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Company Report: Ballard Power Systems

Team 3
Charlie Weber,
Mohammed Almazroa,
Steven Magenheim,
Jamie Harper

October 13, 2014


EBF 304W

Table of Contents

Executive Summary.....................................3
Recommendations.......6
Analysis
and
Research....7
I.
Company
Background..7
a. SWOT Analysis9
b. Cause and Effect Diagram.......11
c. PEST Analysis12
d. VIRO
Analysis
12
II.
Industry
Background..
13
a. Macroeconomic
Factors
14
b. Growth Rate In Industry
15
III.
Competitor Analysis.......16
a. Industry
Information...16
b. External Fators...17
c. Key
Success
Factors.20
d. Environment
Scan.
22
e. Product
Life
Cycle..24
f. Market
Space.
24
g. Key Financial Factors28
h. Competitive
Factors..
29
i. Competition Analysis 31
j. Strategic Group Map.36
k. Actions and Reactions..
37
l. Porters
5
Forces.39
m. Industry Attractivness41
IV.
Financial Analysis.. 45
a. Horizontal Analysis... 46
b. Financial Trends 46
c. Ratios..
47
d. Vertical Analysis.... 49
V.
Business
Strategy..
52

Work
55

Cited

Executive Summary
Ballard Power Systems is a leading hydrogen fuel cell company in this emerging clean energy
market. The company was founded in 1979 and is headquartered in the Vancouver suburbs. Ballard is a
company that specializes in proton exchange membrane fuel cells. Ballard currently makes fuel cells for
forklifts and for stationary electric generation for which they have a portfolio of fuel cell products that
service the needs of commercial companies with a need for a clean energy solutions (1). Ballard pulled
out of the automotive fuel cell market after the company felt like there was no future or market for a
hydrogen car (7).
The company struggled in the past when it had its sights on unprofitable markets like the
automotive market. Fortunately, Ballard Power Systems secured several international and domestic
projects with business partners like Nokia Siemens Network, SoftBank and Plug Power. These projects
are aimed at growing the business and its revenue (8). Ballard recently announced the appointment of a
new CEO and President, Randall MacEwen. Mr. MacEwen will be replacing Jon Sheridan as CEO and
President, as he is retiring. The shake up in leadership for Ballard, partnered with their recent growth,
should prove to be a successful pairing (1).
Despite being invented almost 80 years ago, it has only been in the last 20-30 years that hydrogen
fuel cells have begun to be seriously considered as viable sources of energy. Hydrogen fuel cells are near
zero emission sources of energy and have a wide application of uses ranging from stationary main or
3

backup generators for telecommunication devices to powering busses and cars and have even been used
in small items such as toys. The industry has faced many risks throughout its growth mainly due to the
high costs of building and maintaining fuel cells, however, in recent years firms have been making great
strides in reducing the cost of fuel cells and making them more commercially viable.
There are a number of macroeconomic factors that influence the growth of the fuel cell industry,
the greatest of these being the level of GDP growth. Because fuel cell firms rely heavily on outside
funding to stay in business they also rely on the growth of economies as a whole to keep their funding
flowing. The 2008 recession, while forcing many firms out of business, also forced the remaining firms to
become more commercially viable, which has helped their revenue streams. The overall growth output for
the future looks very bright for the hydrogen fuel cell industry. Increases in research and technology have
resulted in strong growth in the industry while investments in manufacturing capacity have been made in
anticipation of higher future demand.
Financially, Ballard Power Systems seems to be growing in the past few years. First with the
merge of the new subsidiary Danthern Power in 2011, then with a report on technological advances for
hydrogen fuel cells released by the US military in early 2014. The stock price as of 9/17/14 at 2:25pm is
$3.27, down 0.03, or 0.01%. Ballard Power System has a large revenue cash base with their cash and
liquidity assets making up almost 25% of their current assets. Their major competitor, Plug Power follows
similar trends of Ballard Power Systems, suggesting an external factor of technological advances on the
prices of stock for both companies.
Ballard Power Systems is in the Renewable Energy market. The market has 89 companies in the
stock exchange. Ballard Power Systems and 11 other companies are specializing in the Fuel Cells
Technologies. Their 3 main competitors are FUELCELL ENERGY, IN, Hydrogenics Corporation, and
Plug Power. These competitors are moving higher each years which could be a problem for Ballard Power
Systems within the next 5 to 10 years.
The Fuel Cells Technologies industry is raising because the demand on the clean energy is higher
than ever. Many companies are moving toward clean energy which might cause problems for Ballard
4

Power systems in the near future. The company can promote itself since it has what it takes to meet the
demand of the clean energy to compete more on the international level of the market. The Asian market is
the largest in the Fuel Cell Technologies industry, European market comes second, and North America
comes third.
Ballard has 3 major competitors in the fuel cell market place: FuelCell Inc, Plug Power and
Hydrogenics. Plug Power and FuelCell Inc are larger companies than Ballard and pose the largest
competitive threat. The overall competitive landscape in the fuel cell industry is moderate because there
are not many companies in this industry. High costs of fuel cell technology create high barriers to entry
and decrease the threat of new entrants. Fuel cell products are highly specific for individual needs and are
expensive to create. The few suppliers that support the fuel cell companies have substantial power
because of their number and the cost of their products. The small number of buyers and the lower demand
for fuel cell products as opposed to other forms of electricity generation create power for the buyers and
give them the ability to influence the price of the fuel cell products. Overall fuel cell companies are in
strong competitive industry and require a strategic advantage to succeed in this market space.
Ballard Power Systems is currently leaving the growth stage and entering into the maturity stage.
The growth phase is at end because new technologies are getting more recognizable and more marketable.
After the growth phase ends, a maturity phase will come where the industry will be more stable and the
large companies will focus more on sales and staying big rather than making efforts to get recognition.
There are several key success factors that Ballard should focus on in order to keep out growing
their competitors. The most important of these factors is to continue to reduce the cost of production of
their fuel cells. Additional important factors include: having a differentiated product line and a strong
international presence to increase the number of revenue streams for the firm, and having strong
leadership at the corporate level. The last key success factor is to have proprietary technologies which can
be accomplished through further research and patenting new ideas.

Recommendations
1. The first recommendation is to expand Ballards international presence in the fuel cell market.

There is a strong need for fuel cell and renewable energy technology in foreign markets, especially in
countries with limited energy infrastructure.

Fuel cell market is small, therefore entrance into larger markets, especially in off grid locations, will
increase revenue and share value for Ballard Power Systems

Will allow for more global partnerships with energy companies, which could lead to more opportunities
for obtaining more business and increasing revenues.
Long Term: Next 10-15 Years to expand, 20 years to get a profit.
2. The second recommendation is for Ballard to expand their R&D department.

Ballard currently has three major products in development, and would benefit from a more diverse
portfolio of products and research.

A stronger R&D department will help Ballard be more prepared with industry changes. Ballard missed a
strong opportunity to be in the forefront of the military fuel cell battery pack market. Proper preparation
could have prevented the misevaluation and subsequent drop in stock price.
Next 5-10 Years Gather Funding for New/More Developed R&D Department, 10-15 till Profit
3. The last recommendation for Ballard is to expand their energy portfolio to include more renewable
energy products than just fuel cells.

Danthern Power has a strong presence in the solar market. Ballard with benefit from a diversified
renewable energy portfolio and the participation in more markets.

More renewable energy products would increase their sales and revenue.
Short Term: 1-2 Years Start marketing for more Renewable uses of Fuel Cells, 2-5 till Profit.

Analysis and Research

Company Background

Ballard Power Systems is a clean energy solutions company that focuses on the development of
Proton Exchange Membrane (PEM) hydrogen fuel cells. The company, based out of Burnaby, BC, a
suburb of Vancouver, was founded in 1979 (1).
Since its inception, Ballard Power Systems has created and shipped nearly 150MW of hydrogen
fuel cell capacity. They provide customers with commercial clean energy solutions (1) . Prior to 2007,
Ballard was in the automotive sector working with automobile companies like AG Daimler and Ford
Motors to develop a car powered from a hydrogen fuel cell. According to Research Capital analyst Jon
Hykawy in the Financial Post article Hydrogen Highway Hits Dead End, the hydrogen car was a bleed
for Ballard, they were never able to develop a fuel cell that would fit into a car and would be cheap
enough for retail customers (7). In late 2007, Ballard decided to focus on the forklift and stationary
electric generation markets for its fuel cells, and to leave the hydrogen fuel cell car behind (7).

