Jamie, Garth, Zigler, Hawkeye, and Michael: Looks like the votes are running strong against my assertion that fuel availability will be one more expensive hurdle for DB/Ballard to overcome, before there are any profits in fuel cell cars. Let me try again, somewhat differently:
There is no question that each methanol dispensing station will cost something. Maybe my guess of $30,000 is too high, but I doubt it would be much less. This is not the same thing as adding a little methanol to an existing gasoline tank. This requires separate tanks, and I doubt whether above ground tanks will be allowed widely, due to safety and aesthetic reasons.
Speaking of safety, I wouldn't bet that Methanex and its competitors will even be in business eight years from now. Here is a link to a series in last week's San Francisco Chronicle detailing how the gasoline additive MTBE, one of Methanex's major products, in addition to being nearly useless as a pollution fighter, has gotten into California's water supply and is likely causing cancer. This has the potential to be another one of those never ending litigation problems (remember asbestos? breast implants? tobacco?) that has bankrupted many far wealthier companies in the last ten years. sfgate.com
The "no problem" school of thought here about fuel availability suggests that the capital costs would not be too onerous, because Methanex would stretch the rollout of locations over many years. That way, it wouldn't face either huge interest costs or excessive share dilution while waiting for the installed base of fc powered cars to be big enough to turn the project into the black.
Has anyone here noticed this contradiction? Whenever I have suggested in the past that DB/Ballard doesn't have an easy task to reduce the costs of a fc car to a reasonable level, the "no problem" crowd responds by saying that cars are like semiconductors - mass produce them, and the cost per unit plummets. How can there be a mass market for the cars BEFORE there is mass availability of the fuel?
For fc cars to take off , someone is going to have to seed the market by paying whatever it takes to get the methanol out there so that car buyers will not consider fuel availability a big drawback, when they compare the fc cars to other alternatives. If Methanex isn't willing or able to take huge initial losses from a maximum buildout effort, then DB/Ballard will have to take the losses, or they won't sell enough cars to reduce unit costs. Also, if Methanex has to charge too much money per gallon to cover its losses, then the cost to operate will be too high and few will buy the cars.
To think that there won't be significant start up costs, you have to believe that tens of thousands of refueling stations can be set up overnight, one day before fc car shipments begin. That is not realistic.
If the buildout program begins some years before the cars are introduced, then there will be losses due to capital costs before the customers show up. If Methanex waits until DB is ready to ship the cars, then it can start in the black right away, but DB won't be able to sell enough cars, due to lack of fuel availability, for it to achieve volume based cost reduction. Either way there will be losses.
This doesn't mean that by the year 2015 or 2025 fc cars may not dominate the industry, highly profitable for both those who manufacture them and those who produce and sell fuel for them. I mention this issue only to point out yet another reason why Ballard may not show positive earnings from autos until many years after they are introduced.
I agree with Garth that buses are the most promising market, because a central refueling depot can handle the ideal fuel, pure hydrogen. But one shouldn't confuse the size of the installed base with the size of the market. Buses last a long time, and most transit authorities just don't have the money buy any more of them than they presently do, and won't, no matter how superior fc engines are to diesel ones. It is still a very tiny market compared to cars.
It is a sign of the Ballard cult that the company is praised for always meeting its goals, when all it takes is reading the company's annual report (take note, "hawk"eye) to see that the buses are actually nine months late. From the 1996 report, P.14: "We began to build the 275 horsepower Ballard Fuel Cell Engines for three commercial prototype transit buses scheduled for delivery to the CTA in the second quarter of 1997. This is about six months later than originally planned..." When I last checked, September did not fall in the second quarter.
This is no catastrophe; complex technical projects usually take longer than expected, and cost more than expected. If the cars don't get introduced for 10 or 12 years, rather than 8, that should be no surprise either.
Let me finish up by explaining how I think one should analyze and compare development stage companies, whether Ballard, Energy Research, or a biotech company. Answer these questions:
1. How big and profitable a market will the company achieve if it is successful in commercializing its technology?
2. What is the probability of success, technically and commercially?
3. How many years must one wait before the hoped for profitable market is achieved?
4. How much dilution will existing shareholders face to cover loses before the company turns profitable?
Here's how I compare Ballard and ERC:
1. The market for cars (Ballard) is probably somewhat higher than the market for mainstream stationary power (ERC), but they are both huge. Slight edge for Ballard.
2. I think the odds favor ERC, because its product will make sense to customers below $3000 per kW, while Ballard must get its cost to less than one tenth of that. Also, thus far ERC has logged many more hours of real world operating experience.
3. ERC - three years, and they should be profitable right away. Ballard - eight years before cars are introduced, and maybe 10 or 12 before the first black ink. Big edge for ERC.
4. ERC never loses money and has had no dilution for five years. It can get to a very respectable sales volume using its existing resources. Ballard always loses money and regularly dilutes its shareholders. I guess it now has enough money to last eight more years, but I'm not sure. I'll be generous and call it a draw between them.
Using this approach, it seems to me that ERC ought to have a higher market cap than Ballard. If Ballard's price is reasonable, then ERC should sell for at least $200 to achieve the same market cap. If ERC's price is reasonable, then Ballard should sell for less than $3, plus whatever net cash it has per share. Something between those extremes makes the most sense.
Obviously, the market and those on this thread disagree with me. Is that because you have different answers to my four questions above, or are there other questions that I have left out in my methodology? I would be interested in hearing comments. |
