Plug Power plunges 37% on potential cash crunch

The green transformation industry is galloping towards an inflection point

We have written extensively on the green transformation this year as the equity theme has turned out to be one of the worst performing themes this year. Catastrophic developments for Orsted and Siemens Energy have captured the big headlines, but the entire industry has suffered across all categories such as wind, soler, and energy storage. Today, it just got worse with Plug Power announcing worse than expected Q3 results including a devastating going-concern warning citing that existing cash insufficient to fund operations over the next year. Shares are down 37% on the news. Are we approaching a serious crush moment in green transformation or is it only isolated to hydrogen which for now still has troubling unit economics?

Rising interest rates have dramatically altered the prospects and funding conditions for green transformation companies including Plug Power that is part of our energy storage theme basket as is engaged in development of hydrogen fuel cells. The results are in stark contrast to its peer Bloom Energy that reported better than expected Q3 results two days ago. The problem for Plug Power is that it has never been profitable going back to 2012 and the company has previously been involved in an accounting scandal and restatement of financial figures. Plug Power is expected to have negative free cash flow of $1.64bn in FY23 and negative free cash flow of $939mn in FY24 with $500mn in cash and $594mn in total debt. It is important to note that Plug Power has gone from cash equivalents of $4.75bn in Q1 2021 to just $500mn in just two and half years. What should investors in Plug Power do in this situation?

There are basically two options, 1) close the position under the assumption that Plug Power will never escape the bad unit economics presently in the hydrogen industry, or 2) keep the position and hope the company can raise enough equity capital on good enough terms to turn around the business – a secondary assumption in this case is that investors injecting equity capital believe the existing growing pipeline of orders can become profitable. It is important to note that Plug Power spent a lot of energy and almost 200 slides in an October presentation to show charts of all the growth in the future (with no figures on the y-axis!) – but a key question remains – can it be done profitable?

Why not add to the position or reduce a bit? A going concern warning is so profound a piece of information for shareholders that the case is binary now with very high risk. If a shareholder reduce the position then it is because the outlook is negative, but given the circumstances why not then close it? Adding to the position, increases the exposure in situation when the company is potentially entering into a negative spiral.