Currently, Ballard does focus on forklifts and stationary electric generation, but is also involved
in three development stage markets. The first is the fuel cell powered bus. This is an emission free public
transportation bus that is run on a PEM fuel cell. The second is the continuous power market, in which
fuel cells would serve off grid telecommunication sites, as well as other off grid load demand, like rural or
isolated homes. The last market is distributed generation, which would allow Ballards fuel cells to
provide power in high demand peaking periods, as well as serve as base load generation of electricity (8).
Ballard is a company based in research and development. As mentioned above, Ballard is
currently researching and testing three new markets for its fuel cells. Ballard presently has access and
licensing rights to more than 1200 patents related to these markets and other fuel cell technologies.
Ballard has a portfolio of fuel cell products that are available now, and also has extensive engineering
services related to fuel cell technologies in the commercial sector (8).
In recent news, Ballard Power systems appointed Randall MacEwen as President and CEO on
September 2, 2014. MacEwen will be replacing John Sheridan due to retirement. Sheridan served as
President and CEO of Ballard for eight years (1).
Ballard is currently working on some major projects and partnerships, some even international. Ballard
made significant partnership with Nokia Siemens Network, a channel partner, as well as a Japanese
carrier, Softbank, which has significantly increased its current workbook. Some international projects
include a telecom infrastructure project in Myanmar and a customer order in China. Ballard has also
secured fuel cell stacks in Europe and the Caribbean (8).

SWOT Analysis:
A strength, weakness, opportunities and threat analysis of Ballard, Plug Power, Fuel Cell Inc, and
Hydrogenics.

Strengths

Ballard

Plug Power

Fuel Cell Inc (22)

Hydrogenics

-New CEO
Randy MacEwen
has 14 years
experience in
hydrogen energy
industry(31)

-Plug Power has been increasing


their manufacturing and
delivering capability to ensure
quick and reliable deliveries of
inventory (Yahoo Finance).
-Return on Equity greatly
increased from 2013, this proves
a great strength within the
company (The Street)
-Low Debt-to Equity ratio,
proves the company is skilled at
managing debt (The Street)

-American based
with funding from
Government.
-Two markets,
natural gas and
renewable power
operations.
-Global market in
cooperation with
POSCO and IKTS.
-First international
fuel cell presence.

- 60 years of
experience.
- Has a world leading
position offering inhouse designed and
manufactured
electrolysis based
hydrogen generators.
- International
presence.

-Weak cash flow compared to


previous years, and low
compared to industry standard
(The Street)
-Significant increase in Return
on Equity, however it greatly
trails the industry and S&P 500
average
-Gross profit margin at an
extremely low 3.91% (The
Street)

-Lowest stock price


at $1.75 on 10/8/14.
Down on revenues,
unable to hold
contracts.
Off 9% on potential
earnings.

- Competitive market.
- Small growth rate.

-Own proprietary
technologies for
increased
performance,
durability, and
versatility of fuel
cells (29)
-Have shown
increasing
revenue streams
since 2011(32)
Weakness

-Volatility in the
stock price on
both the
NASDAQ and
the Tokyo Stock
Exchange (27)
-Competition
from other
renewable energy
sources (28)
-Were not able to
penetrate

automobile
industry(28)
Opportunities

-Growth in Asian,
European, and
North American
market demand
for hydrogen fuel
cells (26)
-On Oct. 8, 2014
signed a 3-5 year
agreement to
supply Plug
Power with fuel
cells for forklift
market (26)
-Have
comprehensive
portfolio of fuel
cells for backup
power, materials
handling,
distributed
generation, and
bus
transportation.
(30)

Threats

-Expecting a
decrease in the
gross margin as
compared to that
in 2013(31)
-Stiff competition
from other
companies in the
industry(31)

Table 1: SWAT Analysis

10

-450% increase in GenDrive


units, large ramp up in inventory,
opportunity to increase profit
margin (Yahoo Finance)
-Profit margin, although very
low, has made a significant
increase since 2013 (The Street)
-The stock as increased by
552.85% since 3Q, 2013 (The
Street)
-New York Governor Andrew
Cuomo has pledged $35 million
in a development fund, an
opportunity that Plug Power can
benefit from, makes subsequent
announce at Plug Power
headquarters on October 10,
2014 (The Street)

Potential of $2.3
million contract
with Department of
Energy.
Stronger
international
presence, expansion
into S. Korea.

- Public in two
different stock
exchanges. (NASDAQ
and TSE)
- Growing Fuel Cell
industry.

-Net cash flow down 120% from


last year and well below industry
standards (The Street)
-Firms growth rate is much less
than the industry average, losing
competitiveness with other fuel
cell companies (The Street)
-Governor Cuomo holds press
conference at the Plug Power
headquarters and makes no
major announcement involving
Plug Power and the development
funding pledge, despite investor
anticipation of major
announcment. (Value Walk)

Other companies
creating an
international
presence. Behind on
technology.
Fall in revenues and
stock prices, while
ballard and plug on
increase.

- More companies to
join the industry since
its growing fast.
- High costs to
enlarge the company.

Table 2: Fishbone Diagram

11

PEST Analysis:
Political

Economic

Social

Technological

-Governments
worldwide are investing
substantial amounts of
money into hydrogen
fuel cell technologies.

-Hyundai Motors,
Honda Motors, and
Toyota will begin
selling Fuel Cell
Vehicles in the US in
2015

-Growing demand
from citizens for
clean renewable
energy.

-Strong efforts to
make fuel cells more
accessible in
everyday uses.
Becoming more user
friendly.

-At the end of 2014 $7.2


million in total
investment will be given
to Georgia, Kansa,
Pennsylvania and
Tennessee for various
applications of fuel cells
such as backup power
for cell towers and
delivery vans.
-Kroonstad, South
Africa will become the
first village to be
entirely powered from
hydrogen fuel cells.

-Countries such as the


US do not want to be
dependent on foreign
oil.

-H2USA is a program
initiated by the
Department of Energy
to accelerate the
implementation of a
hydrogen
infrastructure in the
US.
-As the global
economies slowly pull
out of the 2008
recession there will be
an increase in
investment

-In the event of


emergencies such as
natural disasters,
hydrogen fuel cell
backups can be
kicked on
independent of a
central grid providing
critical electricity to
stranded people.

-Technological
advances have
lowered the costs of
hydrogen fuel cells by
reducing the amount
of high-cost platinum
required.
-Advances in size,
efficiency, and
durability of fuel cells
also allows for
implementation of
fuel cells into
different products

Table 3: PEST Analysis

VIRO Analysis:
Services
Offered

Valuable?

Rare?

Difficult
to
Imitate?

Supported by
organization?

Competitive
implications

Performance

Telecom
Backup
Power

Yes

No

Yes

Yes

Competitive
Parity

Normal

Material
Handling

Yes

No

No

Yes

Competitive
Disadvantage

Below normal

Distributed
Generation

Yes

Yes

Yes

Yes

Competitive
Advantage

Above normal

Bus

Yes

No

Yes

Yes

Competitive
Parity

Normal

Engineering

Yes

No

No

Yes

Competitive

Normal

12

Services

Disadvantage

Table 4: Ballard VIRO Analysis

Telecom Backup Power: Fuel Cell Power Modules offer consistent power, seamless switching and

virtually limitless runtime.


Material Handling: Solves the pragmatic problems involving the movement, storage in a manufacturing
plant or warehouse, control and protection of materials, goods and products throughout the processes of
cleaning, preparation, manufacturing, distribution, consumption and disposal of all related materials,

goods and their packaging.


