Initiating Coverage of Plug Power With No-Moat Rating

Business Strategy & Outlook

Plug Power seeks to be a leader in the green hydrogen economy. The company’s strategy is centered on its vertical integration approach to provide customers a complete hydrogen solution— from fuel cell technology to green hydrogen fuel. Green hydrogen as a fuel to decarbonize is in its infancy. Customers face numerous challenges with adopting hydrogen technology, including economics and lack of green hydrogen production and infrastructure. Within this context, Plug’s efforts to provide customers a one-stop-shop solution of technology and fuel is considered as an endeavor to lower the barriers for customer adoption. While this strategy brings greater capital intensity, it positions Plug as the only all-in-one provider within the industry. The ambition of Plug’s strategy stands out relative to peers who focus on simply providing fuel cell or electrolyzer solutions.

Plug’s primary end market historically has been material handling (forklifts). The company recognized material handling offered the nearest route to market to prove hydrogen’s value case and established relationships with large companies such as Amazon and Walmart. While material handling comprises the bulk of sales today, the company’s long-term end market focus also includes on-road transport, stationary power, electrolyzers, and green hydrogen fuel. Plug has pursued a partnership approach to target many of its end markets and has several joint ventures with leading companies. These include Renault (light commercial vehicles), Acciona (green hydrogen production), SK (stationary power/electrolyzers), and Fortescue (electrolyzers). A potential partnership for the heavy-duty truck market is still pending, given this represents a sizable market opportunity. Plug has a global approach to its end markets, but the U.S. and Europe are its largest focus areas, particularly for establishing its green hydrogen network.

Financial Strengths

Plug Power’s financial strength has greatly improved in recent years following large equity capital increases. For much of Plug’s history the company’s cash and investments balance has been around $100 million, but stood at north of $4 billion as of Dec. 31, 2021. Current debt outstanding consists of $200 million of convertible notes maturing June 2025 and approximately $100 million under a term loan maturing October 2025. In addition, the company has approximately $200 million of financing obligations associated with sale leaseback financings. Plug Power’s strategic decision to produce green hydrogen greatly increases its future capital requirements. Based on the company’s long-term target of 1,000 tons per day of green hydrogen capacity, a capital requirement of over $4 billion is estimated based on the company’s approximate capital expenditure per ton guidance. While this represents a large use of capital, Plug is expected to raise debt against this business area given its nature. Plug’s operating cash flow is expected to inflect into positive territory around 2025, driven by continued revenue growth and an improvement in fuel margins as it in-sources hydrogen production.

Bulls Say

Plug’s partnerships with leading global companies provide validation of its differentiated strategy.
By providing customers a bundled solution of technology and fuel Plug stands to capture a larger addressable market.
Recent capital raises have dramatically improved the company’s financial strength; cash and investments totaled over $4 billion as of year-end 2021.

Company Description

Plug Power is building an end-to-end green hydrogen ecosystem – from production, storage and delivery to energy generation. The company plans to build and operate green hydrogen highways across North America and Europe. Plug will deliver its green hydrogen solutions directly to its customers and through joint venture partners into multiple end markets— including material handling, e-mobility, power generation, and industrial applications.

(Source: Morningstar)

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