Q3 2021 Plug Power Inc Earnings Call
Greetings and welcome to the plug power incorporated third quarter 2021 earnings call.
During the presentation, all participants will be in a listen only mode. Afterwards, we'll conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday November 9th 2021.
I'd now like to turn the conference over to Teal Hoyos director of marketing and Communications. Please go ahead Sir.
Thank you welcome to the 2021 third quarter update call. This call will include forward looking statements.
Forward looking statements contain projections of our future results of operations or financial condition. Our state other forward looking information.
10 of these forward looking statements to be covered by the safe Harbor provision for forward looking statements contained in section 27 of the Securities Act of $19 33, and section 21 E of the Securities Exchange Act of $19 34.
We believe that it is important to communicate future expectations to investors.
However, investors are cautioned not to unduly rely on forward looking statements and such statements should not be read as a guarantee of future performance or results.
Such statements are subject to risks and uncertainties, it's cause actual results or performance to differ materially from those disclosed as a result of various factors, including but not limited to risks and uncertainties discussed under item <unk> risk factors in our annual report on Form 10-K for the fiscal year ending December.
<unk> 31, 2020 as well as other reports we file from time to time with the SEC.
These forward looking statements speak only as of the day in which the statements are made and we do not intend or undertake to intend to update any forward looking statements. After this call or as a result of new information.
At this point I would like to turn the call over to plug Power's CEO Andy Marsh.
Thank you Teal and welcome everyone to plugs third quarter conference call Bye.
By opening will be brief since details are provided in our investor letter.
How is that top 26, the last week in Glasgow.
And hydrogen was front and center at the event.
It really reiterate plugs belief that our first mover advantage will be definitely a benefit as we advance our business we.
We plan to remain the leader in building out of the global hydrogen economy.
Or aggressive on all fronts and have the vision of building out the hydrogen ecosystem today, let me emphasize the debt and this is one of the reasons. We were building out the first green hydrogen network in the United States, We view green hydrogen as a great accelerator of all fuel cell.
Patients many of which will be provided by plug power.
We don't believe we can do this alone.
We've done this fee of successful acquisitions, such as American fuel cell to provide us with leading edge EMEA technology.
We are doing this for joint ventures with leaders such as SK Renault Fortescue and <unk>.
Also through partnerships with companies such as Airbus and life.
Acquisitions and partnerships have provided us both technology and access to market Youll.
Youll continue to see plug traveled down this path as we aggressively stake our claim and the potential market of 10 trillion dollars.
The acquisition of frames provides plug multiple benefits, let me just name a few.
Phrases used to executing on large projects and his work with plug for a number of years, they provide us with integration capability.
Yes, large scale gigawatt electrolyze your plants.
This matches with their global supply chain reach provides us a unique capability when we matches with plugs, leading edge stack an electrolyzed your technology.
So let me just diverted a second I mean, just yesterday I was in London working on 750 megawatt deal.
Being able to do large scale plants is really really critical.
When the technology front frames brings an expertise in water management, which is critical in the Electrolyze your industry.
We're now in a better position to address waste and ocean water to provide ourselves and our customers a better more cost effective environmentally friendly solution.
We are thinking a great deal about offshore electrolyze yours and between frames water management expertise and offshore platforms expertise. This is real value. Additionally, their ability to manage gases such as drawing hydrogen is a critical capability.
That frames brings to the table.
Also it makes us very European.
Of the pure play hydrogen and fuel cell companies, we will have one of the largest employee footprints in the industry with operations in France, the Netherlands and Germany.
They also provide US 150 employees in India to provide back office engineering support for both our Electrolyze yours and stationary products.
Finally, they have a long term relationships throughout the world with companies that have net zero carbon goals.
We believe this acquisition provides us the strongest technical and operational team in the Electrolyze your industry.
Also like to comment on applied Cryo technology announcement.
It may have been lost in all of the activity around the plug power symposium.
Today liquid hydrogen is the only practical means for story delivering hydrogen to most customers based on the high volumetric density versus gaseous hydrogen.
We believe the future storage and delivery of hydrogen will be a mixture of gases hydrogen delivered by pipeline salt caverns and liquid hydrogen we believe liquid hydrogen will be a necessity and storage for mobility and stationary application.
Even when hydrogen is delivered to a depot via pipelines.
We believe applied Cryo Tech provides us with the following.
Our liquid liquid hydrogen delivery network and fleet liquid hydrogen storage and a real cool one hydrogen mobility, fueling which is particularly important for ports and.
As you know that hydrogen will be exclusive legal at green.
Again apply cryo Tech was a company known by plug when we analyze our need for hydrogen.
Hydrogen travelers for the coming four years and recognize the cash savings associated with this transaction paid for the acquisitions. They also bring us market and technologies. We are also aggressively pursuing increasing the sales for applied crowd tech, especially when some of it with some of our.
Now its partners these acquisitions allow us to increase our guidance.
900 million to $925 million in 2022.
Finally, I'd like to discuss gross margins, especially hydrogen service.
We are the largest user of liquid hydrogen in the world and are building a green hydrogen network that is resilient and is not burdened by fluctuating commodity pricing.
We have taken the bird and Badging the hydrogen network, so our customers always have hydrogen.
Our competition is electricity and for large customers as electricity is always there and with long term contracts pricing is consistent.
With our green hydrogen network across the U S. We can be the same or.
Green hydrogen network, we will eliminate price favorability and simplify logistics in the short term we are taking the burden. So the green hydrogen is viewed as a dependable source of energy.
This activity is our network comes online will become quite profitable for plug power.
And the service business plug has demonstrated over 50 sites that we have the right equation to have a cost effective service offering will now roll these changes out across our network and our shareholder letter. We said, we expect a 30% savings by the end of 2022 and 45% by the end of.
