Plug knew that they needed to produce their own hydrogen as far back as 2017 to insure an adequate supply and to control cost of the molecule. They knew that Amazon and Walmart wanted to use only green hydrogen in the future. In 2020, they were finally able to purchase United Hydrogen which had the experience building a hydrogen plant. Plug’s goal is to never have one of their customer sites run out of hydrogen. They knew that if they ever did, their customers would eventually stop using their products and potential new customers would not make any deals with Plug. Plug is currently at the whim of their hydrogen suppliers. They do have long term contracts to purchase hydrogen but no suppliers have long term contracts for the price. The price of hydrogen is set at the beginning of each month by the suppliers. The price is based mostly on the price of natural gas but it is also impacted by the level of supply available.
When Plug wrote the first deals with Amazon and Walmart, they, in simple terms said, If you use our fuel cells, service contract and purchase fuel, you will save $1 million dollars at each distribution center with 250 forklifts. For the savings to be realized, Plug needed to provide a guaranteed price for their equipment, service personnel and fuel. Amazon and Walmart would only use Plug products if they knew it would save them money. Plug knew they would lose money until they could make their own hydrogen and make improvements to their fuel cells. Plug had to lose money on those early deals to to stay in business.
Plug has supply contracts to purchase gray hydrogen through 2024. Plug is currently using 50 TPD. Some of the supply contracts begin winding down in mid-2023. The key for the hydrogen sales to become profitable is to reduce the amount of purchased gray hydrogen as quickly as possible while producing as much green hydrogen as they can as soon as possible.
Know one knows where the price of purchased gray hydrogen will be during the next 2 years. I suspect it will be more expensive than it currently is at least through this coming winter. Plug will continue to incur heavy losses supplying hydrogen until they get their new plants up and running, hopefully to the 70 TPD level by the start of 2023. Sometime in 2024, possibly in late 2023, the losses for suppling hydrogen will disappear.
Oppenheimer believes that Plug will have a 40% profit margin on the planned green hydrogen sales to Amazon.
Chrisp C.
