Seven things investors need to know about hydrogen fuel cells and Loop Energy

Despite it being ‘five years away’ for the last four decades, even the most cynical of investors now admit it: the hydrogen economy has arrived. And a few compelling uses are fuelling rapid growth.

Electric batteries, for instance, are suitable to power cars, yet do not have the range for all medium to heavy commercial fleets of buses, trucks and coaches.

And while hydrogen is predicted to increase its 2% share of the global energy mix to 24% by 2050¹, today’s $1bn hydrogen vehicle market is expected to be worth 30 times that by the end of the decade.²

Who is leading this race to supply fuel cell systems? And who might come to own it? There is one listed public company you might not have heard of that Edison views as potentially a very real contender.

So here are seven things every investor should know about the sector and Edison client Loop Energy.

#1 Hybrid fuel cells will power sustainable trucks and lorries of the future

Fleet vehicles need long ranges. They need lots of pulling power. And they need to re-fuel quickly. Electric batteries can only go so far with these capabilities but systems combined with hydrogen fuel cells are more flexible and functional. They can go longer and work harder between refuelling.

This is why Loop is mid-to-heavy fleets. The company’s eFlow™ technology works particularly well here, delivering power in a very uniform manner.

#2 Being the next mover is sometimes better than being first mover

Advantages come in many shapes and sizes. Learning from where others have succeeded and failed, Loop’s strategy does not rely on a massive public hydrogen infrastructure. By focusing on return-to-base fleets, Loop’s growth does not need a network of filling stations. The vehicles get refuelled back at ‘home’.

#3 Cost of ownership is at the heart of decision-making

Despite general willingness to become more sustainable, hard economics still win the day. So total cost of ownership (TCO) is the key driving force for hydrogen fuel cell adoption.

Loop says it is leaving no stone unturned to deliver the best possible TCO. For instance, it claims its solutions are now easier to install – in days not weeks. And the high-quality components used in production should then pay back over time, via the uptime, efficiency, power output and longevity that the stacks deliver.

The company has also told investors that its primary research is complete and all efforts are now focused on further TCO reductions.

#4 More power, less cost

One inherent challenge of fuel cells is that they tend to not produce power uniformly. To produce cells that reduce TCO for customers, this challenge needs to be overcome.

This is what Loop says it has done. Its patented eFlow tech manipulates the flow of air and hydrogen within the cell stack, increasing the velocity of the gas and ensuring the power moves more consistently.

#5 Understanding buyer psychology

Loop’s commercial team has defined its objectives around the customer adoption cycle, which is based around a 1:10:100 model. The idea is that every customer will start with a single unit for technical evaluation, before making a small order of c 10 units to build a test fleet ahead of ramping up to full commercial levels.

This breakdown of the sales process into a customer adoption cycle, Loop feels, makes it more likely that the business will deliver its numbers.

#6 Momentum appears to be growing

Loop delivered its 2021 targets, including onboarding 10 new customers. It has declared that 2022 is the year its scaling begins and announced that new customers are proactively approaching the business to help improve the performance of their fleets.

Significant economies of scale can be created from the demand from commercial transport, as a large number of OEMs are ready for electrified platforms. This should mean there is access to a customer base with low technical barriers to entry.

Plus, as demand ramps, unit costs will fall, creating more demand. As demand increases, Loop hopes to sell its increased production capacity of 400 units by the end of 2022 and 1,000 units by the end 2023.

#7 Savvy global expansion to grow demand

Local support for customers in key geographical markets can have two benefits. Not only should customer experience improve but a local presence can also increase exposure to new potential customers.

Reacting to a strong market pull from Asia and Europe, Loop is investing in a new China facility for manufacturing, service and support. The team now plans a physical presence in Europe too, beginning with a focus on integration support, fleet maintenance and service.

And, given you’re still reading, here’s a final bonus insight:

#8 There’ll be more to Loop than the fleet market

While the business is using the lowest hanging fruit to prove the potential of its technologies, hydrogen is moving beyond transport into stationary power. Estimates put the combined market at $50bn by 2030¹.

This is why Loop is already working on products using its eFlow™ technology outside of transport. The strategy is to gain leadership with return-to-base fleets, then applying its success in this market to mount a very credible assault on many more hydrogen fuel cell markets.

Thank you for reading this piece. For more information about Loop, please visit the investor relations pages on its website. Or contact Edison: loop@edisongroup.com

¹ https://www.fch.europa.eu/news/hydrogen-roadmap-europe-sustainable-pathway-european-energy-transition#:~:text=Hydrogen%20is%20an%20essential%20element,for%20the%20European%20Energy%20Transition%E2%80%9C

² Loop Energy IPO data 2021