filling stations that support the hydrogen fuel cell technology, which could take many years if at all. On the other hand, it would be easy for the government to focus on promoting electric vehicles as the relevant infrastructure required to adopt EVs is already in place in major cities, meaning that the investments required to promote EVs will be substantially lower than the fuel cell technology.


According to JPMorgan, the potential market opportunity for Plug Power could be worth more than $200 billion. With a view of increasing its penetration in the fuel cell industry, Plug Power is actively raising money to fund an aggressive expansion strategy and is forming strategic alliances with major market players. However, the company is yet to become profitable and is yet to prove its worth as a company that can grow revenue in leaps and bounds.

Disclosure: The author does not own any shares mentioned in this article.

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Sulakshi Madawala

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