Initiating Coverage of Ballard Power With No Moat and a $7 FVE

Business Strategy and Outlook

Ballard has one of the longest histories in the fuel cell industry, with a particular focus on transportation applications. Currently, the company’s focus is on providing fuel cells into heavy-motive applications: bus, truck, rail, and marine. While each of these markets is still nascent, buses are considered the furthest along in adopting zero-emission technology. Truck is likely next in the adoption curve, with rail and marine longer dated. Given the early stage of fuel cell adoption in these respective markets, Ballard’s focus in the near term is on providing fuel cells for pilot/demonstration-type projects to show proof of concept. Given Ballard’s focus on transportation end markets, the company’s strategy faces risks from battery electric technology. This is particularly acute for the bus and light-duty truck end markets, whereas heavy-duty trucking, rail, and marine are likely to have more difficulty adopting battery electric solutions given the reduction in cargo capacity from large batteries.

The core of Ballard’s strategy is around continuing to invest in its proton-exchange membrane, or PEM, fuel cells. The company plans to invest in research and development to continue to lower the cost of fuel cells to make the technology more economic. Ballard has a goal to reduce the cost of its fuel cell module from roughly $1,000 per kilowatt today to below $300 per kilowatt by 2030. In contrast to peers, Ballard has maintained a narrow focus around its core PEM fuel cell technology. Many peers have diversified into electrolyzers and / or hydrogen production in recent years. While Ballard has not ruled out an entry into the electrolyzer market, it is unlikely it enters the hydrogen production part of the value chain. Ballard’s geographic emphasis is on North America (mainly California), Europe, and China. The company’s China efforts are largely through its Weichai joint venture, a leading diesel engine manufacturer in China. Ballard views the China market as core to its long-term growth ambitions.

Financial Strength

While Ballard lacks the financial strength of more-established companies, the company’s un-leveraged balance sheet. Ballard and the broader green hydrogen industry are still in their infancies. Ballard has largely been in a research and development phase for much of its history and operating income is projected to turn positive until later this decade. This will result in consistent cash outflows over the coming years, but the company has added to its cash balance in recent years. Ballard’s cash balance was just north of $1 billion as of December 2021. Key uses of cash include working capital, organic growth, and select acquisitions. The largest use of cash in the near term to be increasing operating expenses.

Bulls Say’s

Ballard boasts one of the longest histories in fuel cell technology.
Ballard fuel cells have among the highest use in real world applications, providing it a first-mover advantage.
The hydrogen fuel cell market is in its infancy, with robust growth projected.

Company Profile

Ballard is a world leader in proton exchange membrane fuel cell, power system development, and commercialization. The company’s principal business is the design, development, manufacture, sale and service of PEM fuel cell products for a variety of applications, focusing on power product markets of heavy-duty motive (consisting of bus, truck, rail, and marine applications), material handling, and stationary power generation. Sales are concentrated in the U.S., Europe, and China..

(Source: MorningStar)

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