Garth: If you say that DB sells 40,000 buses per year, then your estimate of the world market at 100,000 sounds reasonable, and I stand corrected. I know I read in a research reports on Ballard 2 years ago the figure of 4000-5000 per year as the size of the North American bus market (I can't find the report right now - it must be at my other place). So I arbitrarily multiplied that by 3 to guess the world market. I know they use more buses elsewhere, but I am surprised that the North American market is only 5% of the total. But maybe the report understated the demand here. Instead of jabbering on about this I suppose I should poke around the web and find a number somewhere.
I think your approach to analyzing Ballard's earnings potential is a sound one, and it is nice to see at least one fan of the company doing more than just making up target prices for the stock out of thin air. But I disagree with a key number.
I will accept for the sake of argument your sales estimates, but think that after tax margins will prove to be more like 5% to 10%, rather than the 30% you suggest. I think 30% is a reasonable target for gross margins, but there will be substantial support, engineering, R&D, warrantee, and selling expense, as well as normal G&A expenses and income taxes, that will get in between gross profits and the bottom line. So instead of earnings of $4.00 in the third year after buses are introduced as you propose, $1.00 seems more likely, even if the company is as successful as you think in its sales.
I have no idea whether we are talking US or Canadian dollars, but who cares? Either way, the stock is still selling at a huge multiple of its est. eps for 2003. That leaves room for disappointment.
I would still love to hear why the company thinks it has any chance at all in stationary power. I've gone over many times how the need to strip nearly all of the carbon monoxide from natural gas requires much more expensive processing than International Fuel Cells needs for its overpriced phosphoric acid fuel cell systems.
In addition, there is the temperature problem. PEM cells run cool, at about 140F I believe. Unfortunately, natural gas must be heated to around 800F before it will release its hydrogen. So a PEM cell system must either constantly burn some natural gas to heat the rest of the gas up to create its own fuel, or it must take a bunch of the electricity that it is producing and use that for heating the fuel and running the heat exchangers needed to cool the hydrogen back down, so it doesn't burn the PEM membrane. The net result is a big loss in efficiency and, if the gas is burnt to create the heat, more pollution.
Compare that to ERC's molten carbonate system which runs at 1200F and can take on the natural gas directly, without any preprocessing. In fact, to a mcfc, carbon monoxide is not a poison, it is a fuel. In addition, there are a number of components, such as the inverter for turning DC into AC, that won't be much cheaper on Ballard's 250kW units than ERC's units that have 8 times the power.
In other words, it looks like in stationary power, Ballard's product will be expensive and inefficient, not because of the fuel cell itself, which may be terrific when fed pure hydrogen, but because of what has to be done to produce the pure hydrogen from a more convenient fuel. This is why Ballard's best hope is city buses, where hydrogen can be stored centrally and the buses loop back to home base often enough.
I know the company thinks I am wrong in my opinion on this. Could you, or anyone, please post why? Thanks.
PS. I looked up your profile to find the post I wanted to respond to. It is a knockout! That pooch cracked me up. |
