Signs of Fuel Cell Scaling: Ballard Power Inks $163M Investment From Weichai Power

In late August, Canadian fuel cell manufacturer Ballard Power Systems announced a strategic collaboration with Weichai Power, the large Chinese engine, auto parts and logistics conglomerate.

Weichai agreed to purchase a 19.9 percent stake in proton-exchange membrane fuel cell pioneer Ballard for $163 million, representing a 15 percent premium to the latter's stock price, a $90 million technology transfer program for Ballard's next-generation fuel cell stack and power modules, a joint venture to pursue China's fuel cell EV market, and to supply at least 2,000 fuel cell modules for commercial vehicles by 2021.

The collaboration diversifies Ballard's China options, and its existing China partner Broad-Ocean agreed to purchase $20 million in shares to maintain its 9.9 percent ownership level, further bolstering the company's treasury. By fuel cell sector standards, Ballard is doing well — its cumulative adjusted EBITDA over the past seven quarters is positive — and the agreement would help keep it on pace for the production growth it projected at its analyst event last year. The company plans to reinvest the considerable proceeds in its fuel cell business while evaluating M&A opportunities.

Electrolyzer manufacturers would be plausible targets, as these generally also provide fuel infrastructure. An acquisition would allow Ballard to offer one-stop shopping spanning hydrogen generation (electrolyzers), dispensing (fuel stations) and consumption (fuel cells).

Ballard's bolstered treasury could accommodate Canada's Hydrogenics or the United Kingdom's ITM Power, but with Hydrogenics still competing with Ballard in fuel cell stacks, the latter might be a more natural fit. A leader in Europe's fast-growing power-to-gas sector, it is building a 10-megawatt electrolyzer (the world's largest) at a Shell refinery in Germany, has negotiated a strategic partnership with Sumitomo to target Japan and Australia, and will provide the hydrogen for a number of Ballard's upcoming fuel cell bus deployments in Europe. It is also conducting a feasibility study in Ballard's home province of British Columbia to generate hydroelectricity-based hydrogen for export to Japan and California.

As for Weichai Power, its Ballard investment comes a few months after the company invested in U.K.-based solid oxide fuel cell manufacturer Ceres Power. (Bosch, with which Weichai had signed a fuel cell technology cooperation framework agreement in 2017, also took a small stake in Ceres Power in August.) And on the same day its Ballard investment was announced, Weichai agreed to commercialize heavy-duty natural gas engines incorporating technology from Westport Fuel Systems, another major member of Vancouver's clean transportation cluster.

Weichai's shopping spree is reflective of the Chinese government's all-in, all-of-the-above approach to industrial policy and pollution prevention — and underlines how the Middle Kingdom is increasingly the center of gravity of the energy transition. In October 2016, the Chinese government's Energy Saving and New Energy Roadmap, jointly published with the Society of Automotive Engineers of China, aimed for the country to reach 100 hydrogen refueling stations and 5,000 fuel cell vehicles (the majority being commercial vehicles) by 2020, rising tenfold by 2025.

While an acute shortage of hydrogen refueling stations will make the 2020 goals extremely difficult to reach — perhaps another reason for Ballard to take an interest in an electrolyzer company — China's fuel cell companies have spent ferociously on capex to build capacity to hit the mandated targets. If fuel cells follow the boom-bust cycle of other technology sectors, overinvestment will be followed by collapsing product prices, broadening the market.

Fuel cell scale-up efforts have not been limited to command economies, however.

In May, Toyota announced plans to increase fuel cell stack and hydrogen tank production tenfold shortly after 2020, part of a plan to raise its fuel cell stack production from roughly 3,000 to 30,000 per year. (With Toyota being an Olympic sponsor and Tokyo hosting the 2020 Summer Olympics, the company will presumably seek to premiere its next-generation fuel cell vehicles during the event.) Industry-dominant platinum catalyst vendor Tanaka also announced a sevenfold increase in production capacity in July.

While scornfully low in comparison to plug-in electric vehicles — of which 30,000 are sold every week — Toyota's production goals alone would keep the fuel cell sector growing along the prior trajectories of solar and wind for years to come.

In the United States, fuel cell forklift vendor Plug Power opened a second manufacturing facility in New York. Fuel cell semi-truck startup Nikola Motor chose Arizona for its manufacturing facility and embarked on a $200 million C round of funding. Nikola's hydrogen provider Nel Hydrogen announced its own tenfold electrolyzer expansion, with the Norwegian firm aiming for a production capacity of 360 megawatts of electrolyzers per year, triple the estimated 100-megawatt size of the global electrolyzer market in 2017.

