Renault/Plug Power: what bubble?
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Today, in markets making absolutely no sense, here’s a press release from Plug Power -- a hydrogen and fuel cell company that managed to earn a paltry $107m in 2020’s third quarter.
Groupe Renault, top automotive player, and Plug Power Inc. (NASDAQ: PLUG), global leader in fuel cell systems and hydrogen related services, announced the signature of a Memorandum Of Understanding (MOU) to launch a 50-50 joint-venture based in France by the end of the first half of 2021. This strategic JV will position Groupe Renault and Plug Power to become key players in Europe in the research and development (R&D), transformation, manufacturing and sale of fuel cell-powered vehicles and hydrogen turn-key solutions in the coming years. This joint-venture platform will serve the fast-growing market of fuel cell light commercial vehicles, taxis, and commercial people transportation.
The joint venture between the dinosaure OEM and the plucky green energy upstart will see them work together across three verticals: research and development, manufacturing, and sales.
Although, judging by the share price reaction, Renault need the most help with the latter.
At pixel time, the French car company’s shares are up 1.5 per cent to €36.80 on the news. That gives it a valuation of just under €11bn.
Yet in early trading, Plug Power’s share price is up 17 per cent to $62.36, giving it a market capitalisation of $30bn. Yes, that’s billion with a ‘B’.
So, in short, the press release caused the market to forecast that the discounted value of Plug Power’s future cash flows from this joint-venture agreement will be worth almost exactly a third of Renault’s market value (which, as a reminder, is the discounted value of its total future cash flows).
Okay, yes, we know. The market might be saying: “Well, it’s got this deal in the bag, who’s to say Plug Power can’t secure a few more of them now?” Or perhaps it’s: “This will help the company accelerate its R&D and manufacturing expertise, pulling forward its cash flows by a few years.” But . . . that still doesn’t quite make any sense relative to the extreme price action.
In fact, none of this stuff does. Not to bang the drum too hard, but it’s hard not to think this green energy/electric vehicle mania is going to run out of charge. And when it does, no one will be want to left stranded with an empty battery.