Major manufacturers of hydrogen electrolyzers saw their share prices slide in the first half of 2023, and second-quarter earnings results showed order intakes failing to translate directly into profitability.

This comes as the clock continues to tick on Europe's goal to produce 10 million metric tons per year of green hydrogen by the end of the decade, a milestone that research group Worley said could slip out of reach.

"All this infrastructure would need to be developed, permitted, financed, and built in fewer than seven years," the think tank said Aug. 28. "When considered alongside the other pillars of EU decarbonization that will need to be implemented concurrently ... the dimensions of the infrastructure delivery challenge become more apparent."

British electrolyzer manufacturer ITM Power PLC was forced to suspend the 100-MW Gigastack project in the UK, planned with Ørsted A/S and Phillips 66 Co., and a plant redesign has delayed deployment of an ITM project at Linde AG's Leuna chemicals complex in Germany.

ITM has decided to "focus very heavily on projects that are in execution right now," rather than developing additional projects like Gigastack, Chief Technology Officer Simon Bourne said on an Aug. 17 investor call.

Under new CEO Dennis Schulz, the company is halfway through a yearlong restructuring project, aiming to cut down its product offering, reduce costs and scale the production process.

"The company appears to be making good progress in terms of improving its underlying operational performance and contracting, but warranties remain persistently high and financial performance will take time to improve," Berenberg analysts wrote in an Aug. 21 note.

ITM's EBITDA loss widened to £94.2 million in the year to April 30, from a £39.8 million loss in the previous financial year. CFO Andy Allen said the result is "unacceptable" but in line with guidance.

'We are losing money'

Norwegian manufacturer Nel ASA is similarly struggling to turn orders into profits.

The company reported record-high quarterly revenues of 475 million Norwegian kroner in the second quarter of 2023, up 159% from the year-ago period. It posted a second-quarter EBITDA loss of 138 million kroner, improving slightly year on year from a loss of 197 million kroner.

"If you look at the electrolyzer side and given the high increase in revenues, one might have thought that the EBITDA actually would have been even better," CEO Håkon Volldal said on the company's July 17 earnings call. Instead, the business continues to make losses, primarily due to 2021 contracts that negatively impact margins, Volldal said.

Rising raw material costs and currency fluctuations affected the profitability of orders, and delays are compounding the issue.

"We're not making a lot of money on those projects. On the contrary, we are losing money," Volldal said. "Some of these contracts did not have pass-through clauses on materials, which we now have. Some of the contracts were not currency-hedged, which we now do."

Large scale is key

The dichotomy between electrolyzer-makers' growing order books and loss-making businesses is nothing new.

"Similar to other alternative energy equipment manufacturers, Nel has also seen its share price run out of (green) fuel. We attribute this largely to deflating wishful thinking," analysts at Alphavalue wrote in a note in late March.

The company's share price had seen a boost from deliberations in Europe about potential responses to the US Inflation Reduction Act and also from some order wins. "This has since fizzled out," the Alphavalue analysts said.

Nonetheless, "if we were to look at just the names in pure-play hydrogen, Nel appears to be better off than ITM, for one, and some other names across the broader market," they said.

Nel stands out because of its automated manufacturing processes, a validated product and focused offering, the Alphavalue analysts said. Order intake is also moving toward a larger megawatt-scale, which shows increasing customer confidence, they said.

"Overall, we are not concerned by the slower orders and backlog growth" at Nel, analysts at Berenberg said. "The company has indicated several times that, as it moves to focus on larger contracts, the order flow is likely to be lumpy given the longer timeframes."

They added that while Nel's revenue growth is encouraging, moving through the backlog of legacy contracts to more recent profitable projects "will be important in providing confidence to the market that there is a reasonable timeline to break even."

Germany's Thyssenkrupp nucera AG & Co. KGaA is the newest member of the universe of listed electrolyzer-makers, having completed an IPO in July. The company is on track to ramp up its manufacturing capacity to 5 GW in the next few years, executives said during an Aug. 28 call on fiscal third-quarter results. The company is focusing on both Europe and the US, with executives flagging the latter as a key market for growth.

For Europe, the think tank Worley noted that meeting the EU's hydrogen targets will require rapid sector growth in the region, with a particular focus on large projects.

"While the EU's renewable hydrogen ambition is just one part of a much larger infrastructure plan, its requirements are indeed daunting," Worley said, adding that the most important task now is to develop large projects.

"An undertaking of such scale, speed and complexity can be achieved only with the emergence of an era of hydrogen mega projects," Worley said.

As of Sept. 5, US$1 was equivalent to 10.73 Norwegian kroner.

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