Distributed Generation: Power generation at the point of consumption. Generating power on-site, rather
than centrally, eliminates the cost, complexity, interdependencies, and inefficiencies associated with

transmission and distribution.


Bus: Zero-emission fuel cell-powered buses.
Engineering Services: Ballard Power Systems engineering services provide a high-value way for
companies to accelerate their fuel cell development efforts.

Industry Background
In the 1960s the technology began to be used by NASA for manned space flight missions in which the
fuel cell would generate electrical power as well as drinking water for the astronauts. In the 1970s
increasing concern about environmental pollution and air quality as well as OPEC oil embargoes
prompted a desire for efficient, clean, and secure energy. Major auto manufacturers began developing fuel
cell powered vehicles due to the uncertainty of oil availability. In the 1990s government funding
continued research and development of fuel cells by automakers as well as companies such as Ballard
Power Systems who, in addition to automotive technology, was also researching stationary fuel cell
power for use in, for example, backup power for telecom sites. Government funding continued to increase
in the 2000s as concerns about CO2 emissions grew. In 2007 fuel cells began to be produced at a
commercial level for leisure goods such as boats and campervans as well as smaller applications in toys.

13

Commercial fuel cells busses have been available since the late 2000s but due to having a cost of around
five times that of a normal bus as well as the cost of implementing hydrogen infrastructure, demand has
been low. Commercial fuel cell vehicles are planned to launch in 2015. (17)
The biggest risks in the fuel cell industry lie mostly upon how much it costs to produce a fuel cell
and the ability of the companies to turn a profit. (17) Because it is usually cheaper to buy energy from a
different source such as coal or oil, the practical use of fuel cells has been argued. However, the only
emission from hydrogen fuel cells is water vapor and heat, so one must factor in the negative externalities
of pollution that are created with these traditional fuel sources, and hydrogen fuel cells to begin making
more sense. In recent years however, companies have been making great strides in reducing the cost of
the fuel cells and have been investing heavily in manufacturing capacity in anticipation of high future
demand. (17) Private and government funding can also be drastically reduced at any moment, Because
outside funding is essentially the lifeblood for the industry due to most companies being more research
rather than revenue driven, this is a great risk, The 2008 global recession brought a significant decrease in
funding and many companies went bankrupt. However, one positive impact of the recession was that the
companies that did not go under were able to become more commercially oriented. (17)
Macroeconomic Factors
There are several major macroeconomic factors that influence the fuel cell industry. These factors
are GDP level, inflation level, and interest level. As mentioned before the, the GDP level, or the overall
health of the economy has a significant impact on how much funding is given to firms in the fuel cell
industry. When the GDP growth is strong firms are much more likely to receive both private and
government funding. Also when GDP growth is strong consumers generally purchase more products so
revenues are likely to be higher as well. (19) An increase in the inflation level also affects the growth of
the industry for several reasons. Due to the prices of inputs of fuel cells becoming more expensive, the
cost of a fuel cell will also increase which likely will decrease demand. Also the firm will have to increase
wages of its employees leading to less possible output. Higher interest rates will result in increases in the
payback of loans for firms which will decrease output. Also if interest rates are higher consumers will be
14

less likely to take out a loan to purchase a fuel cell, whether that be in a forklift for their business or in
their house as a combined heat and power fuel cell.

Growth Rate in Industry:


The fuel cell industry is expected to enter a period of sustained growth. As fuel cell companies

move away from being research and development focused to more commercial and profit based they
should experience good growth. Overall shipments of fuel cell systems increased by 86% from 2011 to
2012. As the global economy begins to pull out of the recession of the late 2000s governments are again
increasing their spending on fuel cell technology. Research and development has reduced fuel cell costs
by more than 50% since 2006 while fuel cell durability has doubled since 2005. Furthermore, the use of
platinum in fuel cells has declined by 80% since 2005 which is also helping to bring costs down. (20) The
US Department of Energy has also launched a joint effort private-public partnership called H2USA which
is helping to build hydrogen infrastructure across the United States. (18) Areas in India, East Africa, and
Asia currently have high demand for fuel cells to power telecommunication systems as increases in
mobile phone usage have caused an increase in demand for electricity that conventional grid output
cannot handle. (16) Since 2009 more than 13,000 combined heat and power (CHP) fuel cell units have
been installed in residential homes. (14) The state of New Jersey is also now offering subsidy incentives
for houses that have CHP units. (15)

15

Industry & Competitor Analysis:

Ballard Power Systems is in a very large market and it has many competitors. It is in the Renewable
Energy market, which contains around 89 companies in the United States and Canada. It is considered to
be a growing market which will get bigger and bigger every year.
With all these competitors, Ballard Power Systems has 3 main competitors which are in the industry and
almost the same size. (5)

1- FUELCELL ENERGY, INC


2- Hydrogenics Corporation
3- Plug Power.

These competitors are considered to be the main competitors to Ballard Power Systems since they share
not only the Renewable Energy market, but they also share in the same Fuel Cells technologies market, a
sub-market of the Renewable Energy Market. (3)

Industry Information:

The main market is the Renewable Energy market which has so many companies that are part of it. The
sub-market is the Fuel Cells Technologies market which has a smaller part of the main market with more
specialized companies. The Fuel Cells technologies market has about 12 companies that Ballard Power
Systems is one of them. They all compete with almost the same size and power over the market.
The Fuel Cells Technologies market has an estimation of CAGR of around 15% each years between 2013
and 2018.(6) As shown in the figure, Asia has the largest share of the Fuel Cell Technology in the globe.

16

Second, Europe has a major share of the market. Finally, North America comes as a rising market in the
global Fuel Cell Technologies industry. (8)

Table 5: Global Fuel Cell Markets (Source: Industry Level)

External Factors
There are many external factors that have a substantial impact on the growth of the

emerging hydrogen fuel cell market. Hydrogen fuel cells are advantageous due to their
significantly low environmental impact and the number of differentiated products that they can
be used in. While Ballard Power Systems is currently focusing on fuel cell implementation in
backup and distributed power generation, material handling, and in busses, hydrogen fuel cells
are also poised penetrate the commercial vehicle industry in countries such as the US, Japan and
Germany. Three factors that will have the largest impact on the growth of the hydrogen fuel cell
17

industry right now, one year from now, and three years from now, respectively, are the growth of
a hydrogen infrastructure, public knowledge and acceptance of hydrogen fuel cells, and the
supply of concentrated hydrogen.
The most important factor right now relating to the growth of the hydrogen fuel cell
industry is the construction of a vast hydrogen infrastructure that would be used to supply fueling
stations for vehicles as well as backup telecommunication generators, residential homes and
businesses. Governments have long been reluctant to invest in a hydrogen infrastructure due to
the uncertainties that automakers would not be able to produce a commercially viable fuel cell
vehicle. However that debate is over as automaker Toyota has said that it has reduced its fuel cell
drivetrain costs by 95% since 2002 (4). Hyundai has already released a hydrogen fuel cell
version of its Tuscon crossover to consumers with high access to fueling stations, and companies
such as Toyota, Honda, General Motors, and BMW plan to release their own hydrogen fuel cell
vehicles as early as 2015. The state of California recently approved $200 in investment to build
100 fueling stations by 2025 (7). With a 350 million Euro investment, Germanys H2 Mobility
initiative plans to have 400 fueling stations open by 2023 (2). Japans hydrogen highway plans
to have 100 stations open by 2015 (8). The growth of a hydrogen infrastructure will also spur
growth in other sectors of the hydrogen fuel cell industry such as backup and residential power
generation due to an increased availability of hydrogen fuel.
Increased public knowledge and acceptance of hydrogen fuel cells is critical for the
growth of the industry in the next year. Due to the increasing number of commercial fuel cell
vehicles that will be in production by 2015 and through 2017 consumers must be informed about
their available choices of hydrogen fuel cell vehicles (HFCV). HFCVs will be comparable in
price to standard cars as will a full tank of hydrogen gas to a standard tank of gasoline. They will

