Here is the Baron's article:
Quick -- name a company that has never turned a dime in profits -- indeed,
has no prospect of doing so, even under the most optimistic projections (its
own) until 2002 -- yet is valued in the stock market at a tidy $2.5 billion. And
-- here's the hard part -- isn't an Internet plaything.
The answer is Vancouver-based Ballard Power Systems, the self-anointed
"world leader in developing and commercializing proton exchange membrane
fuel cell power systems." The company and the promise of its environmentally
friendly power-generation technology, faithful readers may recall, were the
subject of some skeptical jottings in this column last May.
The burden of that piece -- penned as Ballard's market cap hovered in the $3
billion region -- was that despite considerable hype emanating from
Vancouver, Detroit, Stuttgart and Tokyo over the automakers' various
fuel-cell "hypercar" initiatives, any true mass production of fuel-cell "engines of
the future" isn't likely until well into the misty future. And that includes any
products of dbb Fuel Cell Engines, Ballard's highly publicized alliance with
Daimler and Ford (and now Chrysler), even though a joint-venture executive
has been widely quoted targeting production of 100,000 fuel-cell cars in
2004. The engineering and infrastructure hurdles still to be overcome are
simply too numerous.
Which is why it was intriguing to read, in Ballard's letter to shareholders for
the three months ended September, that its three-bus Chicago Transit
Authority "demonstration fleet" was taken out of service during that quarter
"to install an upgrade kit in each bus," and would "shortly begin confirmation
testing prior to resuming regular service."
Out of service? The CTA had been driving the buses only since January --
and using them to ferry passengers on very limited runs only since March --
nearly two years behind the schedule contemplated when the two-year, $5.8
million "fleet trial" was announced.
What gives? While the Chicago program is the first time Ballard's fuel-cell
buses have been operated in anything approximating real-life situations, it has
been staging bus demos since '93. And, compared with designing a
fuel-cell-powered family flivver, fuel-cell buses are a piece of cake. That's
because the buses are fueled with hydrogen (stored in large tanks on the
buses' ample roofs). By contrast, converting fuels like gasoline or methane,
which are more practical for autos, into the pure hydrogen feedstock a fuel
cell needs requires the addition of complex and costly "reformer" systems --
essentially, miniature chemical plants on wheels.
Small wonder, then, as its Web site boasts, that Ballard "has chosen transit
buses as the first transportation application for its fuel-cell technology." The
Ballard site likewise extols the 1995 introduction of its second-generation
"Commercial Prototype Fuel Cell Bus." Three third-generation versions of
which were delivered to the CTA in late '97, and three others, to British
Columbia Transit, this year, for field tests.
Ballard's Web pages describe those agencies' planned two-year trials as the
final phase, before commercial production, in its four-stage plan to sell transit
buses powered by fuel cells.
And yet Chicago's buses now have been taken off the road within mere
months of being delivered.
The CTA spokesperson we got on the phone was palpably gun-shy. The
Ballard project has been a sensitive topic at the agency ever since its
president's 1996 resignation. He'd admitted buying Ballard shares in advance
of announcing its deal with the city.
The project is going smoothly; all the buses are running, the CTA'er insisted.
We read to her from Ballard's shareholder letter. I'll get back to you, said she.
A few hours later: "We did take all three out of service in August and
September" to upgrade operating software. One is back in limited service.
And the other two? "They're being worked on -- getting modifications as a
result of our testing." Nothing unusual, she added, "in a new
technology-testing program."
That was essentially the line we heard when we got Paul Lancaster, Ballard's
CFO, on the horn. Despite their name, he insisted, the buses "are test
platforms, certainly not a commercial design ... a couple of generations
removed from a commercial vehicle."
Lancaster pointedly declined to use the word "problems" when questioned
about the buses' performance. Yet he conceded that a number of the buses'
components "haven't performed in the way we wanted." Sensors drifted "out
of spec." The buses' electronic-component boxes couldn't stand Chicago's
summer heat. He also admitted to a not-exactly-minor "serviceability" issue.
To wit: "In retrospect, the engine compartment design wasn't particularly
good." The fuel-cell tests and maintenance routines required by the
demonstration protocol, he reports, necessitated removing the entire engine --
practically every time they came back to the garage.
That's why one whole bus, plus the entire engine system from another, were
last fall packed up and shipped back to Daimler-led partner dbb Fuel Cell
Engines' Vancouver plant to be "reconfigured." Ballard "never expected to
ship a whole bus back to Vancouver," Lancaster allows. But he doughtily
predicts both buses will be back in the Windy City, carrying fares, by
February.
Besides, not all the buses' breakdowns were the fault of Ballard's fuel-cell and
power-train designs, Lancaster intimated. "Even though we purchased a
commercial bus chassis, we've had a number of [those] components fail ...
power steering, air conditioning systems."
That sort of assertion, which has been making the chat-group rounds, has
Rick Zebinski, marketing and sales V.P. at Winnipeg-based New Flyer
Industries, seeing red. The transit-bus maker is a leading factor in alternative
fuel buses, with years of experience in building electric "trackless trolleys," as
well as newer CNG and hybrid buses. It has been working this project with
Ballard since '95. And it has a good working relationship, he says, with the
CTA -- meaning it would have gotten "an immediate phone call" if there were
problems with its chassis components. But it has heard nothing.
Not a fuel-cell expert, the New Flyer man won't speculate on whether
problems with Ballard's fuel-cell engines are somehow impairing the buses'
electrical systems. But, he observes, "you don't ship a bus back to the factory
unless you can't fix it. We don't normally haul a bus back to Winnipeg to do
warranty work on it -- just like your car dealer doesn't send your minivan
back to Detroit."
Transit buses are, however, Zebinski's world. Even in that heavily subsidized
business, he says, "fuel cells are very much in the experimental stage -- it'll be
five to 10 years before any serious determination can be made about whether
they can economically compete" against $235,000 standard diesel buses or
greener alternatives even now going for only $300,000-$400,000 apiece.
We repeat: The engineering hurdles are staggering ... almost as staggering as
Ballard's market cap. |
