While neither electric vehicles (EV) nor fuel cells and fuel cell vehicles can be classified as “cutting-edge” technologies, there is still a lot of confusion about them in the market. Investors don’t fully understand the limitations of technologies like EVs and their supply chains — or the technical/practical challenges associated with competing technologies like fuel cells.
This knowledge can help them make informed investment decisions and capitalize on relevant trends (or exit) at the right time. It can also help them make more comprehensive ESG (environmental, social, and governance) investing decisions, i.e., investing in technologies with a better sustainability profile.
Image source: Getty Images
The case for EVs
EV companies and stocks like NFI Group (TSX: NFI) seem weak. EV sales are declining in several regions, including Europe (particularly Germany) and even the U.S. in one category: plug-in EVs (PHEVs). The Asian market, especially China, experienced specific growth.
This has also impacted companies like NFI, which stands outside the consumer EV sales market. Its primary product is electric buses and coaches, and it offers a range of solutions and services related to this product, including infrastructure solutions. NFI can produce around 8,000 zero-emission buses (ZEBs) in a year, making it the most prominent player in this slice of the EV market.
However, the stock peaked in 2018, and since then, it has mostly experienced an unsteady decline. It’s trading at a 77% decline from that peak and has slipped 28% from its most recent peak. If the overall decline in EV sales expands to ZEBs (i.e., public transport entities, schools, and other potential client segments delay ordering these buses), NFI Group stock might continue to decline. However, if this trend shifts in multiple major markets, the stock can rise significantly in parallel with the company’s organic growth.
The case for fuel cells
Fuel cells offer a compelling alternative to EVs by eliminating the dependence on batteries. This means fewer mining-related dependencies and the scope-2 emissions related to battery production and distribution, which is sometimes more than enough to compensate for the fuel cell efficiency limitations. Despite this “potential,” Ballard Power Systems (TSX: BLDP), a prominent name in the fuel cell industry, is experiencing a perpetual stock decline.
The stock had its moment in the sun in the post-pandemic market, but it has crashed since then and has crashed hard. It is currently trading at a brutal 95% decline from its five-year peak. The stock hasn’t turned the tide despite announcing several significant orders from the European market.
However, the crux of the problem is not the company or even the fuel cell technology but the fuel itself. Hydrogen is difficult and expensive to create/extract, store, and transport. A technological breakthrough that solves any of these problems and makes hydrogen more financially viable can lead to significant fuel-cell traction. If all of these problems are solved close to one another, fuel cell demand can soar to unprecedented levels.
Foolish takeaway
If you are looking from a sustainability perspective, fuel cells might be significantly greener compared to EVs, at least until a new cleaner and greener battery technology arrives and our electrical grids become greener than they are. From an investing strategy perspective, it might be wiser to keep an eye on both until the exemplary catalysts for growth are present and then buy as early as possible.