18

also have about the same driving radius of around 300 miles and produce almost no pollution
while at the same time driving more smoothly and quietly (4). It is easy to see how quickly a
shift in consumer preference could occur, first among those who are very environmentally
conscious and then followed by those who would simply prefer the advantages that an HFCV
offers. Additionally, the federal government is currently offering a $4,000 tax credit for
consumers who purchase a qualifying fuel cell vehicle (6). As public knowledge of fuel cells
grows so will other sectors of fuel cell production such as in electricity production in residential
houses and in businesses, especially as costs for fuel cells continue to decline and tax credits for
fuel cells continue to increase. For example, a federal tax credit allows homeowners to write off
30% of the cost of a fuel cell unit installed in their home (6). Businesses would also benefit from
the implementation of hydrogen fuel cells for either their main or backup power generation.
The external factor that will be most important in three years is the supply of
concentrated hydrogen that will be available for consumption as fuel. There are currently two
main methods of producing concentrated hydrogen (H2). The first method is what is known as
reforming natural gas, which is comprised mostly of methane (CH4). The natural gas is put into
a reformer and through a process called steam reforming the natural gas is split into various
chemical compounds, the most common of which is concentrated hydrogen H2. This method is
popular in the United States due to the increasing availability of cheap natural gas, therefore it is
very important that natural gas production in the US continues to grow (1). The other method of
hydrogen production is known as electrolysis and involves using sunlight to split the hydrogen
and oxygen atoms of molecules of water (H2O). This method, while currently less efficient than
reforming natural gas, is becoming cheaper and more efficient due to technological innovations
(5). For example, HyperSolar is a company that has found a way to eliminate the need for proton

19

membranes which are expensive and must be replaced often that are normally necessary for the
splitting process (3). Another advantage of electrolysis is that electrolyzers can be placed just
about anywhere. Germany and Canada are two countries that are investing heavily in electrolysis
technology (5).

Key Success Factors


There are a few key success factors that every company in the hydrogen fuel cell industry

must have to be competitive in the market. A company must have a differentiated product line.
Even if a company is the best at producing one type of fuel cell they will not be able to be
competitive unless they expand their product line to increase their revenue streams. The cost of
producing fuel cells is obviously very important. Companies are constantly working to reduce
costs of production to increase their profit margins. If a company has proprietary technologies it
gives them a competitive advantage over other companies because their technology is in some
way better thus making their product more attractive to buyers. Having solid leadership at the
head of the company is also very important because corporate leaders make decisions as to what
direction to take the company which will ultimately decide whether the company will succeed or
not. In todays business environment, a company must engage in business globally in order to be
competitive. There are many opportunities to increase revenue streams when a company sells not
only domestically but also internationally.

20

Product Line
Cost of production
Proprietary technology
Corporate Leadership
International Presence
Average Score

Product Line
Cost of production
Proprietary Technology
Corporate Leadership
International Presence
Average Weighted Score

Weights
.2
.3
.1
.2
.2
1

Ballard

Plug Power

Fuel Cell Inc.

Hydrogenics

Power
7
6
6
9
5
6.6

7
6
5
7
6
6.2

6
5
6
7
6
6.0

7
7
4
6
6
6.0

Ballard Power
.2*7 = 1.4
.3*6 = 1.8
.1*6 = .6
.2*9 = 1.8
.2*5 = 1.0
6.6

Plug Power
.2*7 = 1.4
.3*6 = 1.8
.1*5 = 0.5
.2*7 = 1.4
.2*6 = 1.2
6.3

Fuel Cell Inc.


.2*6 = 1.2
.3*5 = 1.5
.1*6 = 0.6
.2*7 = 1.4
.2*6 = 1.2
5.7

Hydrogenics
.2*7 = 1.4
.3*7 = 2.4
.1*4 = 0.4
.2*6 = 1.2
.2*6 = 1.2
6.6

Cost of production is the most highly weighted because cost is the most critical part of
your success as a business. If you can produce at a lower cost than your competitors it means you
can charge the same price as a competitor and still make positive profits or even sell just below
your competitors prices to try to sell more product. Product line, corporate leadership and
international presence are all equally weighted. Having a product line that contains more than
just one product and having more than one market where you sell these products are both very
important so your company has more than one revenue stream. Equally important is who is at the
helm of the company. If someone incompetent is at the head of your company he or she can
quickly run it into the ground. On the other side, experienced leadership makes good decisions
and leads the company to earn positive profits. Having proprietary technologies is weighted the
lowest because while having a proprietary technology to produce your product will give you an
advantage over your competitors, the other factors are more important.
21

Environmental Scan:

The fuel cell industry has increased a lot over the last 5 years and will continue
to grow even more in the near future. Ballard Power Systems and its main
competitors are almost growing with the same rate. The top companies in the
industry, including Ballard and their main competitors, affect the market with their
strengths and market power.
Right now, Ballard assigned a new CEO which will have a huge impact on
their leadership. Plus, their revenues have been increasing since 2011. Plug Power
increased their manufacturing and deliveries which will increase their revenue. Their
increased return on equity is higher which means that they have higher liquidity
than the years before. Fuel Cell is in two markets, fuel cell and natural gas, which
means that they have higher opportunities than the other companies. It is also the
first international corporation in its market which gives them an advantage over the
other companies. Hydrogenics is one of the most experienced companies in the
market which will give them the advantage of understanding the market better.
Also, it has a world leading position offering in-house designed and manufactured
electrolysis based hydrogen generators which gives them the lead in a huge
market.
Next year, Ballards new CEO will make his changes in the company to prove
his presence in the company. Their increased revenue will generate a bigger
opportunity to have a stronger appearance in the market. Plug Powers increased
revenue with their improved manufacturing will help them generate more reliable
products and services. Their higher liquidity will help them expand in the market
more by producing new products. Fuel Cell presence in two markets will help them
22

explore more options and more experience in the two markets. Being the first
company to have an international appearance will help them to expand their
opportunities. Hydrogenics experience will not have an effect within the next year.
Their world leading position will benefit them in increasing their horizon.
Within three years, Ballards CEO will show his ability in managing the
company by either getting bigger or staying the same or maybe even loosing. Their
higher opportunities will have an effect on the market and will keep them growing.
Plug Powers increased revenue will benefit the company by increasing even more
revenue. Their expanding in the market will keep their sales higher and more
dependable products and services. Fuel Cells presence in two markets will be more
helpful to gain from both industries with higher experience. Being the first
international company in the industry will give them the experience of dealing with
other cultures as well as higher opportunities. Hydrogenics high experience will
help them benefiting from their own mistakes and other companies mistakes.

Opportunities:

There are many opportunities in the market that will benefit Ballard Power
Systems and their competitors. The growth in the international market of fuel cell
will give these companies the chance to grow and increase their revenue. Their
strong appearance internationally will give them openings to new markets and new
services and products to provide.

23

Threats:

Ballard Power Systems and their competitors might find threats that could
decrease their revenues and their presence in the market. One of these threats is
the ability for new companies to enter the market which will be a big problem for
the existing companies to face in the future. Another threats that the companies in
the market will face are the high costs to grow which will be difficult to grow
internationally.
Product Life Cycle:

Figure 1: Life Cycle Graph

The above graph shows the product life cycle of the fuel cell market, and the location of Ballard
Power Systems on the graph, represented by the blue arrow. The reason for the placement towards the end
of the growth section and beginning of maturity section is the trends in the financial markets
compared to those of its competitors. The reason for this placement is that the fuel cells are currently at a
standstill in sale until a new technology is in process. The market is a complete transitional period, so the

24

life cycle for the long-run of fuel cells is still growing. Once the new technology is marketable the life
cycle will enter the maturity phase.
Economic Traits:
1. GDP Level: GDP growth is strong firms are much more likely to receive both private and
government funding. Also when GDP growth is strong consumers generally purchase
more products so revenues are likely to be higher as well. (19)
2. Inflation Level: During inflation prices of inputs of fuel cells becoming more expensive,
the cost of a fuel cell will also increase which will likely decrease demand
3. Interest Level: .Higher interest rates will result in increases in the payback of loans for
firms which will decrease output.
Market Space:
The fuel cell market space is growing, Pike Research estimates that the fuel cell market will
continue to grow ass domestic and foreign interest in reliant and renewable energy increases. Currently
the market of fuel cells is producing 3GW as of 2013 and will reach the 50GW mark by 2020. Growing at
an exponential rate.

