BALLARD SAYS THE TIME FOR HYDROGEN HAS FINALLY COME.
HOW RANDY MACEWEN IS FORGING THE ANTI-TESLA PATH
As chief executive of Burnaby-based Ballard Power Systems Inc., the company that hopes to disrupt trucking, municipal transit buses, railways and shipping with its proprietary hydrogen fuel cell technology, Randy Macewen has made countless sacrifices.
He spent this past Christmas quarantined in a guarded hotel suite in Shanghai for two weeks, doing burpees and calisthenics to pass the time — all the while waiting to venture into a country where, out of respect for the culture, he calls one of his closest business associates, “big brother.”
“I’ve spent a lot of time learning about the Chinese culture,” Macewen told the Financial Post.
Indeed, it marked his 60th trip to China in an estimated 70-month period, a gruelling schedule made all the more so by a health pandemic that added mandatory quarantine periods at both ends of any trip.
To him, it’s all part of the job of trying to build a sustainable business selling hydrogen fuel cells — technology that has sometimes been compared to the lithium-ion batteries that power Teslas and other zero-emission vehicles, though it has not yet established the same market foothold.
It may not have helped that a couple of years ago Tesla CEO Elon Musk derided hydrogen fuel cells as “mind-bogglingly stupid” and “staggeringly dumb” because using electricity to generate hydrogen, and then convert it to a fuel to power a car, results in high energy losses than just charging a battery that powers a car.
THERE’S A REALLY COOL SAYING (IN CHINESE), ‘JIYAUNG.’ BASICALLY, WHAT IT MEANS IS ‘I’VE HEARD A LOT ABOUT YOU. IN FACT, YOU’RE PROBABLY FAMOUS ... (AND) AFTER ALL THIS TIME, IT’S MY GREAT HONOUR TO MEET YOU.’ — RANDY MACEWEN, BALLARD POWER SYSTEMS
Macewen has practice batting off this energy efficiency argument.
“There’s a saying, ‘When you make cheese you lose a lot of milk, but there’s a market for cheese,’ and it’s the same with hydrogen,” he said. “There is a market today and there will be a much larger market in the future.”
Macewen, backed by research, estimates hydrogen can apply about 60 per cent or more of energy to vehicle propulsion, compared to estimates of only 25 per cent for the internal combustion engine. Nonetheless, using energy to charge a battery pack that powers a vehicle is considered the most energy efficient of the three, at an estimated 70 to 85 per cent.
“It’s massively more efficient than the legacy incumbent technology,” Macewen said, “so it’s a massive leap forward.”
Regardless, as more and more countries announce ambitious climate change initiatives, investor excitement around green technology, including hydrogen fuel cells, is reaching a frenzy. Ballard has benefited as much as any company, with its stock surging up by 1,000 per cent over a two-year period, from $4.75 in February 2019 to $49 earlier this year, before settling down to a cooler 484 per cent as of April 27.
While hot markets make it easier to raise funding, they don’t make the other part of Mcewen’s job — selling hydrogen fuel cell vehicles — any easier.
Founded in 1979, Ballard Power Systems was an early entrant in the hydrogen fuel cell space, and the company has spent decades perched on the brink of a major breakthrough. It seems perpetually in investment mode, and has generated earnings losses throughout much of its 40-plus year history.
Still, over the years, Ford Motor Company and Daimler AG have both invested tens of millions of dollars into Ballard, convinced it was poised to disrupt the internal combustion engine’s almost century-long dominance of transportation.
Near the start of the millennium, its stock rose to $165 per share, only to crash below a dollar a little more than a decade later, around the time it became evident that companies developing lithium-ion electric battery technology, such as Tesla, would capture the market for zero-emission sedans and passenger vehicles.
In response, Ballard pivoted to heavy-duty vehicles, such as municipal buses and cargo trucks. The company says lithium-ion battery technology is not yet viable for vehicles that need to carry heavy loads, operate under extreme temperatures and travel long distances without refuelling, but that hydrogen fuel cell batteries are.
“Nobody foresees being able to charge a battery for a double trailer truck in less than two hours, even 10 or 15 years from now,” said Ned Djilali, a mechanical engineering professor at the University of Victoria, who has consulted for Ballard. “There’s too many inherent issues related to heat transfer. There’s only so much heat you can push through a battery.”
A hydrogen fuel cell car, meanwhile, can be refuelled in roughly the same time and manner as an equivalent ICE vehicle.
Skeptics of hydrogen energy point to the many challenges that remain, from the cost of creating infrastructure, to the inefficiencies in fuel cell cars compared to pure lithium-ion battery cars, not to mention the combustible nature of hydrogen. Then, there’s also the problem that an estimated 98 to 99 per cent of global hydrogen is produced using fossil fuels — meaning it’s not a low-carbon solution yet.
Of course, even if hydrogen fuel cells gain market share in heavy-duty vehicles, as Ballard hopes, the market for commercial trucks and buses is relatively tiny.
Macewen estimated there are only four million new commercial truck sales globally per year, about 47 per cent of which are in China.
“What’s happening in China, of course, is it’s just growing unbelievably,” said Macewen, “and there’s a very big emphasis on reducing dependence on foreign technology.”
That makes the market a tough nut to crack for western companies.
Nonetheless, of the 3,300 commercial buses and trucks powered by Ballard’s hydrogen fuel cell technology, about 3,100 are driving on Chinese roads, according to Macewen.
