Plug Power’s [PLUG] share price continued its charge into the new year after it vowed to accelerate the hydrogen economy by sealing a $1.5bn investment deal with South Korean conglomerate SK Group .
Plug Power’s share price rocketed from $35.00 on 6 January, the day of the announcement, to $53.78 at close on 8 January. The deal will see SK Group taking a 9.9% stake in the company, which produces green hydrogen fuel cell systems for e-mobility vehicles, including forklifts.
The deal comes off the back of a stellar 2020 for Plug Power’s share price. It began the year at just $4.14 on 10 January 2020 but, by New Year’s Eve, it had rocketed to $33.91, an increase of 719%.
Plug Power’s share price had trundled along to $7.71 on 31 July but hopes that a Joe Biden presidency would unleash huge spending on green products and infrastructure, and expanded deals with clients including Walmart’s e-commerce distribution network, gave it renewed bounce.
It was also lifted by strong results in its third quarter, showing a 106% year over year rise in gross billings to $125.6m and new strategic partnerships with Brookfield Energy and Apex Clean Energy to source renewable electricity and help its aim of building five green hydrogen production plants across the US by 2024.
The SK Group deal
Plug Power and SK Group aim, via their strategic partnership, to provide hydrogen fuel cell systems, hydrogen fuelling stations and electrolyzers — a device which splits water into hydrogen and oxygen using electrical energy — to a rapidly growing market in South Korea and the rest of Asia. The partners intend to create a formal joint-venture company in South Korea by 2022 to further drive demand.
This looks likely to gain government backing as countries seek to ramp up the battle against global warming and reduce business and consumer use of fossil fuels.
In January 2019, the South Korean government announced a Hydrogen Economy Roadmap through 2040, with goals including: over 5 million tons of hydrogen per year, over 6 million fuel cell electric vehicles (EVs), 1,200 refilling stations and 15GW of fuel cell power generation. It expects the cumulative economic value of its hydrogen economy to reach $40bn by 2040.
“SK Group has an established strategy for building out the hydrogen economy in South Korea and beyond. Due to the complementary strengths in this partnership, we expect rapid growth and significant revenue generation from the joint venture” - Andy Marsh, Plug Power CEO
“SK Group has an established strategy for building out the hydrogen economy in South Korea and beyond,” said Andy Marsh, CEO of Plug Power. “Due to the complementary strengths in this partnership, we expect rapid growth and significant revenue generation from the joint venture.”
A new vision
As part of its 2024 Vision plan, Plug Power envisages $1.2bn in annual sales and $200m in operating income. This will be boosted by the new green hydrogen production facilities and a Gigafactory, expected to be located in Rochester, New York, to make fuel cells and electrolyzers.
Analysts, excited by Plug Power’s one-stop shop ambitions of providing both the engines and green hydrogen to power the EV revolution, believes the new deal will turbo-charge those hopes.
Investment firm H.C. Wainwright, which raised its target forecast on Plug Power’s share price from $30 to $60, believes that by 2030 Plug will be generating $12.9bn in annual revenues and $3.9bn in annual operating profit.
Plug Power's predicted annual revenue by 2030
Colin Rusch, analyst with Oppenheimer, believes Plug Power’s revenues will be boosted by an additional $500m by 2024. He has an outperform rating on the stock.
However, he did not mention any word about profit and, as argued by TipRanks, that remains an issue for investors.
“There's the tiny detail that, no matter how much hydrogen it produced nor how many fuel cells it manufactured, Plug Power has never once in its 24-year-long history actually earned a profit,” the site stated.
In addition, there are general investor concerns that hydrogen-fuelled vehicles are still a fair way behind the usage, public recognition and infrastructure currently enjoyed by battery-powered EVs.
“There's the tiny detail that, no matter how much hydrogen it produced nor how many fuel cells it manufactured, Plug Power has never once in its 24-year-long history actually earned a profit” - Colin Rusch, Oppenheimer analyst
Notwithstanding these concerns over competitiveness and cost, green hydrogen remains an exciting technology-driven by rising business, consumer and government demand.
Plug Power wants to be a sector leader and its global ambitions are clear. The world will hopefully find out more when the group releases updated financial targets on 21 January.