Potential Market Growth of Fuel Cells


60
40
20
0
2014

2015

2016

2017

2018

2019

2020

GW
Figure 2: Graph of Market Growth

Competitors:
There are many types of fuel cell competitors within the fuel cell market. Even though the fuel
cell market is growing, the net profit margin for the competition is at a loss due to the high production and
25

research costs for the fuel cell market. The top competitors are listed below in the graph, data from
Hoovers.

2013 Annual Sales

2013 Net Profit Margin

Figure 3: Annual Sales and Net Profit Margin (source: Hoovers)

Government/Political Influences:
Since Ballard is an international corporation with contracts in multiple nations there business plan
is highly influenced by government and political influences. The first major influence for Ballard is if the
government of a given nation has an initiative for renewable energy sources. If so, the country will be
more likely to high Ballard as a possible supplier of fuel cells. The largest government with a renewable
energy initiative is the US
The second influence when working with other nations it is important to understanding their
importing laws, tariffs, and taxes from Canada. If taxes and regulations are too high this could influence
Ballard getting the contract.
26

Backward Integration in Market Space:


According to Investopedia Backward Integration is a form of vertical integration where the
company controls the suppliers of its market. Within Ballards control there are some examples of
backwards integration:

Plug Power: Ballard Power Systems works alongside Plug power within the US for the

manufacturing capabilities of the fuel stacks, for the GenDrive Systems.


Bae Systems: The leader in the development and deployment of hybrid drive propulsion systems
for diesel hybrid transit buses. Ballard uses them to employee the use of hybrid engines for

testing with the fuel cells.


VanHool Busses: Manufactures bus engines, Ballard uses a share of VanHool to use testing for
large fuel cell production within bus engines.

Forward Integration:
Forward integration is when activities are expanded to include control of the direct distribution of
its products. Within Ballard Power Systems a few examples of Forward Integration are:

Dantherm Power: Ballard holds a controlling interest in Dantherm Power; a Danish company
focused on development and production of commercially viable fuel cell-based backup power

27

systems for use in IT and telecom network base stations.


Cascadiant Energy: An innovative company that develops green technology, Cascadiants is

Ballards connection to Asia and uses the ElectraGen for green fuel cell technologies.
Inala Energy: A south African Green Energy Company.

Entry/Exit Barriers
Entry: The entry for the fuel cell market is really strict, with the high barriers this protects the
current firms form other firms entering meaning they have more control over the profits and get to
maintain their position easier.
1.
2.
3.
4.
5.

High production costs


Need connection with large corporations
Large need for Research and Development
Connections for suppliers of fuel cells materials
International connections

Exit: The exit for this market is really complicated as well, meaning that a firm cannot easily
leave the market making the market very constant and easy to control. Reasoning is:
1. Large set-up and contract, with multi-year lengths
2. Set up numerous relationships, each company has at least one large customer, cant leave
that customer
3. Multiple years of development, hard to hand over your research and development when
leaving.
Technological Change/Service Characteristics:
In the 1990s government funding continued research and development of fuel cells by
automakers as well as companies such as Ballard Power Systems who, in addition to automotive
technology, was also researching stationary fuel cell power for use in, for example, backup power for
telecom sites. Government funding continued to increase in the 2000s as concerns about CO2 emissions

28

grew. In 2007 fuel cells began to be produced at a commercial level for leisure goods such as boats and
campervans as well as smaller applications in toys. Commercial fuel cells busses have been available
since the late 2000s but due to having a cost of around five times that of a normal bus as well as the cost
of implementing hydrogen infrastructure, demand has been low. In recent years however, companies have
been making great strides in reducing the cost of the fuel cells and have been investing heavily in
manufacturing capacity in anticipation of high future demand.
There is now a shift in making fuel cell technologies more user friendly, it started back when the
US military talked about working to make fuel cells accessible for uses in everyday military battery
packs. However, that project was soon abandoned. But the initiative was not, continuing with most
corporations expanding their R&D department fuel cell technology is about to enter a new innovative
way, it is estimated that fuel cells will grow to power 50 GW by 2020.
Customer Characteristics:
Top 5 characteristics for Fuel Cell customers:
1. Large Energy or Transportation Companies
2. Funded by government agencies
3. Provide Services to other companies using Fuel Cell equipment such as:
a. Coca-Cola, Walmart, BMW, Fed-Ex, Volkswagen.
4. Use other entities/products beside fuel cells.
5. Have multi-national operations
Industry Profitability:
The industry profitability in the fuel cell market is currently very low. Most companies are losing
on expected wages. This is due to the fact that fuel cells are currently too expensive for normal
commercial markets. The fuel cell markets have potential for growth due to their reliability and their
sustainability. Once technology is modified the fuel cell market will be at the of the renewable energy
market. Below is a graph of current industry profitability for Ballard Power Systems:

29

2013

Ballard Power

FuelCell Energy

Hydrogenics

Quantum Fuel Systems

Annual Sales

$61.25M

$187.66M

$42.41M

$31.90M

Employees

335

644

140

147

Market Cap

$166.85M

$263.06M

$172.69M

$147.23M

Table 6: 2013 Key Financial Factor (Source: Hoovers)

The Financial analysis of the key competitors within the fuel cell industries are very interesting.
The key important fact that you can tell from the table above is that sale on fuel cell is highest through
FuelCell Energy, and lowest through Quantum Fuel Cells. Ballard is second highest and has much room
for improvement. It is interesting to note that market capital is higher in Hydrogenics then Ballard even
though sales are high with Ballard, this shows that Hydrogenics is too expensive and spending more then
they are making.

Figure 4: Industry Profitability for future 2014 (Source Hoovers)

30

Competitor Forces

The competitor forces is to have the most energy efficient fuel cell at the lowest price. Currently
Fuel Cell Inc. has the most energy efficient fuel cells at a high price, while plug power has low
price fuel cells that do not have the greatest efficiency level. Ballard is nice in the middle of the
competitive pool. The forces that are driving sales is most energy efficient fuel cell at a lower
price. Each company is striving to be the first to meet those requirements. The arrows on Ballard,
Fuel Cell Inc., and Hydrogenics are small because they are stagnant, and havent moved yet.
Plug Power currently has a fuel cell released on the market that is more energy efficient then
their previous product however it will drive prices up. The size of the bubbles are relative to the
companies size.

There are around 89 companies in the market in the United States and
Canada. Ballards top three competitors are: Plug Power, Fuel Cell, and
Hydrogenics.

Plug Power: It is one of the top competitors to Ballard Power Systems


because they are almost the same size as Ballard. They have around
200 employees and their market capital around $800 million. They are
located in Latham, NY and they are a growing company in the industry

since 1997.
Fuel Cell: It is one of the top competitors to Ballard Power Systems as
well. They have around 600 employees with a market capital of around
$600 million. They are located in Danbury, CT and they have been
growing since 1969.

31

Hydrogenics: is also one of Ballards top competitors and have almost


the same size of Ballard and the other competitors. They have around
140 employees with a capital of almost $200 million. They are located
in Mississauga, ON and they are one of the growing companies since
1995.

The top three companies in the industry (Industrial Electrical Equipment)


by their market capital are:
-

Political

Economic

32

Ballard Power Systems


Fuel Cell Corp.
Plug Power.

Ballard Power
Governments
worldwide are
investing
substantial
amounts of
money into
hydrogen fuel
cell technologies
into research or
infrastructure
development.

Plug Power
Some
governments
will provide tax
breaks or
rewards to
businesses or
citizens who
purchase
hydrogen fuel
cells.

Fuel Cell Inc.


Some political
regulations such
as emissions
requirements for
vehicles in
specific states
will increase
demand for fuel
cells.

