Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ballard Power Systems Inc (BLDP, Financial) launched its ninth generation PEM fuel cell engine, the FCmove XD, which offers significant performance improvements and cost reductions.
- The company is making progress on Project Forge, aimed at scaling graphite bipolar plate production by approximately 10 times and reducing costs by up to 70%.
- Ballard Power Systems Inc (BLDP) announced a strategic technology partnership with Vertiv to explore fuel cell backup power solutions for data centers, showing promising initial results.
- Revenue from the bus vertical grew by 84% quarter-over-quarter, indicating strong market demand in this segment.
- The company maintains a strong balance sheet with $678 million in cash and cash equivalents, providing financial stability for future investments.
Negative Points
- Q2 net order intake was soft at $5 million, with certain customers deferring new orders, indicating potential volatility in future revenue.
- Gross margin was negative 32%, an 11-point decrease compared to Q2 of 2023, primarily due to a shift in revenue mix and fixed production overhead costs.
- The timeline for market adoption of hydrogen fuel cells is moving to the right, with delays in contract awards and policy uncertainties in key markets like the US, Europe, and China.
- Capital expenditures guidance for the year has been reduced to $25 million to $40 million from $50 million to $70 million, reflecting cautious investment in light of market conditions.
- The proposed production facility in Texas is still under assessment, with a final investment decision delayed to later in 2024, adding uncertainty to future production capabilities.
Q & A Highlights
Q: How does the ninth generation PEM fuel cell compare to the competition, and what are the next steps for improvement?
A: Randy MacEwen (CEO) highlighted that Ballard's ninth generation PEM fuel cell engine offers significant competitive advantages, including 30,000+ hours of durability and the highest power density in the industry for heavy-duty applications. The engine's reduced part count and integrated components make it easier for customers to integrate and service. Ballard is about two-thirds of the way through its cost reduction plan and expects to complete key projects within the next 18-24 months.
Q: How should we think about the transition to the next-generation product for customers?
A: Randy MacEwen (CEO) explained that the transition varies by customer. Some may continue with existing products, while new customers are likely to adopt the latest technology quickly. The new engine is specifically designed for the truck market, which has been slower to adopt but is expected to catalyze with this new product.
Q: How does the introduction of a new generation affect the backlog?
A: Randy MacEwen (CEO) stated that most of the current backlog relates to existing products. The new generation will start filling the backlog and order book towards the end of the year and into mid-next year.
Q: What are the drivers behind the deferred orders?
A: Randy MacEwen (CEO) mentioned that the deferrals are due to customer timing for finalizing funding, program timing, and securing hydrogen access. These factors are well in hand for the significant orders being discussed.
Q: How will reduced capital spending affect R&D into 2025?
A: Paul Dobson (CFO) indicated that given the current environment and market adoption push-out, Ballard is scrutinizing investments carefully. A reduction in R&D spending is likely in 2025.
Q: Can you provide an update on the Texas facility and the decision-making process?
A: Randy MacEwen (CEO) explained that the significant funding secured for the Texas facility presents a unique opportunity. However, the challenge is aligning the investment cycle with market adoption. The final investment decision (FID) will be made in Q4, considering various stakeholder discussions and market indicators.
Q: What are the key factors for achieving positive gross margins in Q4?
A: Paul Dobson (CFO) noted that achieving positive gross margins in Q4 depends on sufficient revenue to cover fixed overhead costs. Additional orders are needed, and there is a risk of customer deferrals. Improved inventory management and cost reductions are also contributing factors.
Q: How is Ballard positioned in the U.S. rail market?
A: Randy MacEwen (CEO) highlighted opportunities in both passenger and freight rail markets. The freight locomotive market, in particular, is expected to adopt hydrogen solutions due to high power requirements. Market indicators over the next 6-12 months will show further development and commercialization.
Q: What is the impact of the 45V credit and other policy uncertainties on market adoption?
A: Randy MacEwen (CEO) explained that clarity on policies like the 45V credit is crucial for planning large-scale deployments. However, even with policy clarity, it could take 3-5 years for hydrogen production to come online at scale. The timing and scale of market adoption will depend on how these regulations are resolved.
Q: How is the stationary power market evolving for Ballard?
A: Randy MacEwen (CEO) discussed two compelling opportunities in stationary power: off-grid or unreliable grid applications and the data center market. The partnership with Vertiv aims to validate the value proposition of fuel cells for backup power in data centers, offering advantages like zero emissions, low noise, low maintenance, and extended backup capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