2023 hours a service business, we also see even more advances with our next generation product.
So now let me turn the phone over to questions I have three members of our team with me today.
Paul Middleton our CFO.
Sanjay <unk>.
As the GM of our hydrogen energy business as well as Jose Crespo GM of our material handling business, we're now ready to take your questions.
Great. Thank you.
So everyone if you'd like to register a question. Please press the one followed by the four on your telephone you'll hear at retail and prompt acknowledging your request.
If your question has been answered and you'd like to withdraw your registration. Please press. The one followed by the three but once again for any questions. Please press one for one or telephone.
Our first question comes from the line of Colin Rusch with Oppenheimer. Please go ahead.
Thanks, so much guys.
So you're talking about.
How are you doing.
Okay.
Just so I understand you're talking about developing electrolyse our assets offshore.
And piping hydrogen.
Back on land did I hear that right or did I misunderstand that.
That is.
Yes, let me be clear Collyn.
They bring that capability to the table.
Don't see that as critical for the next three to four years.
We will have demonstration projects.
In the coming years.
The small scale of doing that.
I see a couple of advantages to that so the advantages of moving hydrogen versus electricity.
For the same price in a pipe you can deliver 15 times more energy.
Just makes a lot of sense, if you can do it in the ocean.
And if you look at the build out for example in long island, it's a large opportunity.
Frame, so let me be clear call it.
In the next three to four years.
We have plants that we're working on customers with which are more than a gigawatt in size, they're used to executing on large projects.
They've been working with us and have been developing over it had been working with us on the system.
With over 30%, 35% of our system integration I thought it was time to make them part of the plug team.
They you know they additionally, when you look at some of these large bids and proposals just to give you a feel one bid and proposal was over 750 pages long.
It's really detail and the capability in India really adds to the equation. So that we can respond to customers' rapidly.
The level of activity in that collector lives yours can't be understated.
You see a lot of activity going on.
With Green ammonia.
With message method is Asia.
With Green hydrogen of course of course.
And quite honestly.
Yeah.
<unk> been beginning to think about we have a grand opening of the Giga factory on Friday.
I've actually began thinking about I need to expand really quick because the opportunity set is so large.
That's super helpful. Andy.
And then I guess, maybe just the second question is for Sanjay, it's really about preparation of the supply chain to support the build out local electrolyzed your capacity with all the consumables not just the capex here, but just all the different elements that go into the whole process in preparation of those hooks to two.
You know kind of March lockstep with you guys in the scale up.
Yes, so I got them Collyn how are you.
Good to hear from Sunday Indeed.
So look I think this is something we spend a lot of time thinking about right and not just that.
If anything is one of the key competitive advantage and the differentiation that we have because we're the company that actually is controlling how where and how do you do the electrolyze our stack how do you take the cost down how do you think about the balance of plan trade and that's one aspect of it which I think really makes us very unique puts us in a very very strong position.
To be able to really execute on all of this green hydrogen generation plant that we're building and the second thing right as Andy talked about all the bids and activity that's happening in the Electrolyze. Our space also puts us in a position where we are our own customer becomes a huge reference for the third party customers as well and obviously look from a supply chain perspective, we have.
Giga factory, you will be adding a lot of resources a lot of talent to make sure that we have all the components that we need and we have a detailed timeline Colin right. When we think about exactly when the electrolyze it needs to show up for example in our plant in Georgia for example for our plant in New York and we have actually map that out we know exactly when the manufacturing is going to happen in our giga.
Factory when do we get the electrical I just starting out at the site when do we get the local fire in the cold box showing up at the site. So we obviously theres a lot of planning of the detailed work that has gone on that gives us the level of confidence when we talk about for example, Georgia. The plant is being up and running in the summer of next year, which by the way, it's almost like 12 months in less than 12 months since.
We broke the ground rate so we feel pretty good about what we're doing how we're managing the supply chain being able to control it ourselves really puts us in a position to be able to execute on this strategy anything you want that Ed I think you hit it Sanjay.
Thanks, guys.
Okay.
Alright. Thank you. Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please go ahead.
Gregg.
Hey, Andy Hey, everybody.
Andy I should say congratulations.
You know I've known known you and Sanjay and George Mcnamee Chairman.
Chairman for 20 years.
And Hum.
Or more than 20 years.
And I would say this last year.
There's been more progress and more changes and plug in the prior two decades and.
And that is tremendous.
I have a confession right my head is spinning right.
The power of this company Forever I know a lot of your partners a lot of the key people in the supply chain.
And when I talk to investors, there's a lot of different directions. They are looking and there you know people people are sometimes just literally confused.
So.
With that context, when I step back I see green hydrogen as the most important strategic initiative at plug power right now.
That's what allows the carbon footprint that everybody wants to achieve by adopting fuel cell technology.
And with that fundamental baseline.
I look at the shareholder letter.
And the fact that youre looking at margins improving by five percentage points for hydrogen in the first quarter.
So as much as 20% exiting the fourth quarter.
There's clearly something seismic going on right something really fundamental can.
Can you maybe bridge the gross margin improvement for us as far as whats going on with this hydrogen strategy, what's really working and how the benefit rolls on over the next four quarters.
Craig Craig I am going to let Sanjay answer that but let me just add that I agree with you I kind of view green hydrogen.
As kind of the I phone that enables all of these apps for fuel cells as well as for chemical processes to allow people to turn green.
Sorry, Jay why don't you talk about the gross margin.
Growth sure happy to do that MTN, Hey, Craig good to hear from you. So look I think you picked on something really interesting here right, So and as Andy mentioned during his prepared remarks, what has been our big focus in 2021, even though we're paying more for the hydrogen we're trying to make sure that none of our customer ever run into any channel.
