The fuel cell industry is changing rapidly, with the past 12 months marked by numerous highs and lows. As original equipment manufacturers (OEMs) announced preferences for battery-electric over hydrogen fuel cells, China – the world’s largest truck market – accelerated its push into fuel-cell vehicles. Earlier this week, a high-ranking government official called for strengthening the country’s hydrogen fueling infrastructure in order to advance the industry, especially for long-haul and logistics purposes.
Against this backdrop, operating results for Ballard Power System’s (NASDAQ: BLDP), a maker of fuel cell systems based in Burnaby, British Columbia, have wobbled. The company reported full year 2018 revenue of $96.6 million, a 20 percent decline compared to 2017, but above the high end of its last guidance range. Sales in the heavy-duty truck market segment experienced a 38 percent drop. Yet in the first six months of 2019, the company’s share prices soared more than 71 percent.
Ballard CFO Tony Guglielmin and Director of Investor Relations Guy McAree talked to FreightWaves about the battery-electric vs. fuel cell-electric debate, the promise of a new joint venture in China and why fuel-cell powered ferries are the next big thing. (Interview excerpts have been edited for length and clarity.)
FreightWaves: Fuel-cells are considered particularly well-suited to the long-haul market. What is your outlook for heavy-duty commercial trucks?
Tony Gugliemin: To contrast the truck market with the bus market – the bus market took 10 to 15 years to get any significant volume. We see the truck market in its early stage yet, but the pace of adoption is significantly faster. It’s the same engineering in a truck as a bus, so this isn’t a whole new technology development program. We think in the next 3-5 years it could take off rapidly.
Guy McAree: One of the market drivers is what’s happening with the port authorities.We’re working with Kenworth on a fuel-cell power drayage truck with the ports of Los Angeles and Long Beach. Because of these demonstration projects, the time moving to high volume is going to be a lot faster.
FreightWaves: Yet the OEMs appear to be staking their future on battery-electric systems. During the Advanced Clean Transportation (ACT) conference in April, for example, Daimler CEO Roger Nielsen announced the future was electric and that hydrogen fuel-cell vehicles were not viable in the near-term. Does momentum on the battery-electric side tilt the equation against fuel-cell electric vehicles?
T.G.: What we’re finding, in order to deal with the [long-haul] truck, is the amount of batteries you need to carry becomes onerous. The other thing is the charging infrastructure – the cost is vastly underestimated. Then you start getting issues of charging duration. These are the things that are starting to tilt the equation to fuel cells as preferable power sources.
G.M: It’s not necessarily a binary choice. In some deployments it can make sense to do them together. So if you put a battery on a truck, you can put a fuel-cell on board to charge the battery. In some parts of the world, you are starting to see hybrid configurations play out.
T.G.: Our approach to getting into fuel-cells is really responsive to market demand. There will be shorter range, lighter trucks, that will be all or 90 percent batteries. There will be some that are 90 percent fuel-cells, and there will be some in between. It’s all about optimization – what makes sense in the local market.
If you want to run a small FedEx delivery truck, we have fuel-cells in that configuration. At the other extreme, in longer haul trucks, which are much more fuel-cell dominant, we may have 100-plus kW. And as markets evolve you’ll find a much more hybrid market.
FreightWaves: Ballard recently entered into a joint venture with Weichai, a Chinese automotive equipment manufacturer. Talk about the partnership and how it syncs up with developments in the Chinese market.
T.G.: In 2010, China made a very strong move to electrify or decarbonize its truck and bus markets. So the Chinese government put in subsidies for battery-electric vehicles. From 2010- 2015, hundreds of thousands of battery-electric buses and trucks were put on the market that enjoyed some fairly significant subsidies.
Then, in 2015 the government pivoted, and put in practice subsidies for fuel-cell electric and began winding down battery-electric.
[China’s subsidies for fuel-cell vehicles can range from 200,000 yuan (US$29,012) per passenger vehicle to 500,000 yuan (US$72,531) for a heavy-duty commercial vehicle.]
In 2015, Weichai saw an opportunity to shift the focus to clean-energy fuel-cell vehicles, supported by the Chinese subsidy regime. Along with the subsidy, China wanted to have localization of the fuel-cell industry. We wanted to find a partner, so we could participate in China. The scope of that joint venture is to do assembly of fuel-cell stacks and engines in China for the Chinese market, for forklifts up to heavy-duty trucks.
It was an attractive deal –we received $90 million in a tech transfer program. Weichai also invested 19.9 percent directly, a little over $164 million.
FreightWaves: What is the status of the partnership? Is assembly underway?
T.G.: We only signed [the deal] late last year, and the facility is currently under construction.
G.M.: A recent $44 million order to Ballard will support Weichai in fulfilling approximately one-third of the 2,000 fuel cell electric vehicles it has committed to deploy in China by 2021. But the real revenue opportunity starts next year.
FreightWaves: 2018 was not a particularly good year. Yet there are signs of a rebound.
T.G.: We have two lines of business, the product power products business and technology solutions – consulting work. In 2018 we did see a slight drop in our technology solutions. We had another joint venture in China, Guangdong Synergy, and sales dropped off in 2018.
In 2019 we see growth in our technology solutions business, particularly with the Weichai deal, and we will see a pickup in our power products business. Our soft guidance in 2019 is the same as 2018. But we are looking for some modest growth and then picking up going into 2020. We had been growing 30 percent a year, and we think we can get back on that trajectory.
FreightWaves: You recently established a Marine Center of Excellence in Hobro, Denmark. Talk about opportunities in the marine market.
T. G.: As we think about the shipping sector there are different markets; the ocean-going cargo vessels, the cruise ship market and passenger ferries. There have been some announcements to reduce emissions in ocean-going vessels. But those are megawatt power and need a lot of fuel, so that is a challenge. Ballard is in some early discussions in that regard.
In the cruise ship market, we’ve been working with ABB [a provider of digital and tech solutions for the marine market] and a couple of cruise ship companies on a program that would allow ships to operate while docked at the port so they don’t have to use diesel.
The market that is going to wrap up more quickly is the passenger and car ferry market, largely because it’s like truck and bus engines. You could put two bus engines together to power a passenger ferry. That market is now largely driven by Scandinavia, especially Norway.
Ballard is developing modules for the marine market in the 300kW to 600kW range for [ferry operator] Norled and for other ferry projects. We think it’s a very big market. It’s like my comment on the truck market. You’re going to see much more rapid adoption, but probably in three to five-plus years.
FreightWaves: There are also similar debates around electrification. The Washington State Ferry system is transitioning its fleet to hybrid electric, but I haven’t heard talk about a fuel-cell transition.
T.G.: The challenge is that ferries run 18 hours a day, back and forth, back and forth. Batteries do not last all day, so you have to take the ferry out of service or have two ferries. That’s when the lightbulb goes on. You can hybridize the ferry so the fuel cell is charging the battery during the day. We see the ferry market being largely a fuel cell and battery hybrid architecture, with the amounts of fuels and batteries being optimized for duty cycles/operating characteristics.