Ballard Power Fortifies Hold In China With Broad-Ocean Deal

Fuel cell producer Ballard Power Systems Inc. (NASDAQ:BLDP) announced that it has signed a Memorandum of Understanding (MoU) with strategic partner, Zhongshan Broad-Ocean Motor Company Limited ("Broad-Ocean"), with a goal of producing fuel cell modules for use in buses and commercial vehicles in select cities and regions across China.

On Aug 18, Broad-Ocean made a $28.3 million strategic equity investment in Ballard Power, making it the largest shareholder of the latter. This equity investment and the signing of the MoU were part of a strategic collaboration between the two companies dated Jul 26, 2016.

Expansion in China

The latest deal is part of Ballard Power’s expansion strategy in China. It will allow the company to expand its operations in key Chinese markets such as Wuhan, Chongqing, Shandong Province and Beijing. Ballard Power expects to make full utilization of Broad-Ocean's electric vehicle (EV) expertise, customer base, operations scale and supply chain strength to strengthen its foothold in important Chinese cities.

The deal will also call for fuel cell production in China to lower costs and drive scale of operation with minimum investment.

China – a Key Market for Ballard

Chinese authorities have decided to lower their emission levels gradually. In addition to factories and utilities, transportation plays a major role in increasing pollution levels. Thus, the country is expected to see an increase in demand for fuel cell energy-based vehicles because of their environment-friendly nature.

On Jul 18, Broad-Ocean signed an agreement with its partner for the purchase of 10,000 fuel cell vehicles, including buses and delivery trucks, which will all be powered by Ballard Power’s fuel cell technology.

Ballard’s Presence in Asia

This July, Ballard Power and China-based Guangdong Nation Synergy Hydrogen Power Technology Co. Ltd. formed a joint venture to produce fuel cell stacks at a facility located in Yunfu city, northwest of Hong Kong. This five-year deal has the potential to generate total revenue of $168 million for Ballard Power.

In August, Ballard Power Systems Inc. announced that it has signed an agreement with Toyota Tsusho Corporation ("TTC"), a unit of the Toyota Group, to expand its operations in Japan. This strategic tie-up will allow Ballard market its fuel cell products in Japan (Read More: Ballard Power to Expand in Japan via Toyota Deal).

Our View

The back-to-back deal wins by Ballard Power in Asia surely confirms the increasing importance of fuel cell technology.

Going forward, India could offer huge opportunities for expansion. Last year, Ballard Power received an initial 100 unit order from Reliance Jio Infocomm for backup power system. With Reliance Jio recently deciding to launch its telecommunication operations on a massive scale, it might look to Ballard Power again for fuel cell backup power systems.

Zacks Rank & Key Picks

Ballard Power Systems currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Nidec Corporation NJDCY,Stoneridge Inc. (NYSE:SRI) and TTM Technologies Inc. (NASDAQ:TTMI) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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