From the availability of hydrogen to run their mission critical applications and that is by far the most important thing for us and our primary focus but as you go into 2022 and when you go from Q4 to Q1 right first thing we will actually have our Tennessee plant that is now instead of being six four tons, it's going to be a 10 tons right. So that.
Expansion has happened that will contribute to a reduction in the cost number one from a blended cost perspective second thing that will happen as you go into the second quarter of 2022. We also have some additional supply from other industrial gas customer that we're able to secure that is also willing to reduce the blended cost of hydrogen as well when you go into the <unk>.
Quarter, but more importantly, what really happens Craig as you talked about that seismic shift is in the second half of 2022 as some of our green hydrogen plants come online in the summer of that here towards the end of that year, that's really what dramatically drives the cost of that blended hydrogen when you go into the second half of the year.
And that's the reason why not just 2022, we talked about what happens in 2023 rate. This fuel business goes from being a negative margin business to starting to approach breakeven and as you start to think about 2024 now you are talking about 30% kind of gross margin numbers right that is all driven by what we.
We expect the cost of our green hydrogen production is going to be which have shared with you all and you've actually also seen it in the shareholder letter that numbers are below $4 per kilogram and you all know you're all getting back into what the ESP as to our end customers and that's why we feel quite good about look 2021 has been tough margins will improve in 2000.
22, especially as you look at the second half of the year, it's going to continue to improve as you go into 'twenty, three and dramatically even improves as you go into 2024 as we build this first of a kind force majeure resilient green hydrogen generation network in North America, and Craig I think one of the things Thats really important to note here right is when we build a.
Green hydrogen generation network of course helps our margin right. It of course helps from a sustainability perspective. It is a must as you highlighted in the energy transition right, but what this also does as this helps the entire hydrogen economy. This actually creates a situation where our customer gets more comfortable but even other hydrogen.
<unk> in this industry will also get that resilient supply that allows them to even mitigate and manage through some of the force majeure that they have seen in the past right. So that's how we see it unfolding so couldn't agree more with you with your assessment here.
Thank you for that Sanjay and Andy.
My next question is is obviously the big one is guidance right you are clearly seeing acceleration across the board.
Funding initiatives.
They are being incredibly well received by your customer base, where you're adding new verticals almost every month.
You know aviation is going to be really exciting to watch.
What can I say.
What can you say is surprising you the most or is it.
It has made them much faster progress than you would have maybe at this time last year.
Craig I think without a doubt it's C electrolyze your business.
Aye.
And I say this in a good way.
I am.
And soon by meetings with chairman and Chief Executive officers I'll give you example.
I was in Scotland on Friday, and a chairman of a.
Company.
Ammonia space.
Asked me to come and stay in London for the weekend to discuss huge opportunities.
And that.
Happen.
At that meeting I ended up leaving London last night around nine o'clock or six o'clock.
That's really common place I had.
Another worldwide large utility.
Leadership.
Grabbed me on the phone today. This morning, I wanted to talk for an hour.
Is constant where the inflow for Electrolyze, there's never stops.
And it's why we made the frames acquisition.
It's also.
You know I think one of the real advantages for <unk>.
We're gonna be the few people, we're going to be the person with capacity. They can actually build electrolyze your plant and I think folks are recognizing in the company I was with Monday highlight the fact that they.
<unk> been looking at this space for two years and they've concluded we had the best technology, the best products and the best manufacturing capabilities. When it came to pen technologies and really we're the only ones.
Who could execute and help them meet their needs and help them meet their net zero goals.
I didn't expect that a year ago.
I think somewhere.
In 2023, Electrolyze yours will be bigger than material handling.
And I think some time in 2020 for green hydrogen will be bigger than material handling.
Love It.
I'll hop back.
Okay.
Alright. Thank you very much. Our next question comes from the line of P. J <unk> with Citi. Please go ahead.
Yeah.
Yeah, Good morning, Andy and Sanjay.
Good morning.
Long day or good evening.
Or are you I'm based in New York Here I've got you good evening.
Clearly your margins and business has been hurt in hydrogen with purchase hydrogen costs going up.
Started going up in second quarter, and you know what was the impact in third quarter.
And then we can look at your gross margins going up 30% in fuels by 'twenty 'twenty four.
What are the main risks in doing that number in your mind is it good I'll, let I'll have your prices electrolyze. It costs transportation costs can you just walk us through that.
I'll, let Jay talk about that P. J, yes, Hey, P. J how are you good to hear from you.
Again look I think P. J, you, obviously know the.
Industrial gas market quite well right. So and you know what kind of pricing youre seeing into spy kit right. So if anything.
If we were to just extrapolate and say that green hydrogen pricing should be very similar to what the gray hydrogen pricing in the market is right now based on what you see we're paying for it today, if anything I think that 30% margin ends up being conservative, but our goal here is to really make sure that we're providing our customer with green hydrogen at prices that are arguably.
Better than what we have to pay for great hydrogen in the market today. Our goal as you know is to grow the size of this pie not trying to go after existing pie and take a small piece of the pie right. We want to make sure green hydrogen as economic call. It big hitters, so that theres more and more applications that becomes available now more specifically to your question on what are the risks there.
There's always things that can happen that is not anticipated, but as you know from a renewable pricing perspective, we buy renewable prices on a long term basis right. That's something we can control. We know what that is there were some areas, where we got to manage the demand charges and things like that but we know how to do that we know how to contain the cost of renewable electricity and that's an area, where we've spent a true.
This amount of time.
