Hydrogen stocks have been one of 2021’s biggest laggards – but that could change soon. Fuel Cell (FCEL), Plug Power (PLUG), Ballard Power (BLDP) and Nikola (NKLA) are down 20% to 40% this year as investors flag high production costs and weak progress, but they could be poised for a rebound.
This is largely because Washington’s fresh, $1 trillion infrastructure package is about to give the nascent $200 billion industry a much-needed shot in the arm by boosting R&D investments and providing tax breaks and other incentives, analysts say.
As part of its Hydrogen Shot initiative, the Energy Secretariat expects ‘green hydrogen’ fuel production costs (hydrogen made from renewable energy sources) to decline to $1 per kilogram versus $5 per kilogram now, by 2030. If all goes well, clean hydrogen output could surge five-fold by 2050, the deadline for the U.S.’s goal to achieve net-zero emissions.
Roughly 700,00 jobs would be created and $140 billion in revenues added to the economy. Energy Secretary Jennifer Granhold dubbed the scheme an “energy earthshot,” and an “all-hands-on-deck call for innovation.”
“If you read through the data, around $73 billion is going to clean energy transition," said David Mazza, head of products at Direxion ETF (HGEF) which holds 30 stocks in the space. He estimated the U.S. could spend one third of the package in clean hydro, helping fuel gains in the space’s biggest names.
Well off highs
While Fuel Cell, Plug Power, Ballard and Nikola are still well off this year’s highs, the infrastructure scheme is exactly what the sector needed to take off, added Mazza. “Even though commercialization is still well into the future, we believed [early on, when preparing the ETF’s launch], the plan was going to be a catalyst and once it comes to fruition it should drive gains in these household names.”
Jane Edmondson, CEO and co-founder of ETF indexing firm EQM, agreed the industry could see a renaissance, adding that a string of funds including Global X’s Hydrogen ETF (HYDR) and Defiance’s Next Gen H2 (HDRO) have launched to profit from the rebound.
“Despite hydrogen stocks seeing a downturn at the beginning of 2021, many analysts are recommending green hydrogen stocks, especially for investors who want to be part of a disruptive new vertical while meeting their environmental, social and governance-aware investing objectives,” she said. “Though it currently costs more to produce than other alternative energy sources, hydrogen costs are expected to be slashed in half in coming years and that will increase hydrogen fuel-cell adoption.”
Same yet different
Fuel Cell is staking its future on these fuel cells, particularly for heavy industry, and is building large cell plants to produce and store hydrogen. Rivals Plug Power and Ballard, meanwhile, are focusing on smaller applications such as powering warehouse forklifts for the likes of Wal-Mart or Home Depot or building thin cells to power electric buses. Another fast-growing player, Bloom (BE), is also gaining traction with plans to blend hydrogen with biogas and natural gas to generate environmentally-friendly power for business customers such as AT&T (T) and Home Depot (HD).
“They are all doing something similar but each one has a bit of a niche,” said Mazza. “There are many applications for hydrogen power [made from water through an electrolysis process], which is what makes it really unique. It can power a forklift at Wal-Mart but it can also be used as a mass-scale energy source for a city or state.”
Charts look ‘exhausted’
Meanwhile, Katie Stockton, founder and managing partner at Fairlead Strategies, said charts look largely oversold, giving bargain hunters a dip opportunity.
“From a technical perspective, the charts are in downtrend exhaustion which indicates they are starting to react to oversold conditions,” she said, adding that Fuel Cell and others are trailing their 50-day moving averages so if they break above it, that would mark a bullish reversal. Stockton echoed views that a strengthening Tesla could help propel the sector higher. “If we see Tesla (TSLA) start to go up as a high-growth benchmark, alongside the ARK funds [Cathie Wood’s funds], that will be good for the space.”
Asked why hydrogen-powered vehicles have not taken off against their electric counterparts, Edmondson said the technology’s high cost and lacking infrastructure have proven a big challenge. “Battery EVs are cheaper and coming down and EVs are more convenient in terms of filling stations,” she said. “Although refueling is quick, hydrogen is very cold, freezing fuel nozzles. Tank sizes eat up room in the cars, unlike [EV] batteries which are small.”
Still, for all its challenges, hydrogen is gaining momentum, other analysts say. Bank of America estimates the sector will hit $2.5 trillion by 2050, accounting for 25% of the world’s energy needs as European growth continues to accelerate and Asia and the U.S. witness sharp gains.
Others predict the industry could see a “one-thousand-fold” jump to over 200 Gigawatts in generation capacity in 10 years “as the technology and supply chain matures” so that the average size of a hydrogen electrolyzer project will expand to 500 Megawatts from 10 Megawatts currently.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Ivan Castano
Ivan Castano is a seasoned financial editor, corporate content specialist and journalist with over two decades’ experience writing for leading publications including Bloomberg, Forbes, Barron’s, MarketWatch, Euromoney and FT groups, among many other leading titles. He enjoys writing about the emerging markets, corporate finance, technology and investing.
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