Hydrogenics
Currently few
regulations on
production of
natural gas from
fracking in the
US leading to an
abundant supply
of hydrogen (H2)
to use as fuel.

As the global
economies

Despite the high


up-front costs of

Increasing
employment

Low inflation
and interest rates

slowly pull out


of the 2008
recession there
will be an
increase in
investment and
demand.
There is a
growing demand
from citizens
worldwide for
clean, cheap,
renewable
energy.

Social

Technological

distributed
generation fuel
cells over time
they make up for
these costs by
operating at a
cheaper level.
Many countries
such as the
United States do
not want to be
dependent on
foreign oil and
instead aim to
become energy
independent.

opportunities
due to the
growth of what
is right now a
fairly small
industry.

In the event of
emergencies
such as natural
disasters,
hydrogen fuel
cell backups can
be kicked on
independent of a
central grid
providing
critical
electricity to
stranded people.
Technological
Advances in
Advances in
advances have
fracking
size, efficiency,
lowered the
technology that
and durability of
costs of
produces
fuel cells also
hydrogen fuel
hydrogen gas
allows for
cells by reducing (H2) allowing for implementation
the amount of
a cheap fuel
of fuel cells into
high-cost
supply.
new, different
platinum
products.
required.

should also
increase
investment
leading to
increased
production and
employment.
As demand for
fuel cells grow
there will be an
increased
demand for
people skilled in
this field of
knowledge to
maintain and
repair fuel cells.

Advances in
technology that
is used to
produce the
concentrated
hydrogen (H2)
that the fuel cells
run on.

There are a number of political factors that are allowing for the growth of the hydrogen
fuel cell industry. The biggest factor is that governments are increasing their investment into fuel
cell companies and into infrastructure systems to support the implementation of fuel cells not
only in cars and but also as backup and main power supplies as well as in forklifts operating in
factories. Many governments are providing tax breaks for citizens who wish to install hydrogen
33

fuel cells into their homes and businesses and purchase fuel cell vehicles. Another political
factors that is allowing for growth in the industry is the lack of heavy regulation in the natural
gas industry which is creating an abundant supply of hydrogen fuel.
As countries pull their economies out of the 2008 global recession there has been a
greater amount of investment into the hydrogen fuel cell industry. There has also been an
increase in demand for fuel cells despite their high up-front costs, this is because the owner is
able to make up for the initial cost with low operating costs while also producing little pollution.
Low interest rates and low inflation also stimulate investment and job growth in a small yet
budding industry.
Amidst concern over ozone depletion and higher than acceptable pollution levels, citizens
worldwide are calling on their governments to find and support cheaper, cleaner, domestic plans
to produce energy. Not only are fuel cells beneficial for the environment they are also extremely
useful in providing critical electricity to stranded people emergency situations such as hurricanes
or earthquakes when the central power grid has failed.
In recent years hydrogen fuel cells have benefited from many advancements in
technology. Fuel cells now require less platinum than ever before which has substantially
reduced their cost. Fuel cells have also gotten smaller, more efficient and more durable at the
same time increasing their usefulness in a number of different applications. There have also been
advancements in the technology that is used to acquire the hydrogen gas used to power the fuel
cells such as advancements in fracking, electrolysis, and natural gas reforming.
Fuel Cell Energy VIRO analysis:
Services
Offered
34

Valuabl
e?

Rare
?

Difficu
lt to

Supported
by

Competit
ive

Performa
nce

Efficient

Yes

Yes

Imitat
e?
Yes

Ultraclean

Yes

No

No

Yes

Reliable

Yes

Yes

Yes

Yes

Economic Yes
al

Yes

No

Yes

Versatile

No

No

Yes

Yes

organizati
on?
Yes

implicati
ons
Competiti
ve Parity
Competiti
ve
Disadvant
age
Competiti
ve
Advantage
Competiti
ve
Advantage
Competiti
ve
Disadvant
age

Above
Normal
normal

Above
normal
Normal

Below
Normal

Efficient: generates more electricity using less fuel with unparalleled


electrical power generation efficiency of 47%

Ultra-clean: emits virtually zero pollutants and low CO 2

Reliable: base load power supports facilities that operate continuously

Economical: produces up to six times more electrical power than other forms
of distributed generation with the same fuel input and can operate at up to
90% efficiency when used in Combined Heat and Power (CHP) applications

35

Versatile: operates on a variety of fuels for use in a wide range of applications

Plug Power VIRO analysis:


Services
Offered

Valuabl
e?

Rare
?

Increased
Productiv
ity
Lower
Operatio
nal Costs
Zero
Emission
s
Commerc
ial Space
Transpar
ent
Transitio
n

Yes

36

Supported
by
organizati
on?
Yes

Competit
ive
implicati
ons
Competiti
ve Parity

Performa
nce

No

Difficu
lt to
Imitat
e?
No

Yes

Yes

Yes

Yes

Above
normal

Yes

Yes

Yes

Yes

Yes

No

No

Yes

Yes

No

No

Yes

Competiti
ve
Advantage
Competiti
ve
Advantage
Competiti
ve Parity
Competiti
ve
Disadvant
age

Normal

Above
normal
Below
Normal
Below
Normal

Increased Productivity: Battery-powered lift trucks lose approximately


14 percent of their speed over the last half of the battery charge.
GenDrive fuel cells maintain constant power at all times, keeping the
vehicle running at full speed throughout the entire shift.
Lower Operational Costs: The GenDrive solution eliminates the need to
change, charge and manage batteries. The units run longer than leadacid batteries and can be fueled in as little as 60 seconds, substantially
reducing vehicle and personnel downtime.

Zero Emissions: Safe. Clean. Efficient. The GenDrive fuel cell solution
produces zero harmful emissions and eliminates the costs associated
with handling and storing toxic materials.

More Commercial Space: Compact fueling stations replace large


battery charging rooms, freeing up valuable warehouse space for other
purposes.

Transparent Transition: GenDrive fuel cell units fit seamlessly into the
space occupied by batteries, making it a simple and cost-effective
solution for customers to adopt.

Hydrogenics Corp. VIRO analysis:


Services
Offered

Power-to- Yes
Gas
Hydrogen Yes
Fueling
Stations
Remote
Yes
Communit
ies

No

Difficu
lt to
Imitat
e?
No

Yes

Yes

Yes

No

No

Yes

Mobility
Power
Defence,
Aerospac
e and
Security

Yes

No

No

Yes

Yes

Yes

Yes

Yes

37

Valuabl
e?

Rare
?

Supported
by
organizati
on?
Yes

Competit
ive
implicati
ons
Competiti
ve Parity
Competiti
ve
Advantage
Competiti
ve
Disadvant
age
Competiti
ve Parity
Competiti
ve
Advantage

Performa
nce

Normal
Above
normal
Below
normal

Normal
Above
Normal

Power-to-Gas: A hybrid solution which converts surplus renewable


generation into hydrogen using electrolysis and then injects the
hydrogen into the existing natural gas infrastructure

Hydrogen Fueling Stations: Fueling station uses our advanced


electrolysis technology to split water into hydrogen and oxygen, using
only electricity.
Remote Communities: Reliable, sustainable and switch-able energy
Mobility Power: The first fully integrated fuel cell power platform
solution developed for the high durability requirements of mobility
applications.
Defence, Aerospace and Security: provides a link to a cleaner energy
future by filling the energy gaps in the air, space, land and underwater.

Relevant Strategic Group Map


Fuel Cell Inc

High

Ballard
Sales
Hydrogenics

Plug Power

Low
Low

38

Application of
Fuel cell
products

High

Fuel Cell Inc


High
Ballard

Vertical
Integration

Plug Power

Hydrogenics

Low
Low

Cover
Geographic Area

High

(Source of decision making on Strategic Group Map: Hoovers Database)


The first relevant strategic group map plots Ballard and its three largest competitors based on its
application of fuel cell products vs. their sales. Fuel Cell Inc is the largest company in terms of sales and
size and shows progress of increasing their fuel cell product portfolio thus has movement up and to the
right. Ballard is the same but does not have as rapid increase in sales projected as Fuel Cell. The second
relevant strategic group map plots the companies amount of vertical integration vs. the geographic area in
which they serve their customers. The arrows depict the direction in which each company is projected to
move towards.

