Ballard Power Systems is negotiating "strategic alternatives" for its automotive fuel-cell business because of the high cost and lengthy timing of commercializing the technology, according to a statement the company released Sunday.
The statement was a response to a Reuters story (which in turn referenced a story in German business weekly WirthschaftsWoche) claiming that automaker Daimler had agreed to buy the business segment.
Ballard said it is in negotiations with both Daimler and Ford Motor Co. -- which together already own 29.9 percent of the company -- and added it can't assure that the negotiations will be successful or that they will result in definitive agreements.
Investors seemed to view the possibility of Ballard ridding itself of its automotive fuel-cell assets as a good move. Ballard shares (NSDQ: BLDP) rose 11.55 percent Monday, closing at $5.60 per share.
"Ballard has faced a number of challenges in commercializing their technology, and it only makes sense that they might look to a larger player that could come in and make it happen," said Ron Pernick, a principal at research firm Clean Edge. "There are significant costs in commercializing fuel cells for automotive use in particular. It's going to take one of the big players and might be a good fit for Daimler or Ford."
In 2005, Ballard said it would demonstrate commercially viable fuel-cell technology for automobiles by 2010, after improving durability, lowering cost and increasing power density, among other things.
But Ballard, founded nearly three decades ago, isn't exactly known for sticking to its timelines. The company first introduced its fuel-cell technology at a vehicle demonstration in 1993 and automakers expected to have the technology ready in just a few years.
The problem isn't limited to Ballard. Fuel cells have become almost synonymous with delays, and skeptics say the technical and economic challenges of getting fuel-cell cars on the road could take decades to overcome.
"I have heard from other fuel-cell companies focused on the automotive space that the price and efficiency still has not gotten to the level that they want," said Sara Bradford, a director at the research firm Frost & Sullivan.
The announcement is evidence the automotive fuel-cell market continues to be challenging for automotive-industry outsiders, according to a research note Monday by analyst Jeff Osborne of Thomas Weisel Partners, which has investment-banking and securities interests in Ballard.
"Many vehicle companies," he wrote, "such as Japanese automaker Honda, have a leg up as they already have their own fuel-cell divisions internally, with the notion of designing automobiles around the system from the start."
The Ballard news also underscores the history of fuel-cell delays and indicates that other companies betting on fuel-cell cars also might have to wait longer for a market to appear.
Waiting for the Market
Companies such as Millennium Cell, UTC Fuel Cells and Protonex Technology are among those hoping to provide fuel cells for transportation. And throughout Ballard's history, it has spawned numerous other players, including PolyFuel, Angstrom Power, Lilliputian Systems and P21, among many others (see Ballard's Babies).
Of course, most of these companies aren't dependent on the automobile market. Fuel cells have seen success in other areas, such as backup power and military applications (see Fuel Cells Go Niche).
Companies targeting automobiles have shifted to more specialized markets, getting into forklifts and other higher-priced, heavy-duty vehicles first, Bradford said. The Ballard news indicates that trend will likely continue.
Analysts say those niche markets are more limited, however. Many companies are hoping to tap into larger markets, such as consumer electronics and cars, but so far, those markets have seen little but delays.
"There are still a lot of hurdles left to the mass adoption of fuel-cell vehicles," Pernick said. "I'm not surprised that Ballard might have lost its appetite. It's a long road."
To mention a few of the hurdles, there's the high cost, a lack of the infrastructure needed to provide hydrogen, the difficulty of storing hydrogen densely enough in the vehicle and the low fuel efficiency.
There's also the potential competition from electric cars and plug-in hybrids -- hybrids equipped with plugs and extra batteries so drivers can refill using either electricity or gasoline.
Pernick said those technologies seem to make a lot more sense than fuel cells for some applications, including scooters and three-wheeled vehicles.
But Bradford said she still thinks fuel cells will play a role in automobiles, most likely combined with batteries in hybrid technology.
When and If
In any case, she said, a major automaker would have an advantage over a company like Ballard.
"They would have a lot of benefits, in terms of funding and capital to play with," she said, "and if they do get the technology to the point where it's ready to be implemented, they would have a much shorter turnaround to get it into the production line. [Other companies] would have to get strategic partnerships and go from there."
In 2005, General Motors said it would launch a commercial fuel-cell vehicle by 2010, while Volkswagen estimated commercially viable fuel cells were at least 20 years away and a research director at Daimler (then DaimlerChrysler) joked that any date the company gave would be wrong (see Fuel Cells Follies).
Last month, Daimler announced it would produce a Mercedes fuel-cell car in 2010, and last year, Honda also said it would have a fuel-cell car in production in 2010.
As has been true for more than a decade, analysts say it's still difficult to figure out when fuel-cell cars will enter the mainstream market, if ever.
Osborne added that Ballard's automotive segment probably would have required additional financing and would not have been a commercial reality until 2015, at the earliest.
"In a lot of ways, fuel cells for automobiles have always been 10 years in the future," Pernick said. "The bigger question is: Does it just continue to be that moving target?"