Ballard Earnings: Firm Adjusting Manufacturing Plans to Policy Environment; Shares Fairly Valued

We maintain our $5/CAD 6.50 fair value estimate for no-moat Ballard Power Systems BLDP following its second-quarter results. We view shares as fairly valued.

Given the early stage of Ballard’s business, our focus is on platform wins and order intake versus near-term financial results. Order intake in the second quarter rose to $25 million compared with $18 million in the first quarter, aided in part by an order for nearly 100 fuel cell engines into the Europe bus market, Ballard announced recently. The company also recently signed a letter of intent with Ford Trucks related to the heavy-truck market, its first with a traditional truck original equipment manufacturer. For the balance of 2023, Ballard expects order activity to be driven by its bus and marine verticals.

Among the most noteworthy takeaways from the update was Ballard’s reevaluation of its planned membrane electrode assembly manufacturing facility previously planned in China. In response to increasingly constructive hydrogen policy in the U.S. and Europe (and market delays in China), the company is evaluating prioritizing manufacturing capacity in the U.S. or Europe. Ballard expects to conclude a review of its plan in early 2024, and we see a high likelihood it opts to pursue near-term manufacturing in the U.S. or Europe, where an increasing percentage of its order activity resides, in lieu of China. The company remains committed to the China market longer term, which we expect to represent the largest hydrogen market globally.

Ballard continues to expect 2023 operating expenses of $145 million (midpoint), flat year on year, as it seeks to limit ongoing cash burn. The company ended the quarter with $815 million of cash on its balance sheet. While we see adequate financial runway for the next couple of years, the company’s long-dated revenue scaling keeps a focus on minimizing cash burn.