3 Iterations of Action and Reaction

39

1. If Ballard were to accept our recommendation and reenter the automotive fuel cell market each of our
three competitors would likely to have similar reactions. Plug Power would likely create parts or a
product necessary for Ballard to make fuel cells for cars, and the other two competitors, Fuel Cell Inc. and
Hydrogenics would likely either enter the automotive industry or invest in creating a similar fuel cell
product.

2. The next action Ballard would be likely to make after the above reactions would be to enter more
international markets, and likely many Asian market that are strong in the automotive market like Japan.
This would give a much greater market space for Ballard to sell its products that just focusing on
American automakers like Ford. This would cause Ballards competitors to either enter the Asian
automotive markets or focus more heavily on the American automotive market or the European
Automotive market.

4. The third action of Ballard after the reactions of 2 would be to make massive
investments in research and development and create another game changing fuel cell
product. This would likely prompt a reaction of Plug Power developing more parts or
services for this new technology and the other two companies to either invest in a new
product of their own or invest in replicating Ballards research.

Action

Reaction
Plug Power:
Create automotive parts or
products in support of Ballard

40

ReEnter into Automotive


Industry

Plug Power and Hydrogenics:


Enter Automotive or invest in
similar product development

Enter Asian Markets


All Competitors:
Enter Asian markets or focus
heavily on American and
European markets

Massive Research and


Development Investment

Hydrogenics and Fuel Cell Inc:


Attempt to replicate research of
Ballard and or the new product

Plug Power:
Create supplementary
Products

Porters 5 Forces model

41

Rivals:
Competitors of Ballard Power Systems (rated by Strength)
1. FuelCell Energy (9)
2. Hydrogenics (7)
3. Quantum Fuel Systems (7)
4. Acumentrics (3)
5. Bloom Energy (4)
6. ClearEdge Power (5)
7. Fuel Systems Solutions (5)
8. GE Energy (4)
9. Nuvera Fuel Cells (3)
10. ReliOn (2)
11. Siemens Energy (3)
12. Stirling Biopower (2)
Sum: 47
Average Rivalry Score = 47/12 = 3.92

Rivals Rating: 3.92

Supplier Power:

Production costs for Fuel cells expensive. Suppliers supply high tech products. Few Suppliers,

bigger rivalry.
Supplier Power Rating: 8

Threats to New Entrants:

42

High barrier to enter, very high tech


The threat of new entrants comes from already existing energy companies creating a fuel cell

divisions
New Entrants Rating: 4

Threats of Substitutes:

There is not a wide array of zero emission power substitutes


Substitutes Rating: 3

Buyer Power:

Plug Power- very important 2 year supply deal with Plug Power, one of their biggest customers,
has led to a 200% increase in revenue in the material segment in just the 2 nd quarter mostly due

to Plug Powers fuel cell orders. Plug Power has a bit of power in this aspect.
http://seekingalpha.com/article/2551305-update-ballards-new-agreement-with-plug-power-will-

be-key-for-future-growth
Buyer Power Rating: 8

Porters Five Forces Model

Porters Five Forces model shows a total rivalry score of 26.92 shows a moderate competitive landscape
for Ballard Power Systems. The largest pressure on Ballard Power Systems in terms of competition is the
Buyer and Supplier. There are few buyers of Fuel Cell technology and Ballard heavily depends on a
purchasing deal with Plug Power to drive their revenues. The high tech and high costs of making fuel
cells is the result of few suppliers, giving the suppliers power to keep prices high. There are not many
companies in the fuel cell business and there are only a few companies that are large enough to pose a big
competitive threat. There is also a low to moderate threat of a substitution if a better zero-emission
electric generation product. High barriers to entry give a low score for threats to new entrants.

43

Porters 5 Forces

Model
Buyer Power Rating
8

Supplier Power
8

44

Rivals Rating
3.92

Threats of Substitutes
3

Threat of New Entrants


4

Industry Attractiveness
Right now: The fuel cell industry right now is unattractive to companies trying to enter. The market is
small and the research it takes to develop products makes it difficult for small-scale firms to be profitable.
The companies that are successful in this market space hold a majority of the fuel cell sales in the market.
Companies that are currently in the market are also struggling with creating a fuel cell product that will be
profitable in the long run and that can sustain the research costs of developing the product. Most
companies saw the most amount of profit in the automotive sector with a fuel cell for cars but werent
able to make a profitable product and therefore lost quite a bit of money without getting into the juiciest
part of the market.
Near Term: In the next 1-3 years the fuel cell industry will increase in attractiveness. This all lies with the
ability of fuel cell companies and energy companies to develop a profitable fuel cell product for cars and
the ability of the companies to take this product to all automotive markets. Including Europe and Asia.
Closer to the three year mark will this concept have a better chance of being a reality. At that point,
companies wont have to be investing as much money into their research and development and can simply
focus on generating revenue.
Longer Term: The fuel cell industry is poised to take off in the next five years to become an extremely
attractive industry. Driven by consumer awareness of environmental impact and the desire to be using

45

clean emissions free energy, companies will have developed many more applications for fuel cell
products, therefore making theses companies considerably more profitable that they are currently.

Financial Analysis:
Ballard Power Systems is a publically traded company on the NASDAQ under BLDP.

The stock price has of 2:15 PM on 09/15/2014 is $3.15, down 0.26, down 7.26%. (11) The largest
competitor for Ballard Power Systems is Plug Power Inc. Their stock is $4.76 on 09/15/2014, down 0.35
and 6.86%. (12) Both companies are in the Hydrogen Fuel Cell market. The market for hydrogen fuel
cells is a very volatile market, it is constantly changing at a rapid pace. Plug Power Inc. is a stronger
company than Ballard Power Systems. One interesting trend that is important to take note of is the
parallelism between the two companies. Both companies markets shift the same way around the same
time. This is due to one major factor, developing hydrogen fuel cell technologies. (10) Below is the one
year stock prices for Ballard Power system (BLDP) and Plug Power (PLUG): (11,12)

BLDP:

Table 7: Ballard Stock (Source: Google Stock)

46

PLUG:

Table 8: Plug Power Stock (Source: Google Stock)

Horizontal/Trend Analysis:
First focusing on the developing hydrogen fuel cell technologies. At the end of 2013, the
US military was working on a project using fuel cells to replace basic lead-acid batter to dramatically
decrease the weight soldiers carry. (10) This created a shift in the use of fuel cells to a more practical,
everyday use. Ballard Power Systems and Plug Power Inc. took a huge benefit with this new
development. A report released on March 10th about new fuel cell developments caused a drastic stock
price increase in both companies. The stock price for Ballard Power Systems rose from $2.43 on 2/21/14
to $6.88 on 3/10/14, the highest in the past 5 years. (11) Plug Power rose from $3.63 on 2/21/14 to $10.31
on 3/10/14, the highest within the past 5 years. (12) However on April 22 nd, 2014 a report released by Fuel
Cell Energy, company behind the military research, reevaluated the uses and prices of fuel cells. (10)
Soon after BLDP fell from $6.88 to $2.89 on 5/8/2014, PLUG fell from $10.31 to $3.64 on 5/8/2014. (11,
12)

47

Financial Trends:
1.
2.
3.
4.
5.

The large fall from $6.88 to $2.89 on 5/8/14


Rise from $2.43 to $6.88 on 3/14/14
New CEO cause a small steady increase in stock prices.
Constant increase after fall on 5/8/14
An overall growth in stock prices since start of Ballard, fuel cell on continuous upward growth.

