Hybrid Electric Vehicles Alter Fuel Cell Market

VANCOUVER February 17, 2004; Lynne Olver writing for Dow Jones reported that the emergence of hybrid electric vehicles as an accepted "bridging technology" between present-day combustion engines and fuel- cell vehicles of the future is causing fuel-cell developer Ballard Power Systems Inc. and its key automotive partners to redefine their alliance.

On a conference call Tuesday, Ballard president and chief executive Dennis Campbell said Ballard and auto partners Ford Motor Co. and DaimlerChrysler AG are discussing a range of possible actions. These include reviewing the partners' "roles and responsibilities," finalizing the development plan of the next generation light-duty fuel-cell program, and changes that Ballard says would give it more "financial and operational flexibility."

In the last 12 to 18 months, the emergence of hybrid electric vehicles "has really changed the game," Campbell said.

A year or two ago, hybrids were viewed as a technological curiosity, he said. "But it's now become apparent that the automakers are probably going to have to play in that space," Campbell stated. "They're going to have to offer up competitive hybrid vehicles."

The "architecture" required for hybrids is essentially identical to that of fuel-cell vehicles, Campbell said. The alliance partners want to combine efforts so they're not designing and developing separate engine architectures, and the automakers want to be more involved in integration, Campbell said.

"The OEMs view it as very important that they link up the systems integration and the vehicle integration, and do it together," Campbell said.

Ballard said it's also developing a more flexible approach with key customers and non-alliance prospects that might include the sale of fuel-cell components or the licensing of technology.

"Our alliance partners are supportive of this more-open approach," Campbell said on the call, adding that it should accelerate the acceptance of fuel cells.

But Ballard projects that total revenues will decline in 2004, due to lower engineering-services revenue, and cash consumption from operations is expected to be higher.

For the first time in years, Ballard isn't providing specific guidance on expected revenues or cash burn for the coming year. "This is a very dynamic and evolving industry and we don't want to put unneccessary constraints on ourselves," chief financial officer David Smith said on the call.

Given the unpredictability of developing markets, the company is taking an approach that gives it "more elbow room" to adopt to changing market conditions, Smith said. "Whether or not product revenues are up or down is not what's going to drive value of this business...what we think is important to the market is the type of goals that we outline," such as demonstrating technology leadership or achieving on-road experience with fuel-cell vehicles, Smith said.

As reported, the company lost $38.8 million or 33 cents a share in the fourth quarter on revenues of $29.2 million, versus a loss of $35.5 million or 34 cents in the same 2002 period.

For the full year, it lost $125.1 million or $1.07 a share on revenues of $ 119.6 million, down from a 2002 loss of $148.4 million or $1.41 a share on revenues of $90.9 million.

Company Web Site: http://www.ballard.com