Plug Power Secures Contract With Major US Auto Firm: Here's What It Means For Investors

Plug Power Inc. PLUG, a leading provider of comprehensive hydrogen fuel cell (HFC) turnkey solutions, recently finalized an agreement with a major U.S. automobile manufacturer (not named in the press release) to supply hydrogen infrastructure and fuel cell solutions, which will support its material handling operations.

The six-square-mile manufacturing campus is entirely devoted to EVs and batteries, making it one of the largest automotive manufacturing facilities in the history of the U.S.

The entire material handling fleet at the manufacturing facility, which comprises forklifts and tuggers, will operate on Plug Power fuel cells. Alongside the fuel cell fleet, the deal also encompasses the provision of on-site hydrogen infrastructure, including two liquid hydrogen storage tanks and more than 10 hydrogen dispensers to prepare for the expansion of hydrogen applications.

Plug Power's hydrogen fuel cells are a viable substitute for any battery solution in electric forklifts. The incorporation of fuel cell solutions at this facility is expected to enhance productivity, improve operational efficiency, and ensure maximum fleet uptime while contributing to the reduction of greenhouse gas emissions.

Plug Power has established itself as a reliable partner in advancing sustainable material handling operations for top-tier auto manufacturers, including long-standing partnerships with industry leaders such as Bayerische Motoren Werke ADR BMWYY, Honda Motor Co Ltd HMC, General Motors Co GM and Stellantis NV STLA.

These enduring collaborations reflect Plug Power’s commitment to environmental responsibility and operational efficiency.

In 2024, Plug Power is scheduled to commence the installation and activation of the hydrogen infrastructure, setting the stage for the facility’s launch. The campus is anticipated to be fully operational by the first quarter of 2025, with production unfolding in a carefully planned manner to ensure a seamless and efficient ramp-up to full-scale operations.

“This new partnership further strengthens our track record of success in the automotive industry, marking a significant leap in promoting sustainability within the sector,” said Plug Power CEO Andy Marsh.

Can this Development Improve Plug Power's Prospects? Plug Power's stock has taken a substantial hit, plummeting more than 26% since the start of the year and a staggering 77% over the past year. There are myriad factors contributing to this disappointing downturn.

Securing funding to sustain its operations remains a daunting challenge for Plug Power, particularly given the persistently high-interest rates. To keep its commitments to customers, Plug Power has had to invest heavily in purchasing hydrogen due to delays in constructing its production facilities. The company’s cash reserves reduced significantly from $690.63 million at the close of 2022 to a mere $110.81 million as of Sept. 30, 2023.

Despite commencing hydrogen shipments from its newly established green hydrogen plant in Georgia and its Tennessee facility, the absence of profitability coupled with funding constraints provided little incentive for investors to laud the company for its recent contract triumphs.

Furthermore, trading at 2.26 times its trailing 12-month sales, the potential downside risk appears substantial, potentially eclipsing any glimmer of upside potential.

Bottom Line: Despite recent strategic partnerships and investments, the green hydrogen company continues to struggle with massive net losses and cash burn. To tackle its declining profitability, Plug Power announced an expense reduction plan to save more than $75 million annually.

The stock is anticipated to face headwinds until there is greater certainty regarding its funding and a more favorable trajectory in its hydrogen production and shipment endeavors.

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