Ratio: (9)
Ratios
Current Ratio
Quick Ratio
Inventory Turnover
Inventory Period
Cash Ratio
Receivables Turnover
Avg Collection Period
Debt Ratio
Debt to Equity
Interest Coverage
Gross Profit Maragin

2011
2.219208809
1.756882137
0.29005919
0.002361351
1.026967781
N/A
N/A

N/A

2012
2013
1.636773
1.794789
1.19086
1.37015
0.162336
0.196313
0.004219
0.003489
0.312916
0.774171
N/A
N/A
N/A
N/A
N/A
N/A
-0.01315737
-0.03819
-0.03585
-0.02122407
-0.07224
-0.03585
N/A
N/A
N/A
0.525639116
0.130302
0.55895

2014
2.738337
2.185651
0.237551
0.002883
1.385087

-0.01756
-0.02612
0.617003

Table 9: Ratios Chart

With information from some of the ratios there are some interesting trends to take note of. First,
looking at the graph from the current, quick, and cash ratio:

48

Table 10: Current, Cash, Quick Ratio Graph

These ratios represent the companys liquidity, meaning how available the assets become cash. As
one can tell from the graph above there was a decrease in liquidity from 2011-2012. Then a steady
increase continuing through 2014. This decrease in liquidity meant that there was a decrease in cash flow,
this was due to the fact that in 2012 Ballard Power System bough Danthern Power, which was an
independent solar energy commodity. At first they were in huge debt with the sales, but as the took over
Dantherns market there liquidity began to rise. (13)
The second trend to keep track of is
through debt. First it is interesting to
notice that debt increased in 2011-2012,
the same time t
hat liquidity decreased. Second is in 2013
debt to equity is equal to debt ratio.
Meaning that they were able to pay their
Table 11: Debt Ration Graph

shareholder through an increase in assets

from 2012-2013. Again, this trend is due to the merge of Danthern power, when they took over Danthen
power, they also took over their debt causing the large increase in Ballards debt. (13) However the
increase in revenue from Danthern Power allowed Ballard to pay of the debt quickly, which is the reason
debt to equity, equals the debt ratio at -0.358 in 2013. (9) Look below to see the graph:

49

Vertical Analysis:

The vertical analysis of BLDP in 2014, gave some interesting results. For the full vertical analysis
please see below. Current Assets are 47% of BLDP Total Assets of $151,740. The most liquidity asset is
24% of total assets. As for liabilities the payables are 60% of the $49,721 of total liabilities. The equity
for share capitals is $914,707, total equity is 11% of the share capitals. (9)
Table (9)

Vertical Analysis
Money
Assets
Current Assets
Cash
Receivables
Inventories

Total %

$11,811.00
$18,581.00
$16,831.00

8%
13%
12%

$1,721.00

1%

Total Current Assets

$61,780.00

42%

Non-Current Assets
Property
Intangiable Assets
Goodwill

$32,436.00
$1,898.00
$48,106.00

Prepaid Expenses

Investments
Long-term Receivables
Long-term Assets
Total Assets
Equity
Share Capital
Treasury Sheets
Contributed Surplus
Accumulated Defecit
50

$667.00
$1,126.00
$183.00
$146,196.00
$838,087.00
$(350.00)
$288,989.00
$(1,046,315.00
)

Liabilities
Current Liabilities
Payables
Deferred Revenue
Provisions
Finance Lease Liability
Debt to Danthern
Power
Total Current
Liabilities

Non-Current Liabilities
22% Finance Lease
1% Defered Gain
33% Provisions
Debt to Danthern
0.4562% Power
1% Employee Benfits
0.125% Total Liabilities
100%
100%
0%
34%
-125%

$16,930.00
$1,707.00
$8,641.00
$998.00
$-

45%
5%
23%
3%
0%

$37,745.00

100%

$13,230.00
$5,422.00
$4,810.00

19%
8%
7%

$2,190.00
$5,510.00
$68,907.00

3%
8%
100%

Foreign Currency
Reserve
Total Equity to holders
Danthern Power
Total Equity

$271.00
$80,682.00
$(3,393.00)
$77,283.00

0.03%
10%
-0.4%
9%

Table 12: Vertical Analysis

Ballard
Power

FuelCell
Energy

Hydroge
nics

Quantum Fuel
Systems

Industry
Median

Market
Median1

Current
Ratio

2.30

1.78

1.40

1.15

2.25

1.46

Quick Ratio

1.73

1.10

0.76

0.74

1.94

1.02

Leverage
Ratio

1.68

--

6.50

3.89

3.23

5.51

Total
Debt/Equity

0.17

--

--

0.69

1.23

0.95

Interest
Coverage

(12.50)

(8.32)

(13.72)

--

5.48

6.56

The ratios show that Ballard is in the lead with their current ration at 2.30. Meaning, Ballard has
the most liquetiable assets and the most cash on hand. This is important when running a business. You do
not want you business relying on your contract and customer relations. Ballard is able to hold most
control of their finances. Ballard is also way above the Market Median in all ratios. This is due to
Ballards strong business standard and developing programs.

51

52

Business Strategy:
Ballards current business strategy is to expand in the fuel cell industry and become the leading
company in the market. It operates currently in the United States and Canada for the most part. Its
intentions to be a lead company in the market globally would require the company to move
internationally strong. One of the biggest problems that Ballard is facing is the high competition in
the international market with large Chinese companies and German companies that have higher
power.

Strategic Analysis, Planning, and Recommendations:


Ballard has just started working internationally with a new agreement in China Azure Hydrogen

in Beijing to have a telecom backup power systems for the Chinese market with a value of around $6
million (1). This huge step would take Ballard to the next step which will give it the chance to enter
the international market and compete with international companies.
Another development in the international market that Ballard and Van Hool (Belgium Company)
launch a new service to support the European clean energy fuel cell buses (2). This is a big step to
enter the European market and grow larger. With Ballards current rate of growth, it will become the
largest company in the US and the Canadian market in the next 5 to 7 years and to become a leading
company internationally within 10 years.
We recommend Ballard to invest more in the Chinese and European markets and focusing on it
more than expanding within the US and Canadian markets. We see that the Chinese and European
markets have higher potential with their large economies and their large fuel cell industry that is more
developed than the US and Canadian markets.

53

Market size of Fuel Cell industry globally.

The biggest problem Ballard Power Systems is facing is that they are currently not a profitable
company. The costs of production along with the research and development costs are too high for Ballard
to be able to post positive profits. This also means that Ballard is not making enough sales of hydrogen
fuel cells. This effects the company on a daily basis because Ballard is able to stay in business due to
substantial amounts of outside investment. Ballard is becoming a more profitable company but going
bankrupt or being taken over by a rival company is not out of the question.
Framing Our Top Three Alternatives
The following are potential alternatives for Ballard to become a profitable company. Three of
these alternatives will central to the new recommendations proposed to the company.
Possible Alternatives

54

Increase outside investment


Reduce costs
Grow product line
Increase sales
Increase customer knowledge/demand
Improve financial management

Increase sales
The most important alternative is for Ballard to increase its sales. Higher sales numbers means
higher revenues which is better for their bottom line. Governments, businesses and consumers are
becoming more aware of the positive benefits of utilizing hydrogen fuel cells in different applications
such as backup and distributed power generation, material handling, and as motors in busses and cars.
One way to increase sales is to increase the number of differentiated products Ballard offers so they can
drive revenue from as many streams as possible.
Reduce Costs
The reason hydrogen fuel cell companies have not been able to become profitable is because their
costs of production are simply too high. Although Ballard has taken great strides in reducing the costs of
fuel cells through reducing the amount of high cost materials needed such as platinum, further research
and development into how to make fuel cells even smaller and more efficient while at the same time more
powerful will help Ballards bottom line. If Ballard can reduce costs enough they can use it as a
competitive advantage over rival hydrogen fuel cell companies such as Plug Power and Fuel Cell Inc.
Increase Customer Knowledge/Demand
Hydrogen fuel cells are not very well known by the average consumer or business person. Ballard
needs to focus on increasing knowledge of their products to consumers which will result in a growth of
demand. As Ballard continues to reduce costs of hydrogen fuel cells they will become a more viable
option for businesses, especially those who are environmentally conscious. It is becoming very popular in
the business world today to make a move towards going green. Ballard needs to take advantage of this
trend. Businesses and residential customers alike can take advantage of tax breaks offered on hydrogen
fuel cell energy options.

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58