Nel would seem a less-likely target for Ballard, owing to its joint venture with Swedish arch-rival PowerCell, which is supplying Nikola's fuel cell stacks. Where Ballard has partnered with ABB to develop fuel cells for marine applications, PowerCell is teaming with Siemens in the marine segment even as the German titan is working with Ballard on hydrogen rail ("hydrail") applications. The aforementioned Hydrogenics leads that segment, having provided Alstom with the fuel cell stacks for fuel-cell-powered trains, the first of which entered revenue service in September.

In 2017 PowerCell also won a German letter of intent to develop a fuel cell platform as part of a consortium including BMW, Volkswagen, Daimler-Benz and Ford, the latter two of which recently dissolved their Vancouver-based fuel cell joint venture AFCC.

AFCC, or Automotive Fuel Cell Cooperation Corp., was formed in 2008 when Ballard spun off its automotive division to pursue nearer-term markets. Walls soon separated the Ballard and AFCC wings of the building, and partitions divided the testing facility. In the subsequent decade Nissan would join, then leave; for the past two years it has partnered with the aforementioned Ceres Power.

Nissan's involvement overlapped with Ballard's own long-term engineering services agreement with Volkswagen/Audi (recently renewed). Nothing better captures the fuel cell sector's still-embryonic size than the fact that one building housed fuel cell research and development activities for four of the world's largest automotive OEMs.

AFCC's implosion cast a pall over Vancouver's fuel cell cluster, which kick-started modern interest in fuel cells in the early 1980s after researchers at Ballard were able to significantly improve the performance of off-patent fuel cell designs from early space missions. While long expected, the official announcement came two weeks after Vancouver's first hydrogen fueling pump opened at a local Shell station. Seven pumps are to be deployed at gas stations throughout metro Vancouver, to break the chicken-and-egg deadlock between vehicles and infrastructure.

Support for fuel cells (alongside longstanding support for electric vehicles) can be understood through the lens of the cluster contributing CAD $220 million in sales and 1,800 jobs to the local economy, per a recent Vancouver Economic Commission estimate. In addition, about 60 percent of metro Vancouver households live in multi-unit dwellings, where the installation of charging infrastructure is significantly more expensive — conduit must be run dozens or hundreds of feet from the electrical panel to the EV owner's parking stall — and often requires permission from the building's homeowner council.

AFCC's dissolution could ultimately prove less a setback than a sidestep, however; its employees and assets have been scooped up by profit-focused market entrants such as Loop Energy and Overdrive Engineering. Austrian testing and electric powertrain giant AVL established a fuel cell center in Vancouver to take advantage of suddenly available engineering expertise, and the local electrochemical cluster has also benefited, with companies such as marine battery systems leader Corvus Energy and battery chemicals processor Nano One adding to their employee rosters.

As such, the summer could be seen as the latest of many cycles of Schumpeterian "creative destruction" to impact Vancouver's cleantech sector. Several years ago, as Ballard's fortunes ebbed and natural-gas prices plummeted, considerable engineering talent made its way to Westport. In the decade prior, Ballard's slow decline worked to the advantage of inverter manufacturer Xantrex (now part of Schneider Electric) and ill-fated electric van developer Azure Dynamics. And in the late 1990s, as the fuel cell hype cycle reached its apex, Ballard brought on talent from then-struggling lithium-ion battery pioneer Moli Energy (now E-One Moli Energy), an early employee of which, Jeff Dahn, returned to academia and now serves as Tesla's battery technology czar.

In summary, while the game of musical assets continues in Vancouver's fuel cell cluster, scale-up plans for transportation-related fuel cells have intensified. (Growth in the stationary fuel cell sector, including the potential impacts of California's SB 100 and Governor Brown's executive order for carbon neutrality by 2045, will be discussed in a separate article.)

While fuel cells pose no threat to batteries’ dominance in transportation, the sector's growth continues to track, and possibly exceed, the earlier trajectories for solar and wind energy. As such, dismissing hydrogen and fuel cells would be as premature as dismissing solar in the early 2000s, or wind in the mid-1990s.

This is particularly true, given China's determination to foster its fuel cell sector, with the same ambition it showed moving into photovoltaics and batteries. The challenge for Ballard, Hydrogenics, PowerCell and other fuel cell stack manufacturers will be to reduce product costs enough to compete with emerging Chinese competitors. Their opportunity is that if they can do so, they will likely find themselves selling into a market far larger than the one that exists at present.

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Matthew Klippenstein, P.Eng., heads Electron Communications, a cleantech-centric consultancy. He chronicles the Canadian electric car market for GreenCarReports and co-wrote the Fuel Cell Industry Review 2017. He does not own shares or conduct business with any of the companies listed above, but previously worked for Ballard Power Systems and AFCC, and provided consulting services for Vancouver's first hydrogen station.