Electrolyze. It look this is something we control right that again is a huge differentiation and competitive advantage, we as plug power apps and another thing as you'll notice from our liquefaction perspective, I just touched on how we've already expanded our facility in Tennessee to 10 tons. A day, we know how to run the coal fires now one another thing that we're doing that I think is going on.
Be tremendously helpful. If anything going to help both the logistics cost as well as the delivery network for us and for the entire industry is once this north American network is built out if anything you can actually optimize how do you fast forward hydrogen to various end customers right. There are always things that can happen that are unanticipated, but look as we sit.
Here right now given that renewable cost is the biggest chunk of the variable cost in terms of producing green hydrogen we control the electrolyze it or so we're sitting here feeling pretty good about our heads down execute and get this plan is built.
Great sounds good thank.
Thank you.
And my second question is on the Giga factory.
If that ramps up.
You have the order book in front of you with Electrolyzed as needed for your own hydrogen plants.
Fueled still stacking capability needed for our materials handling business, so as the Giga factory ramps up.
Know that operating leverage should translate into significant incremental margins I was just wondering if you can just you know.
Has that been taken into account in your guidance and when does the real inflection point come.
I'll, let Paul take that P. J.
Yeah, and good afternoon, Hey, Jay good to hear from me again.
So it's going to have a significant effect next year.
And then.
On all of these margin initiatives, they're going to have meaningful impact.
Those are all baked into our guidance and why we're extremely excited about that the projections and how we're going to get to that 30% run rate and meet midterm strategic planning horizon.
Great. Thank you and I will pass along.
Great. Thanks PJ.
Our next question comes from the line of Eric Stein with Craig Hallum. Please go ahead.
Hi, everyone.
Good evening Eric.
Good evening, so just cause we think about the 2022 guidance I mean, obviously.
Characterize your business is accelerating.
Serious if you're able to break down maybe the impact of the frames acquisition how much of it is just you know ongoing acceleration in your business and then you know as we think about frames, how do you kind of prioritize that internal initiatives versus going after what it was.
Is arguably a very sizeable market opportunity.
Sure. So if you look at it.
The turtle business.
Organic growth is 500 825 next year, Craig we're looking at frames and apply crowd tech to move it up into the 925 range. You know that's kind of how I think about it.
What was the second part of the question I'm, sorry, Craig I was just jotting what was that.
Well, we say the second part of your question Craig.
Yeah. So it was simply.
Just prioritizing obviously, you're acquiring this because of what it means for your internal business, but you've also gas pipeline I mean.
Prioritize those too.
Well.
It's actually why you know what are the biggest challenges is you know for companies that are growing as employees.
And.
Having the right staff.
And the right number of people you know by year end, we'll have 2500 people.
Pre Covid I was under 700. So you know I've had this massive increase and look we've been hiring skilled individuals we've been acquiring.
Companies to help us really ramp and reach the needs when we look at prioritization Sanjay has.
Ah self his whole organization.
You know I was reviewing over the weekend with the team the lay out of the play at New York that was developed by his team exclusively he has the skill sets integrated into his business unit and this was a key decision we made as an organization that we're gonna make these business units.
Three very self sufficient and Sanjay has the team and really Sanjay I don't think need additional resources to execute on our president plant.
Oldies team and Electrolyzers, you know frames will primarily support that activity you know obviously will help when we can with Sanjay, but that's really how do we really have these business units Cid Jose.
Material handling business or Keith new markets business.
We tried to keep them as self sufficient as possible you know obviously areas like there are certain areas of platform development for technology, which is centralized finance illegal government affairs, but that's really how we go about managing the business you.
You know these G. M's, we put in place quite honestly all of them are very very strong and you know can you know our goal is that they will be the drivers to make sure these businesses or successful.
Or would you like to add to that.
That sounds and then yeah.
Okay and maybe this last one for me just on the stack upgrades I know you mentioned that you're going to.
Do those at at the <unk>.
10 largest users you know just just thoughts on on what the cost of that May be and then you know.
Try to visit something that we should view is it's kind of an ongoing initiative and and to do that more broadly across your customer footprint.
Sure I'm Gonna, let Paul take that one I didn't get the context of look what we're talking about Paul The survey, we talk to the service costs associated with the upgraded it yeah products, sorry, I missed the [noise].
Yeah I think.
Launched a new stack system would last last year, we've seen how that's performed and the new units that we've launched since that time.
Put a number of new units into the field is tracking incredibly well, it's actually tracking better than what we anticipated.
So as we continue to roll that back into our existing.
<unk>, which we can fairly easily retrofit.
It has a a meaningful step function chains and stacked life, which is one of it's obviously the biggest cost and impact our our service costs. So we're we're really and along the way. This year, we've actually added a number of new resources and then people to help focus go forward reliability and improve.
Move that curve, even faster and that's paying dividends and what we're doing so I think you're going to see those benefits rollout fairly quickly.
And Paul we have a lot of that cost already crude for yeah, exactly we we haven't baked into our our cost of growth of the incremental the overall portfolio.
Of what it takes to get there.
Okay. Thanks.
Okay.
Okay. Thank you as a reminder, everyone. If you do wish to queue up for a question. Please press one four on your telephone.
Our next question comes from the line of James West with Evercore ISI. Please go ahead.
Hi, Dave.
Andy how are you doing okay.
And do you you've been a busy man [laughter], but I'm glad you have some J and the rest of your time and for them to to help you out if that's really something.
[laughter] Yeah, you know James I was up 25 hours straight that's not meant for they've been for young people, but I'm still energized [laughter] I'm not 25 hours now [laughter]. Good good good glad to hear it maybe a question probably probably for Paul as we as we think about that.
45 guidance and any do you just want some some of this the moving towards where do you think you would like to laws, which gets better bigger the materials handling and green hydrogen eventually gets bigger as well what should the revenue mix of that 3 billion or so look like when we get to 25, how old are you guys thinking about that.
