FuelCell Energy - Cool Idea, Impossible Hurdle

FuelCell Energy Inc. may be blazing the trail toward a new era of electricity, but it's going to burn through way more money than it's taking in to get there.

Conceptually, FuelCell Energy Inc. (FCEL) is easily one of the coolest companies out there. Unfortunately...

for this manufacturer of high temperature fuel cells that generate electricity using natural gas or biofuels, 'concepts' and 'coolness' don't pay the bills. FCEL has been consistently unprofitable since day one. And, barring sweeping changes in energy policy - the ones we like to think we're implementing but really aren't - it's not likely that's going to change anytime soon.

First things first though. FuelCell Energy Inc. describes itself as a "corporation engaged in the development, manufacture and service of high temperature fuel cells for clean electric power generation. Our Direct FuelCell power plants produce ultra-clean, efficient and reliable 24/7 base load electricity for commercial, industrial, government and utility customers. We have commercialized our stationary carbonate fuel cells and are also pursuing the complementary development of planar solid oxide fuel cell and other fuel cell technologies."

In English, FCEL makes giant, industrial-sized (as in 'hauled in on a flatbed trailer-sized) generators that offer their users an alternative to paying a local electric utility bill. The equipment isn't the kind of thing for "at home use."

The good news is, FuelCell Energy is shrinking its loss. The $93 million loss in 2008 fell to only a $68 million loss in 2009, and it was only a $56 million loss in 2010. The bad news is, FCEL generated revenue of $100 million in 2008, $88 million in 2009, and $70 million in 2008.

There are two types of trouble packed in there. One, shrinking the loss by shrinking the revenue (and cost of revenue) isn't a long-term plan for viability. Costs should relatively decrease and earnings should improve with higher sales... not the other way around. Two, the size of the annual losses is almost as much as annual revenue. This isn't a case of "marginal" losses. FuelCell Energy will have to cut a massive amount of expenses (mainly the cost of revenue) - or price their wares out of reach for most customers - in order actually clear any money.

As was said, the idea is very cool, and fuel cell energy is the way of the future. It's a very distant future though, and a likely unprofitable road for FCEL owners all the way between here and there. It's just not a cost-effective technology yet. Had we only seen this dynamic for a couple of years we could give the company the benefit of the doubt. It's been a pattern from FuelCell Energy Inc. since 2006 though.

Source: Bryan Murphy, SmallCapNetwork