Hawkeye: I appreciate your invitation to give a negative spin to yesterday's Ford announcement, although rather than call it a negative spin, I would rather use the term "healthy skepticism". <G>
My take is that this deal shows that DB is starting to grasp the immensity of the task ahead, and has upped its estimate on how much may have to be spent to commercialize a fuel cell car.
Why else would it bring in another partner now? Why not just sell engines to Ford in 2004? You can make more money that way, than bringing them in as partners seven years before the cars will be produced.
In terms of spin, I would award the Nobel Prize in that to the management of Ballard. Look at how the story has changed in the last year:
1. Until mid April, fuel cell cars were going to be a multi-billion dollar market that Ballard was going to have all to itself. Nowhere in any of the literature did Ballard indicate that the company could never get there on its own.
2. Starting in April, cars were going to be a multi-billion dollar market that Ballard would now split with DB. If anybody else wanted to adopt the technology, they would be customers. They would buy the engines from the joint venture, of which Ballard only has 1/3, or buy the fuel cells from Ballard and make their own engines.
3. Now, cars blah blah blah and, isn't this exciting, we have another partner. Ballard's share of the engine company is now down to 26.6%. Not only that, but the end customers' dollars now have to be dished out to a third entity, the electric drivetrain company, of which Ballard will own 19.2%
Are there more partners to come, further reducing Ballard's piece of the potential action? Soon it will be like "Old Man and the Sea"; the fish will be mostly a skeleton when finally rowed into the harbor.
Bringing in the extra partners has certainly increased the probability that a fuel cell car may some day be introduced (a probability that the Ballard cult always thinks is 100%; I say less). But it has also added shares outstanding, with the total (including the warrants that were exercised) going from 16.8 million before DB, to 23.2 million with DB but before Ford, to 29.9 million after the Ford deal goes through.
All this serves to increase Ballard's market cap. Using US dollars, before the DB deal Ballard had a market cap of $400 million or so, a lot of money, but offering the possibility of huge upside. As of the last Friday, Ballard had a market cap of $1.4 billion, would keep profits from making the fuel cells and one third of the profits from the engine company. At today's prices, assuming that the Ford deal goes through as promised, Ballard's market cap goes over $2 billion, and the company gets to keep an even smaller percentage of whatever profits may someday exist.
I am not arguing that Ballard should have gone it alone. It obviously would never have had the resources to do so. Now, it appears, estimated costs have risen so much that even the deep pockets of DB are not deep enough.
All this dilution reduces the EPS potential. It also increases the risk. If there is any delay, cost overruns, or a partner gets unhappy for whatever reason and pulls out, the stock has just that much more room to fall and still be overpriced.
On the positive side, having 19.2% of the new electric drivetrain company will be a plus if, as seems quite possible, the success of gas/electric hybrids cause DB and Ford to pull the plug on fuel cell work in a few years. The electric drive trains could be useful in hybrids, so its piece of this Ford subsidiary might keep Ballard stock from falling all the way to zero. |