Yeah, I don't have the exact number in front of me, but in terms of the $3 billion I think as Andy said.
Electrolyzers or as big if not slightly bigger than material aly.
And so those.
That coupled with the green hydrogen or the big the big three chunks of the revenue certainly see and growth and the new markets on stationary and E b as well.
The majority of the revenue will come from those three pillars.
Okay. Okay that that that's you know James no one's asked me this on the phone so I'm going to [laughter].
Yeah, I was talking about new markets.
You know one of our goals with Renault is that we do go out of 10 essentially.
10 customers with Rollouts next week year to demonstrate technology, they won't be big rollout, we already have seven customers like.
So I think you may have seen me driving the van at the plug power. Some poll writing them, but we've you know that that to me. So if if.
Craig asked a question earlier, what surprised me I think.
From last year I think next year. This time I'll be talking about what we're doing with that Renault J V.
Right. Okay. Good good and then maybe just the last one if I could sneak it into here the green hydrogen sales that you're anticipating as these facilities come on line do you believe that you have pre sold most of your capacity.
I'm glad that Mr. Sanjay take that yes.
Yeah, Hey, James it's good to hear from you. So look I mean today, we have not done your traditional way of how I think the industries down right you Presold a plan when you decide to build it right. So as we sit here right now is a plan completely sold out no. It's not right, but frankly, that's somewhat intentional on our park right now.
Because of all the new applications, all the new opportunity that we see unfolding here. So we want to make sure that we're actually really reserving that capacity right, which is also why we've gone down the path of essentially.
Making sure that you know.
Making sure that we're actually building this plans with our own capital so that way you're not having to go down the path of project financing and having to have that long term off taken things like that right. So so again, but this is something we will obviously shift focus on make sure that the plan to load it up as they come online right, but today. That's the approach we're taking to make sure that we have that reserve.
About to do to support all the new apps that we anticipate unfolding over the next several years.
Okay got it thanks guys.
Thanks James.
[noise] alright. Thank you. Our next question comes from the line of Greg Lewis with B T. I G. Please go ahead.
Yes, Thank you and good afternoon everybody.
Hi, Greg.
Yeah, I was hoping to dive in a little bit more in to how we should think about that.
The buckets of what's driving the margin improvement in terms of you know as we think about maybe it's pricing maybe it's an improvement in the supply chain, maybe it's economies of scale I mean, you touched on the France frames and the a C. T acquisition, maybe some of that's internal savings and any kind of.
You know broader strokes, we can think about an hour achieving that 2022 in 2023 improvement.
Yeah I think.
We've been.
Well, we left side, you do hydrogen or you can answer the red and.
And maybe you can.
Run through hydrogen first Oh sure happy happy to do that anti right. So Greg again, I think up as I briefly mentioned to one of our Craig's question on hydrogen right. So today were obviously.
Buying hydrogen other than our plant in Tennessee, right. So we're paying what we're paying that's the market price, obviously impacted by various commodity place price fluctuation and things along those lines right with the goal that make sure our customers have hydrogen available all the time. So their mission critical work an application is not impacted and as we.
Look into 2022, we see a couple of things that are going to have a meaningful impact of this margin profile forced the Tennessee plant is no longer $6 for it'll be 10 tons of day they'll have an effect in the first half of the year. We're obviously working with our strategic suppliers and adding a few more supply options that is going to help us from a pricing perspective and the <unk>.
Washed half of the year when you go to the second half of 2022 at some of these green hydrogen plans come online that will obviously helped quite a bit from the blended price perspective, and that's why we said you should expect to see that meaningful margin improvement from queue for us. This year to Q4 of 2022 as you then go into 2020.
Three were by the end of 2022, we plan to have the last four of this hydrogen plans basic.
Basically being commissioned right. So by the end of 2023, we're looking at having about six hydrogen plants up and running so when you look at twenty-three with all of that contribution of new plans being built in the second half of 2022, you are looking at a breakeven margin performance, then you shift into 2024 and beyond where or target.
Adding and we're looking at which have shared with you all multiple times that we expect clean hydrogen cost to be below $4. A kilogramme you guys getting back into what our Esp's. Today, obviously, that's a function of various different and markets plus and minus depending on which application. It is but it gives us a very good confidence in the visibility based on where we see the costs going to talk about.
30% margin that we referred to especially in 2024 four out of hydrogen business.
[noise], Yeah, and then in the letter we included the chart there that shows.
Sandy point, we're reducing it by 50% I mean, that's fundamentally step change function and I would just add decided comment that not only are we going to be able to produce it and sell it to our customers in a cheaper cost.
Is that is sanjay alluded to earlier getting gaining greater control over the logistics and.
The network is incredibly impactful on the efficiencies of the systems, we have become the world expert on distributing hydrogen and managing the networks for our customers and so one of the inquiry incredible things that we've learned as an importance of managing that.
Logistics network and how that can be impactful to the efficiency that the system. So.
Just to step back to answer your question. It really stems from kind of three things really one is hydrogen which is andre talked about.
Second his service, which we've talked about Tonight in terms of a lot of things, we're doing and we expanded on a letter in improving that profile and the third is scaling the equipment programs. We've already shown routinely margins on our equipment profile at 30% to 35% as we scale further material handling as well.
<unk> scale these new products like Electrolyzers amount, a tenfold increase next year in volume and that business is substantial and and a scale where it is.
We start leveraging the Gigafactory another thing that we're doing it's gonna allow us to achieve.
Margin profile on on all the equipment programs that we have and is that holistic business grows and we're talking about total growth next year of 85% that's very meaningful in terms of the mix and the margin impact for equipment. So it's really those three fundamental things and the acquisitions and and the J V. As in all of those things help on a global.
