Garth: "A new company was set up by the Ballard/Benz partnership to develop the fuel cell engines and, as Sid seems to continually forget, the company will BUY the fuel cells from Ballard. BLD will get 33% of the profits from the new co., but 100% of the profits from sale of fuel cells. Sid still seems to be confused by this."
Really, Garth, I have neither forgotten this, nor am I at all confused about it. But I know something about the relationship between the car companies and their suppliers, and the deal is this - the suppliers don't make much money unless the car companies let them, and the car companies don't let them, unless they are making good money as well.
The Mercedes/Ballard joint venture has a huge task ahead of itself - it is starting out with a design that, by their own admission, is 100 times too expensive to be commercial. Let me put that another way - if the joint venture succeeds in getting the price of the engine down 99 times - a staggering accomplishment - the cost will STILL be twice as much as it should be for the engine to be commercial.
So the odds are high that in eight years the product is still not ready to go in a profitable mode. But Daimler might still go ahead anyway, since it may feel that after a few years of production under its belt it can get the costs down even lower to the point where the product may turn into the black.
But if Daimler knows that it is going to start out in the red, you tell me - what transfer price will it negotiate with Ballard for the fuel cells? I say it tells Ballard "Hey look guys, do you want fuel cell powered cars on the road or not? If so, you are going to have to sell us the fuel cell element at a low price - maybe even a loss. We will be losing money, so you should too. In a few years, if this takes off, it may be a different story." Is Ballard going to say no? Of course not.
The idea Daimler is going to sink big bucks into this high risk project, and then let Ballard get rich before it sees a substantial return on its investment, strikes me as inconsistent with the business world as I know it. |
