Plug Power (NASDAQ: PLUG) stock is down 10%. PLUG stock followed a number of hydrogen, solar and renewables related stocks down in fact - this is not corporate specific, it’s sectorally related. The problem is the change in interest rates. Not the usual effect of such a change on the valuation of a growth company, but the effects upon consumer behaviour. And it’s worth noting that those consumers are being entirely rational - this isn’t an error on their part that might soon pass.
We know what Plug Power does: PLUG stock has declined because the losses have widened out unexpectedly. And the awful thing is that there’s no obvious and clear direction or timescale for the losses to stop. If you’re making gross margin then clearly sales can grow in order to cover overhead. Or at least they might, they could. But if gross margin itself is negative then a rather more substantial reset might be necessary. Which is what the current problem seems to be.
Plug Power is actually in a very interesting market area: “Plug Power Inc. delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, stationary power market, and others in North America and internationally. It engages in building an end-to-end green hydrogen ecosystem, including liquid green hydrogen production, storage and handling, transportation, and dispensing infrastructure.”
- It’s a growth stock, rising interest rates increase the cost of no profits now but maybe profits in the future - the discount rate to be applied to those possible future profits has changed. This is just what happens to capital devouring companies when interest rates rise.
Plug Power stock price from Google Finance
But what’s happening across the sector is something different. The high capital costs of a renewables installation mean that higher interest rates increase their cost. So, rationally, the calculation has changed - fossils are now, comparatively, cheaper than they were. Fewer consumers install renewables therefore. The problem for the renewables sector is that there’s nothing wrong with such a decision either. It’s an entirely rational consumer response to those changes in price. It’s not something we can hope will go away therefore.
The outcome is likely to be more price pressure on renewables equipment manufacturers. Well, OK - but when margins on equipment are already negative that’s not going to be good for Plug Power. Absent a manufacturing or technological breakthrough this just hurts them even more. It’s not obvious that there is a cute solution to this.
