China’s buses bolster Ballard’s three-decade quest for hydrogen

A decades-long struggle by Ballard Power Systems Inc. to make money off hydrogen may finally be paying off as the world’s largest automotive market begins converting vehicles from petroleum to a system that emits nothing but water.

The Canadian company, which has mostly posted losses since it was publicly listed in 1993, expanded its foothold in China last year when its power systems were tapped for the largest-ever deployment of hydrogen buses. Since July, Ballard shares are up more than 80 percent on the promise of more sales as the world seeks alternatives to mainstay energy sources like oil and coal.

China is Ballard’s biggest market for fuel cells that convert hydrogen to electricity, and it’s a major influence on the global renewable energy industry. When the Asian country began adopting solar power about a decade ago, the cost of panels fell and installations around the world surged 20 fold. Auto sales are surging in China, compounding air pollution in its cities.

“Market adoption is the big problem,” Ballard Chief Financial Officer Tony Guglielmin said in an interview at the company’s headquarters in Burnaby, British Columbia, just outside Vancouver. “The Chinese market could just blow that wide open.”

Ballard’s headstart in China is giving it a leg up over other publicly traded fuel cell companies. Shares of Latham, New York-based Plug Power Inc., Danbury, Connecticut-based FuelCell Energy Inc. and Mississauga, Ontario-based Hydrogenics Corp., which target different fuel cell markets, are all down in the past year.

Nearly 40 percent of Ballard’s sales came from China last year and that’s expected to reach about 50 percent in 2017, said Guglielmin. That probably won’t help the company turn a profit anytime soon. Ballard has reported losses in 17 of the past 18 years, and analysts don’t expect to see net income until 2019, according to data compiled by Bloomberg.

It’s been a long road for Ballard, which traces its roots back to 1979 when its predecessor Ballard Research Inc. began researching lithium batteries. It started developing fuel cells in 1983. Its shares approached C$200 during a tech boom in 2000, but closed Friday at C$3.00.

Hydrogen Power

Fuel cells use hydrogen to create electricity through a chemical reaction. Some, like Ballard’s run on pure hydrogen, and other companies’ systems extract it from natural gas. They already help power more than 100,000 homes in Japan and are used in fork lifts, remote telecommunications towers and satellites, and for large, stand-alone power plants.

The technology is also winning over prominent backers, including Royal Dutch Shell Plc, Toyota Motor Corp., and Panasonic Corp. which are bringing fuel cells to cars, petrol pumps and homes. Volkswagen AG has an $80 million deal with Ballard aimed at getting Audi hydrogen cars on the road.

In September, Ballard began delivering the first of 330 fuel-cell buses to two cities in Guangdong province, Yunfu and Foshan. That order alone will quadruple the global fleet of hydrogen-powered buses.

China reported sales of 296,000 electric or hybrid buses in 2015, about 27 times the size of the European market and almost 60 times more than North America, according to Ballard data. Government subsidies there favor fuel-cell vehicles over battery-electric ones — a hydrogen car gets a 400,000-yuan ($58,000) subsidy, about nine times what’s offered for battery vehicles, and a large fuel-cell bus can get as much as 1 million yuan, according to a March 13 investor presentation.

China Factories

Zhongshan Broad-Ocean Motor Co., Ballard’s biggest shareholder, is building three factories in China to make fuel-cell modules for vehicles using Ballard technology.

Fuel-cell cars lag behind battery-electric vehicles, even though hydrogen cars offer faster refueling. They may hold an edge in trucks and buses, because batteries get too heavy when scaled up for larger vehicles, Guglielmin said.

Predictable routes also work well with fuel-cell vehicles, said Jeffrey Osborne, an analyst at Cowen & Co.

“Buses make more sense than cars since they go back to a depot every day at the same spot and can refuel there,” Osborne said. “You don’t have the chicken-and-egg problem of who will build the hydrogen infrastructure to refuel passenger cars.”

Guglielmin concedes investors are wary of an industry that’s long promised to be on the verge of a breakout. The key is driving down costs, and Ballard now sells fuel cells 60 percent cheaper than five years ago, he said.

Joint ventures to produce fuel cells in China will drive down costs ever more. “In China, one could imagine a module at 50 percent to 70 percent of the cost today,” said Guglielmin.

“This isn’t an R&D exercise by the Chinese government — it’s about how fast can they get fuel cell vehicles on the road,” he said. “This might be the thing that will crack open the global market for fuel cells.”

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