Plug Power Inc.

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 2/5

Plug Power Inc. is a company focused on developing hydrogen fuel cell systems and related technologies, operating primarily in the materials handling and stationary power segments.

Investor Relations Previous Earnings Calls


The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Plug Power is a company that designs, develops, manufactures, and commercializes hydrogen fuel cell systems, offering an alternative to traditional power sources. Its primary focus is on the materials handling and stationary power markets, with emerging opportunities in on-road vehicles and other applications.

  • Revenues Distribution:
    • Equipment Systems: This revenue stream includes sales from their fuel cell systems, primarily for material handling applications, and equipment related to the hydrogen infrastructure.
    • Service and Maintenance: This revenue stream represents income from long-term contracts covering the services and maintenance of the systems.
    • Fuel Sales: This portion constitutes the sales of the hydrogen fuel for their fuel cell systems.
  • Industry Trends:
  • Hydrogen fuel cell technology, a clean energy alternative is emerging as a part of the global transition towards a green economy.
    • Government subsidies and policy regulations supporting green infrastructure are playing a huge role in the current landscape of the industry.
      • The increasing awareness and concern for environment has resulted in a growing shift towards renewable sources of energy like hydrogen.
      • Technological innovation is driving down prices for fuel cell components and expanding application uses.
  • Margins:
    • Plug Power has historically reported weak gross margins, even negative at times, as the company grapples with high costs of production and infrastructure.
    • These have been impacted by supply chain issues and cost of inputs.
    • Operating expenses are considerable, given the research and development costs needed to further advance its hydrogen technology.
  • However, recent trends show improvement in gross margins due to increased production efficiency and higher pricing.

  • Competitive Landscape:
    • Plug Power faces competition from established fuel cell companies such as Ballard and Bloom Energy.
    • They also compete with traditional battery suppliers and internal combustion engine manufacturers.
    • Many new entrants are also getting into the hydrogen fuel cell space.
  • What Makes the Company Different:
    • The company is focused on developing a complete hydrogen ecosystem from production to distribution and utilization using its own technology.
    • Plug Power has secured strategic partnerships that aim to bring down costs and create a competitive advantage.
    • The company is one of the main players in the materials-handling sector and has been making inroads to new sectors like data-centers and on-road commercial vehicles.

Moat Analysis: 1 / 5

Plug Power currently does not possess a wide or even a narrow moat. Here’s why:

  • Lack of Intangible Assets:
    • While Plug Power has some patents, and a brand in hydrogen sector, these are not as strong or as well-established as those of the well-known consumer products or technology.
  • No Switching Costs: Customers of the company could easily switch to other fuel-cell solutions, or other technologies, as costs of change aren’t very significant.

  • No Network Effect: The company is trying to use first-mover advantage and network effect, but so far, it has not had success in creating a closed/strong network.

  • Limited Cost Advantages: Plug Power has struggled with high production costs and a negative profitability, hence cannot be termed as a cost leader.

  • Size Disadvantage: While a large company, it is not large enough compared to other players that have more sales, and more geographical reach than the company.

The most important criteria, economic moat, shows that a company must consistently earn above average profits for an extended period. It would also protect against competition and make it hard for competitors to steal market share or drive down profitability. Plug Power hasn’t established this criteria as of yet.

Risks Affecting Moat and Resilience

  • Technological Disruption: Rapid technological advancement from the new energy segment can result in alternatives to hydrogen and could decrease the demand for company’s products.
  • Competition: Intense rivalry from new companies and established firms can decrease Plug’s market share and/or drive down profitability. * Scalability Challenges: Ability to scale up the manufacturing and supply chain as demand increases could be challenging.
  • Cost and Supply Chain: The company still struggles with high costs and any future supply chain issues could drastically affect the business. * Regulatory Changes: Any adverse changes in government policies, subsidies, or regulations could drastically alter the viability of its operations.
  • Financial Distress: With a negative profitability and cash flow problems and high level of debt, the company has considerable financial risk.

Business Resilience The company’s ability to bounce back from difficult times isn’t that strong, mainly due to negative profitability and high risk profile.

Financials (Analysis of latest available 10Q report which was for the quarter ended September 30, 2023 and news from latest earnings calls)

  • Revenue: Plug Power has shown a considerable increase in revenue as their business grows. Total revenue for the three months ended September 30, 2023 was 198.7 million USD. Total revenue for the year ended December 31, 2022, was 701.17 million USD.
    • However the numbers have still missed the expected revenue targets.
  • Gross Profit: Gross profits are negative as the cost of revenue is greater than their revenue. The company is struggling with costs related to supply chain and pricing.
  • They expect supply chain cost relief, and an increase in volume to lower the costs in the coming quarters, so their gross profits might turn positive.

  • Operating Income: Consistent high operating costs are resulting in losses for the business. Operating loss for the quarter ended September 30, 2023, is -283 million and operating loss for year ended December 31, 2022, was -647 million USD.
    • The management expects an increase in margins to help reduce the operating expenses but time will tell if they are able to do this.
  • Net Income: As a result of weak performance across other metrics, Plug Power’s net income was a loss of -283 million for the quarter ended September 30, 2023, and -723 million USD for the year ended December 31, 2022.
  • Analysts expect the company to remain unprofitable for the next couple of years.

  • Capital Expenditure: Plug Power’s net capital expenditure is consistently high as they need to expand their manufacturing facilities and R&D department. Capital expenditures were $187.8 million, and $526 million for the year ending December 31, 2022 and 2021 respectively.

  • Cash: The cash balance at the end of the quarter is 1.37 billion USD, mainly due to raising new funds. The company burns a lot of cash on operations.
  • They need to raise more capital through debt or equity offerings to stay afloat. This further burdens the existing investors and shows financial distress.

  • Debt: Total debt of Plug Power at the end of the quarter was 2.78 billion USD.
    • A big portion of this consists of convertible notes and long-term debt. These high debt levels also indicate a lot of financial distress.
  • Dilution: The company keeps raising cash by issuing new shares, which means existing shareholders ownership shrinks a bit in each round. That is why, there is a high amount of share dilution, and EPS numbers are very volatile.

Latest Concerns/Controversies and Management Response

  • Going Concern Uncertainty: In recent reports, there was uncertainty around their going concern ability due to continuing losses and cash burn.
    • The management is confident that they will manage to secure financing needed to sustain the business and reach profitability by end of 2025.
  • Supply Chain Issues The company had been impacted by supply chain constraints and increase in raw material costs.
    • The management has seen improvements in supply chains, but costs remain high. They expect to bring it down by 2024 through higher volumes and localized productions.
  • Delayed Contracts The company has experienced delays in contract closures.
    • The management expects that some projects should go online by the end of the year.
  • Stock Price Volatility: The market is skeptical of the company’s profitability and has severely punished the stock.
    • The management believes that they have a clear roadmap to success in the future and that they will be able to bring the stock price up as they execute on it.

Understandability: 3 / 5

Plug Power’s business model is relatively complex as the company is involved in various parts of the hydrogen economy from production to distribution and use in many different applications. The fundamentals of a hydrogen fuel cell based company can be difficult for a new investor to understand. In addition the company’s financials also require expertise to go into detail and understand. Therefore, a 3 seems appropriate.

Balance Sheet Health: 2 / 5

Plug Power’s balance sheet is currently unhealthy.

  • It is not generating a profit and has negative cash flows. * It has huge levels of debt and is heavily relying on external funding to keep the business operations running. * They haven’t built a moat strong enough to sustain the business. This leads to a rating of 2 for the company’s balance sheet.