Basis grow the scale equipment sales.
Which allow us to drive that curve even faster.
Okay that was super helpful. Thank you for that and then just I wanted to talk a little bit more about AC K and and thinking about you know I mean, hey, this was a good it's a good company good technology may be a little bit undersized prior to the acquisition, but but I guess now that.
Inside the the plug umbrella what what are the what what's the kind of the thought process and Andy you mentioned that it's the hard one of the harder issues is is getting you know the right people in place to do this but as we think about the opportunity for a C. K in 22 and 23.
As you look at how plug is gonna grow I mean, you guys are growing like a weed is Amy C T in and of itself where it needs to be to meet your growth or should we be thinking about things like hydrogen trailers and everything else that acte does we're going to cap to continue to rely on third party.
Buyers as well.
Greg I expect to buy most semi trailers from H T T P.
Fly crowd technologies.
I also expect that we will go hydrogen trailers.
Are much more complicated than stationary hydrogen tanks.
This year I, probably purchase 65 stationary hydrogen tanks.
I see this as a huge margin opportunity for plug power as well as a potential sales opportunity.
And with their technology.
We're going to be able to move in two even further vertically integrate that business.
We we look at what we have down there.
We're working one shift at the moment, there's no reason, we can't expand the number of ships and expanded capability.
We have the land.
We I've already been staring and I'm looking to see where we could add additional capability on the site.
We we've had a lot of outreach.
From some of our some of their customers already know that plug with our stronger balance sheet and the ability to support the effort.
The business is much more interesting so.
We're.
We view that as a very.
Very complimentary tour vertical integration strategy, but also see that.
We could double or triple the size of that business in the coming years.
Okay, great. Thank you all very much for the time.
Okay. Thanks, Greg.
Thank you. Our next question comes from the Bill Peterson with J P. Morgan. Please go ahead.
Hi, good afternoon, Hi.
Hi, bill or any of the team.
[noise] football's, while there it sounds like you might be jet lagged I hope you feel better soon how well.
Feel good Bill just talking to you guys get me Goin'.
[laughter], Okay, well certainly sounds exciting excited about the electrolyze or business, you know talking about how it could be even larger than.
Current businesses I'm actually wondering about 2022. The recent symposium you mentioned 100 megawatts, an external sales and 300 megawatts for your internal use and cannot be more upside to this or is this capacity limited I guess are you fully booked through 22 Ah you're starting to get close to him of 2023 now.
I believe that we will.
Below out the 2022 Electrolyze your numbers that I suggested at the symposium.
We are not over both because we we we felt a big factory.
And.
You know.
I.
Knowing the deal flow and the activities we have going on.
I could see us.
During our update call in January for 2022.
I think there's a high probability will be increasing that number.
Oh, that's that's terrific thinks that update when I want to talk about a V. E. D. Go there we didn't spend too much time on this.
You know I guess, if you're you know.
<unk> with Renault you have.
Obviously, some light commercial duty this is Mary and it seems well suited for Babs, sorry, I guess I'm kind of curious of what you see is advantages for for this fuel cell and maybe switch into more heavy medium or heavy duty I believe a few quarters ago, you had talked about your being a negotiations for maybe some partnerships and heavy duty.
I Wonder where that stands I think <unk> you expect to maybe make some announcements, but you still on tracking would you take a kind of a modem approach here or would you just do direct sales I'm curious what your activities are more in the medium and heavy duty side.
So there are some real good negotiations going on bill.
Let me say that I'm not.
Eager to be at OEM parts supplier.
Order mentally that is a low margin business.
We're looking for.
And we're engaged in discussions to have relationships that look very similar to the Renault model, where plug jointly owns the vehicle.
Uhm I probably.
I agree with you that the.
Obviously heavy duty immediate medium duty vehicles or.
Very interesting but.
When you look at work that's been done by people like D. H L and you look at the European goals for delivery bands.
D. A jail always points out if you go over 200 kilometers, which is often needed at funerals.
Fuel cell vehicles, they're essentially carrying batteries around instead of packaging.
I also think that fuel cell vehicles and I think this is understated.
Gives operators a great deal more flexibility to keep vehicles on the road and to use vehicles for multiple purposes.
Now as I say kind of in this call that.
If this year Electrolyzers surprise me I think next year I'll be talking a lot about vehicles.
Okay, great. Thanks, Matt.
Alright. Thank you. Our next question comes from the line of Judd or Shimer with Canaccord Genuity. Please go ahead.
Hey, Jed.
Are you there dead.
Did you make a museum or something.
Yeah, I'm I'm muted sorry, guys, Andy Hope you get some rest it sounds like it sounds like an incredible a couple of days. So look forward to hearing about it I guess.
What's that.
Yeah, I I look forward to talking to you and Jed.
[laughter].
I guess the first question.
And I I just have a couple here, but with the updated guidance.
And.
Maybe Paul gave this already are you gave the sandy.
What's the breakdown of of revenues.
In terms of material handling in the near term here. So of the 900 to 925, what what would that be.
In terms of the the different and markets.
You wanted to take a poll.
Yeah, I don't think we've given that out specifically, but I was again, he just kind of a said.
825 is our core businesses and move into the 925 is with with the acquisition.
So I mean, I think what we have given has been.
Number I think we quoted a electrolyzer next year being around on Dizzy.
I think looking at material ailing kind of growing at 30% plus range next year.
Higher.
That's the guidance and insight that we've kind of given so far so it'd be about material handling about 600.
150 from Electrolyze hers, and I've already probably said.
Could be more new markets 75 acquisitions 100.
Think that gets us there Paul.
That's about right.
