Ballard reported a significant drop in new orders during the second quarter. (koiguo via Getty Images)
Ballard Power Systems saw its stock drop on Monday after the company's CEO, Randy MacEwen, cautioned investors about the unpredictability of future sales. The Canadian-based company, known for manufacturing hydrogen fuel cells used in various sectors, faces several challenges, including a sluggish global adoption of hydrogen technology and uncertainties surrounding the U.S. political landscape.
During a call with investors, MacEwen highlighted that the company anticipates fluctuating sales figures for the foreseeable future. This news coincided with the release of Ballard's second-quarter financial results, which painted a mixed picture. While sales increased by 4% to reach US$16 million, they fell short of analyst expectations. Additionally, the company reported a significant loss of US$31.5 million for the quarter, surpassing the US$28.2 million loss recorded during the same period last year.
The Toronto-listed shares of Ballard Power Systems took a hit, closing down by 5.99% at $2.51. At one point during the trading day, the stock plummeted as much as 7%, marking a new 52-week low.
One of the most concerning aspects for investors was the sharp decline in new orders. Ballard reported that new orders totalled just US$5 million in the second quarter, a dramatic drop from the nearly US$130 million in orders recorded in the previous two quarters. The company attributed this decline to customers delaying their orders until the latter half of 2024.
MacEwen acknowledged the slow pace of new clean hydrogen project contracts and pointed to the broader economic environment as a significant factor. He mentioned that inflation and rising interest rates have made it difficult for many hydrogen projects to remain economically viable. Additionally, MacEwen cited ongoing policy uncertainties in the United States, a key market for Ballard, as a hurdle. He expressed concerns over the delayed resolution of clean hydrogen production tax credit regulations, which continue to be debated and may not be settled before the upcoming U.S. presidential election. This uncertainty is causing delays in investment within the U.S. hydrogen sector.
In other markets like Europe and China, MacEwen noted delays in the availability of low-cost, low-carbon hydrogen, as well as the infrastructure needed for refuelling, which has created significant obstacles for the company.
Given the slow market adoption of hydrogen technology, Ballard announced that it would cut its capital spending plans for 2024. Initially, the company had budgeted between US$50 million and US$70 million, but this has now been reduced to a range of US$25 million to US$40 million. The reduction reflects management's decision to scale back and defer certain planned expenditures due to slower-than-expected market growth.
Despite these challenges, Ballard remains committed to its plans for a new fuel cell Gigafactory in Rockwell, Texas, which was announced in April. The project is supported by US$54 million in tax credits from the Internal Revenue Service, and MacEwen revealed that the company has secured US$94 million in U.S. government funding to date. However, he acknowledged that the investment cycle for this project is outpacing market adoption, posing a significant challenge for the company. A final investment decision on the Texas facility is expected in the fourth quarter of 2024.
