Plug Power: Green Hydrogen Plant Tour Shows Signs of Progress, Growing Pains

We maintain our $11.50 fair value estimate for Plug Power PLUG after touring its green hydrogen plant in Georgia. We see shares as undervalued and view the company as a high-risk, high-reward investment on the green hydrogen economy.

Plug’s first-of-a-kind green hydrogen plant in Georgia represents its first step in building a green hydrogen network. The company has encountered challenges with the startup timeline for the plant, but we note the construction period of 12 months is still much faster than industry norms (36-48 months). Successful execution in the buildout of its green hydrogen plants over the next 18 months is crucial to the company swinging from significant operating losses to reaching profitability. The company expects to begin producing liquid hydrogen (a key milestone) at the plant in the coming weeks.

We see reasons for optimism in the coming months despite a challenging year to date for Plug. The U.S. Department of the Treasury is expected to issue guidance on the green hydrogen production tax credit, likely in September. Recent media reports indicate a likely phasing of conditions to qualify for the credit, which we view as a positive for Plug, if true.

Plug’s balance sheet remains in focus as it incurs peak operating losses and heavy capital investment associated with its green hydrogen network. The company ended the second quarter with approximately $2 billion in cash and investments after burning roughly $1 billion in cash in the first half of the year. We see various financing options as available to the company in the quarters ahead. Plug is progressing with various financing options, including a $1 billion U.S. Department of Energy loan. In addition, the company is evaluating potential equity sell downs of its green hydrogen facilities to help recycle capital.

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