That's that's helpful guys and then I just over on that I was wondering if you could help me a little bit just on the math because it sounds like there's there's a variable that I'm missing in terms of maybe.
You know a big step function on the costs down on the electrolyze or or.
Or the efficiency, but if I look at getting a kilo of green hydrogen.
It's about 65.
Kilowatt hours of electricity get back kilo in liquefied.
Form so is that a fairly constant number two to use or do you see that dramatically changing.
I guess, that's my first question. The second is then if we apply sort of a five cent cost of behind the meat or electricity.
I still struggle to get to another 450 of of cost.
So jed.
Not pain uhm pain below 3.1 cents pretty much everywhere.
Okay.
And an almost approaching two and a half sets of places.
I think your analysis K right here, you can say kind of think about the Electrolyzers is 52 kilowatt hours you can probably think of.
11 to 12 kilowatt hours for the Liquefier today.
Thank you probably can start thinking about liquefier is getting down in D. Eight eight and a half kilowatt hour range and probably Electrolyzers you probably can see.
Seven 8% of prove it over the coming to two years or so.
Got it that's helpful.
Bye bye, thank I think the jet.
You hit it on the head.
It's the cost of how you negotiate the cost of electricity is the key to providing low cost screen hydrogen.
And you know and you should notice Rj's Sanjay is really an expert at that.
Well Sanjay as a master negotiator I guess.
I guess I.
Yours.
I I guess the question on that that low a level of electricity pricing, particularly from renewables.
Is have you figured out is that really a mechanism of curtailment that you're taking into.
Into account to get those prices or is there anything you might be able to to add other than Sanjay is negotiating skills [laughter] I'll, let sanjay.
Yeah, it's not the curtailed power right, but you do bring up a really interesting point that and as you know today to be able to really access Skype hotel electricity given whether it's ITC are PTC. There's a lot more negotiation that has to go on right. So I think it becomes more challenging from that perspective of going forward that would be an interesting area.
Where you put in fact see even a benefit from a cost of renewable electricity, but today visa new flattens right and you've lived this jet in the past and I will also still now right. Every time you have seen the new generation of whether it's solar or wind or new capacity is being billed eliseo has gone down right because driven by the capex given by the cost of capital.
I log on I think and is giving you some sense of what the numbers are I don't want to go too much more detail than that [noise], alright, I think we do want to preserve some of that from a competitive standpoint, but these are the numbers and that's why I believe we have said what we said about what do we think is going to be the cost of Halloween hydrogen.
Got it well listen that's super helpful. I'll jump back in the queue. Thanks, guys.
God.
No. We're in our next question comes from the line of Tom Curren with support research. Please go ahead [laughter].
And yet I'm still picturing you in a conference room, and soul and an almost say good morning.
[laughter].
[laughter] returning to the North American Green hydrogen generation.
Build out.
So you're you're expecting to exit 20, twenty-two with with four plants.
Collectively will be producing 70 tons per day.
And then he.
He turned to 2023, you expect to exit there.
With six rep.
Representing 200 tons per day.
At this point just for the exit points of 2022, 2023, sorry could you share with us.
The the the percentage of that output that you expect to be.
Looking for third party offtake in other words, you already had the visibility.
Whether it's a percentage or to arrange for how much of that 70 times per day.
You'll be looking to contract.
By the end of 22, and then you know how much of the incremental 130 by the end of 2023.
Yeah.
So that's a that's a really good question. So let's take them fast on 2022 and look as you know right. We are obviously the largest user of liquid hydrogen in North America, and we have many new applications right that we're seeing a lot of traction on that is going to create and some of those numbers you guys might not.
Necessarily put together if she would for that incremental demand that materializes, but the typical ruler Tom right. The way we want to think about it as this plans come online we want to make sure that the 80% or so of that capacity is called far right. We want to make sure that there is about 20% buffer why is that important right, maybe even 25% buffer given what we've seen here so far.
Right because there's always an event that happens in the industry, we want to make sure that we have that excess capacity to be able to support our customer and frankly, the entire hydrogen industry right. So that will be talking to you guys. A lot more as we go into the second half of next year. How we have loaded this plants for that are coming on line and we'll talk to you a lot.
More about it and again in 2023, well one thing that I think it's really important to keep in mind right. When you think about material handling industry. It's one kg per day of consumption. Great. Then you go to light commercial vehicles at six kilograms, you go to a stationary power and if it's 24 seven it's more than a ton per day right. So the multiplier effect that you see for.
This hydrogen demand given all the application that we're working on is pretty substantial so frankly as we sit here right now we're not super concerned about is loading the plants, we want to make sure that we're balancing how we load. This plan. So there is some buffer to be able to mitigate and deal with any type of situation or curtail demand or force madura nothing industry.
<unk> face so that we can really support the entire hydrogen economy, our customer and frankly, even some of the other players in this market.
Great. That's that's helpful and then turning to new markets and one of the new markets that hasn't gotten much loved yet thus far nicol.
An hour.
Data centre back up power.
Andy you mentioned that you're expecting 2022 to be the inflection year for fuel cell mobility in in particular, there were no JV.
What year does it looked like it could be the inflection year for stationary power [laughter]. Good question I think actually I haven't thought about that way, but that you've given me a new model to talk about I think it's <unk> I do think it's 2023 between what we're doing with SK, while we're doing with data centers that.
<unk>, Keith and his team were doing to get products out the door now I think.
2020, I think next year is a big testing year I think 2023 is.
Where this starts taking off.
Thanks for taking my questions.
Thanks.
Our next question comes from the line of pure Salmond with Piper Sandler. Please go ahead.
Yeah, good afternoon, and thanks for taking my questions Yeah your patient peers.
