Two recent surveys of the fuel cell industry gave reason for celebration and concern about the future of the high profile technology. On the positive side, both efforts reported steadily growing sales and expanded markets. However, one survey noted that growing sales and markets have yet to deliver profitability for any of the publicly held companies. Moreover, overcoming cost challenges in the upcoming years will be critical to the industry.
Although the two surveys were conducted by global financial analyst PriceWaterhouseCoopers, each had distinctly different purposes and parameters. The more optimistic 2004 Worldwide Fuel Cell Industry Survey was commissioned by four industry organizations—the US Fuel Cell Council (USFCC), Fuel Cells Canada, Fuel Cell Europe, and the Fuel Cell Commercialization Conference of Japan.
Robert Rose, USFCC executive director, described their effort as “the first industry-driven survey to research and compile information globally on key year-over-year financial and other important performance measures that will track the industry’s health.”
Of the 395 companies invited to participate, 170 replied, and 84 of the respondents (almost 50%) were US-based. The key findings: Sales increased 41% from $240 million in 2002 to $338 million in 2003, R&D expenditures increased 13% from $764 million in 2002 to $859 million in 2003, and employment remained relatively constant at 7,750 in 2002 and 7,748 in 2003.
Although the survey maintained an upbeat tone, it also was intended to dispel some of the hype surrounding fuel cells, according to Robert Wichert, technical director at the USFCC. “We’ve seen a lot of estimates, which have historically not been met for the industry,” says Wichert. “Some would expect a growth curve that was not achieved and we’re trying to say that this is what the industry is doing now, rather than making projections. We’re trying to address some of the overzealous estimates.”
No such overzealous estimates appeared in the second survey. Rather than casting a wide net, the 2004 Fuel Cell Industry Survey targeted just the 2003 year-over-year financial results of the world’s 18 publicly traded companies with primary business in the areas of fuel cell production, system integration, and related fueling infrastructure. “None of the companies surveyed were profitable,” reports PriceWaterhouse. Though net losses decreased slightly to US$367 million from US$384 million in 2002.
Despite the lack of profits, a 20% increase in revenues and other positive signs gave analysts some evidence of better times ahead. Revenues hit $243 million in 2003, up from $203 million in 2002. Also, for the first time in more than three years, revenues exceeded research and development (R&D) spending, which dropped 11% to $204 million.
It’s something of a mixed picture, and PriceWaterhouse acknowledges that the hype mentioned by USFCC’s Wichert hasn’t been good for the industry. But the report notes that it’s important to look beneath the surface to see what’s happening in the fuel cell sector. So, lets take a look at the impact of key players, mergers and acquisitions, and market capitalization.
First off, it’s still a field dominated by a few heavy hitters. Among the top five firms in sales volume, Ballard Power Systems ($120 million) and FuelCell Energy ($34 million) once again claimed first and second place, accounting for 63% of the total revenues in the survey. Hydrogenics ($26.6 million), Quantum Fuel Systems Technologies ($23.6 million), and Dynetek Industries ($14.5 million) took third through fifth place respectively. Because Quantum and Dynetek focus on fueling infrastructure, analysts judged them the most likely to reach profitability in the short term.
PriceWaterhouse and others have noted that many companies were expanding their customer bases and developing new distribution and sales channels. Among the more notable, FuelCell Energy fared well by partnering with Alliance Power. Their success in private sales in the US ultimately helped to reduce a heavy reliance upon government projects, which accounted for about 75% of their business in 2002. In 2003 it fell to 52%. The company also gained contracts from MTU (part of DaimlerChrysler) in Europe, and Marubeni in Japan.
Quantum pulled in 30 customer programs with large corporations, and Plug Power’s GenCore 5T product scored sales with the telecommunications industry in US, UK, and Japanese markets. Still, much of the industry remained in a position of proving itself with demonstration projects. Hydrogenics spearheaded the Hydrogen Village Project in Toronto, ON, Canada, and FuelCell Energy courted Starwood Hotels and Resorts with demo power plants in two hotels.
Not surprisingly, mergers and consolidations began to weed out some of the weaker companies. The most notable examples were Hydrogenic’s acquisition of Greenlight Power, Plug Power’s acquisition of H Power, and Stuart Energy’s buyout of Vandenborre Technologies in early 2003. Ironically, Stuart would later find itself on the opposite side of the equation when rival Hydrogenics took over the company’s assets in late 2004.
“Yes,” notes PriceWaterhouse analyst Alistair Nimmons, “2003 was fairly active in the area of mergers and acquisitions. We’ll see more as these companies continue to try and reduce costs.”
Many companies continued to build strategic alliances to share knowledge, resources, capital, and market access. Some notable examples included Toshiba and Plug Power’s joint marketing agreement to explore the application of fuel cells in uninterruptible power systems, and Shell Hydrogen’s agreement with Vandenborre to conduct market analysis of potential home hydrogen refueling sales.
The consolidations and alliances helped to boost investor confidence in 2003. The data reported a healthy increase in market capitalization of 50%, pushing the new total to $3.6 billion—a marked improvement from $2.3 billion in 2002. Ballard and FuelCell Energy again topped the list as investor favorites.
All told, when profits, mergers and acquisitions, and market capitalization are assessed, PriceWaterhouse says it’s easy to view the fuel cell industry as having less than a picture of health. But significant developments beyond financial measures should be factored into the equation.
There’s a continued investment by large, well-funded multinationals, with strong government support in Canada, the US, Japan, and a number of European Union countries. New companies are launching and the industry is making progress in improving the performance of existing technologies.
Then too, there are environmental and economic factors, including high oil prices, energy security, climate change, and air quality. Fuel cells also benefit from China and India’s growing energy demands.
Nonetheless, fuel cells must still compete with existing technologies. “It’s really a matter of getting continued products out there, and continuing to reduce cost and prove that the products can compete with other technologies,” says Nimmons. “We have encouraging signs but there’s still a way to go.” One good sign in the race for widespread commercialization is the progress of portable devices. They show the most potential for short-term success and their market is huge.
As portables find acceptance in everyday applications, the public’s awareness will help overcome many of the issues challenging the larger stationary applications. “All these technologies feed off of each other, so success in one technology area is good for all of them,” notes Nimmons.