Key to the company’s success, he said, is the “friendships” he forged with business leaders there, notably Tan Xuguang, chairman of Shandong-based Weichai Power Co. Ltd, one of the largest diesel engine manufacturers in the world.
“I call Chairman Tan — ‘Dàge,’ which means big brother,” he said.
In 2018, Weichai agreed to plunk $163 million into Ballard to become its largest shareholder, controlling what is now about a 15 per cent stake in the company — an investment that has already multiplied several times.
Last year, through a joint venture that’s 49 per cent controlled by Ballard and 51 per cent by Weichai, the two companies commissioned a plant in Shandong province capable of producing 20,000 hydrogen fuel cell stacks per year.
‘I’VE HEARD A LOT ABOUT YOU’
Now, Macewen, who doesn’t speak Mandarin, has to find customers in China.
Learning about Chinese business and culture has been an education and a journey, he said.
Where a simple Powerpoint presentation might suffice to win a business deal in Canada, Macewen said Chinese business executives want to develop a friendship with their prospective partners.
Everything from where people sit, to how you pay homage to the local region and the stories you tell about other executives at the table matters in China, he said.
“There’s a really cool saying, ‘jiyaung’,” Macewen explained. “Basically, what it means is ‘I’ve heard a lot about you. In fact, you’re probably famous, and for a very long time, I’ve been really interested to meet you; and finally, after all this time, it’s my great honour to meet you.’ ”
It’s a phrase he said he leaned on heavily, upon finally emerging from his hotel on Jan. 2, and beginning a 10-city tour across the country via high-speed rail and other transport.
He found the buses and rail stations were packed, airports were still flying full capacity inside the country and even restaurants were just as busy as usual.
“Business is booming,” he said.
Last year, China accounted for US$54.2 million of Ballard’s roughly US$103.8 million in revenues, with Europe at US$36.4 million.
Macewen said he’s hopeful the European market will grow in size to match China, with each comprising about 40 per cent of total sales.
The remaining 20 per cent of sales will be in North America, mainly California where the state government has issued strict dictums to clean up emissions from its heavy-duty vehicle market.
Canada, meanwhile, a longtime centre of research for hydrogen fuel cells technology and also a top 10 global producer of hydrogen, doesn’t figure as a huge market for Ballard yet.
That could change, course.
In December, the federal government released a national hydrogen strategy that emphasizes increasing production of blue hydrogen, which is created using fossil fuels but the emissions are captured and stored, or reused.
Josipa Petrunic, president of the Canadian Urban Transit Research and Innovation Consortium, said there’s no doubt that hydrogen fuel cell buses will play a role in certain communities in the country.
For buses that travel hundreds of kilometres without returning to the depot, and only have a couple of minutes to charge up when they do return, a lithium-ion battery
of vehicle can’t fulfil the function, Petrunic said.
“A fuel cell bus carries enough hydrogen to furnish the bus with energy for four-, five- six-hundred kilometres,” she said. “And so you’re kind of at a diesel bus comparison, but the problem is it’s three times the price and somebody’s got to build all the hydrogen.”
Petrunic added that across Canada, and other parts of the world, hydrogen production is increasing. As the scale of the market grows, the costs for hydrogen and also operating a hydrogen fuel cell vehicle are expected to decline.
Rob Hales, an equity analyst for Morningstar who covers Johnson Mathey, one of many companies now dabbling in hydrogen fuel cell technology, said more than 30 countries including some of the largest economies, are looking at hydrogen energy as a way to reduce carbon emissions.
Those companies are putting billions of dollars toward increasing production and research — all of which should lower the cost, he said.
Green hydrogen, the least carbon intensive, produced with renewable energy, is still very price prohibitive, he said.
“It doesn’t make sense right now economically,” said Hales. “It’s just a matter of: will it make sense in the future if we throw enough money at it because that’s what we want for the environmental benefits?”
In any case, it’s clear that there are plenty of opportunities for Ballard. In March, the company announced it would deliver six hydrogen fuel cells to Calgary-based Canadian Pacific Rail. The dollar value of the deal was too small to be material, and never disclosed.
Nonetheless, Ballard projects that the rail market could be worth $4 billion by 2030, and that nearly diesel powered locomotive could easily be converted to hydrogen fuel cell technology.
In April, the company announced that Sierra Energy Corp., a private company in California, plans to issue a purchase order for Ballard fuel cells later this year for a zero emission switching locomotive, partially funded by a Us$4-million grant that came from a state energy agency.
The rail business would be the smallest of what Ballard estimates is a Us$130-billion market for its technology by 2030, with trucks comprising the largest chunk at US$100 billion and buses and marine vessels splitting the remainder.
Bank of Montreal analysts pegged the truck market at US$85 million in a report earlier this year, and wrote that Ballard already has a leading market share in China, Europe and North America. It expects several years of losses while it ramps up for future growth, and expects government policies to support growth.
Macewen estimated the company has invested $25 million over the past 18 months in expanding its capacity in Burnaby to produce membrane electrode assembly, fuel cell stacks and modules. The company has around 800 employees.
Even as it waits for the growth, the company’s imprint on Vancouver is obvious: there’s a small cluster of hydrogen-related companies in the city, many founded by former Ballard engineers or spun off from the company.
“Many of us have been around this for 20 years talking about the opportunity and future of driving a fuel cell car,” said Macewen. “We’re now doing it.”