Yeah, The hall [laughter], well I'll try to be quick I guess my first question just fallen upon all the questions on hydro hydrogen is probably more of a housekeeping question. So with the customers and hydrogen delivery do you simply pass along your hydrogen cost to the customers are.
Do you have to wear the hydrogen price real screws at the customers.
So peirce.
With our new network, when we control everything.
That issue goes away at the moment is Sanjay talked about.
We're we're buffering some of this because we want the hydrogen economy be successful.
That's what we're doing and look let me tell you the difference between the network plugs running.
In the network that you may see in California that the Lord what are the large industrial gas companies provided.
We actually make sure hydrogens at the site every day on time to keep operations going.
And in the end, we strongly believe our approach of.
Having chair and then being able to substitute without green hydrogen and.
I can tell you. The fact that we're dependable reliable and have provided stable pricing is going to be a great incentive in the future and I can tell you in some discussions to display some of the incumbent.
[noise]. Thank sandy I appreciate the answer it and that's it for me.
Okay. Thank you <unk>.
Alright. Thank you. Our next question comes from the line of Joseph spec with RBC capital markets. Please go ahead.
[noise] Hello Joseph.
Hey, Andy Uhm so.
<unk> I know you guys are are are building this business to to be profitable until it can sort of stand on its own but going back to sort of the the green hydrogen and bringing a molecule costs down by 20% by the end of next year like I I want to confirm that that doesn't include you know any any PTC then.
If we were to consider that what would the costs go down to and do you have like an internal sensitivity is what that could do to demand and profitability.
Absolutely you Wanna take that Sanjay sure happy to do that and to head joke to hear from you as well.
Look I think of course first part of your question no. We have not baked baked the PTC into that right and and look obviously I think it's a very important policy not just for the us but also for the entire hydrogen economy and as a part of the energy transition fr trade hydrogen has to be a part of that mix. It green hydrogen has to be a part of that mix, but as we have told you.
That we gave you a number of 30% gross margin right and that is based on what the <unk> in the market today and what we expect the cost of higher green hydrogen could be by 2024 timeframe and if you were to have $2 or $3 a production tax credit depending on the structure of is it PTC is a cash grant he could certainly see substantial.
Cash generation potential out of that right what look things like this are super critical do this exactly what got the wind energy and <unk> to where it is right now investment tax credit and solar got the solar industry to be where it is right now so we see a similar benefit for the green hydrogen as well from PTC, but to your question for 2022 that margin expansion doesn't.
I'll take that into consideration.
Okay, but if it if we did it sounds like you're you're 24 25 targets can be maybe pulled forward by a couple of years.
I think I'll, probably be a fair characterization, yes.
Okay and then the second question is is you know there's has has just been pointed out numerous times a lot going on here and plug.
Plug itself is doing a lot of organic investment and a bunch of J V. As a bunch of partnerships a bunch of them and I.
I think it's sometimes it gets a little bit hard to the judge the efficiency of maybe how you choose to spend your capital I think and your comments earlier that it doesn't make sense for you to be.
Go you make make make some sense, but if you could just said a little bit more light on like how you approach a given situation within the hydrogen economy is to sort of whether you do that organically via adventure or via an acquisition.
I think that's.
So you know I think when you think about.
How we think about Sanchez.
I think a lot about.
Sales channels.
And.
If you think about the.
There were no J V.
It provided us.
So in theory I could have gone into the vehicle business.
Renault has two distinct advantages.
That.
We could not develop.
For the next three to four years and even longer one.
One is.
Electric vehicle capability.
The other is there long customer reach and reputation in your.
They provide is instantaneous credibility.
We have the same.
What we bring to the table obviously there is.
We actually know how hydrogen eco systems work.
And so.
I wasn't going to walk into your and be European Tomorrow I.
I wasn't going to walk into correct Korea Korean tomorrow.
Well, let's talk about S K y.
Why would we do with S K.
Not only is it a partnership it's a market.
They have the hydrogen.
They have.
The policy in Korea to allow us to put stationery products that scale.
We could not do that alone.
What I think about the acquisitions, we make have made.
Many of them have been.
Technology oriented to fill in the hydrogen ecosystem.
If you take a <unk> think about everyone we've done.
Ones that many in the audience may not remember here.
Alex which allows us to get into material Android Hey.
See which got us in the membrane to business energy or which is the aviation platform business that we have.
What we've done with frames as Roy strengthen our.
Electrolyze or technology kiener abroad, Electrolyze yours to stack to the equation. So if I'd kind of look at you know.
I would say that the partnerships adventures are probably more sales channel oriented while the acquisitions are more technology oriented so that we can serve.
Every element of hydrogen ecosystem.
Hope that was helpful. Joseph.
Yeah. Thanks, I appreciate that color.
On that note.
I think we're done here as far as questions go I appreciate everyone's patients who the called into this cough.
Look.
We're building something really special here.
We are the company you know I was a cop and I I've been involved I was invited to meetings, which I've never would've been invited in the past sitting there with John Kerry side by side talking about the hydrogen ecosystem.
Plugged invited to these meetings because <unk>.
Not only are we talking about it.
You can see we're doing it.
And we are the company that if you want to build it electrolyze our system at scale.
No one else that has the manufacturing capability to do that.
If you want a full range of fuel cell solutions from stay shirt on row vehicles.
Plug actually makes systems that are complete.
Not just compounds.
This is a unique company.
And I should forget.
The hydrogen green hydrogen network, we're building out.
We're doing we've broken ground plans.
Plants will be online third fourth quarter this isn't.
A pipe dream and Powerpoint. This is real engineering real people 2500 of them now who are making this business real.
So thank you all for listening and I look forward to talking to you in January for business update call.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
[music].