I am blogging again, after months of break. My health required some attention, and my life priorities went a bit wobbly for some time, possibly because of the opioid pain killers which I took in hospital, after my surgery. Anyway, I am back in the game, writing freestyle.
Restarting after such a long break is a bit hard, and yet rewarding. I am removing rust from my thoughts, as if I were giving a new life to an old contrivance. I need to work up to cruise speed in my blogging. Currently, I am working on two subjects. One is my concept of Energy Ponds: a solution which combines ram pumps, hydropower, and the retention of water in wetlands. The other one pertains to business models in the broadly spoken industry of new sources of energy: electric vehicles (I am and remain a faithful investor in Tesla), technologies of energy storage, hydrogen and fuel cells based thereon, photovoltaic, wind and nuclear.
As I am thinking about it, the concept of Energy Ponds is already quite structured, and I am working on structuring it further by attracting the attention of people with knowledge and skills complementary to mine. On the other hand, the whole business models thing is foggy theoretically, and, at the same time, it is important to me at many levels, practical strategies of investment included. I know by experience that such topics – both vague and important – are the best for writing about on my blog.
Here comes the list of companies which I observe more or less regularly with respect to their business models:
>> Rivian https://rivian.com/investors
>> Lucid Group https://ir.lucidmotors.com/
>> Nuscale Power https://ir.nuscalepower.com/overview/default.aspx
>> First Solar https://investor.firstsolar.com/home/default.aspx
>> SolarEdge https://investors.solaredge.com/
>> Fuel Cell Energy https://investor.fce.com/Investors/default.aspx
>> Plug Power https://www.ir.plugpower.com/overview/default.aspx
>> Green Hydrogen Systems https://investor.greenhydrogen.dk/
>> Nel Hydrogen https://nelhydrogen.com/investor-relations/
>> Next Hydrogen (précédemment BioHEP Technologies Ltd.) https://nexthydrogen.com/investor-relations/why-invest/
>> Energa https://ir.energa.pl/en
>> PGE https://www.gkpge.pl/en
>> ZPUE https://zpue.com/
Two classifications come to my mind as I go through that list. Firstly, there are companies which I currently hold an investment position in: Tesla, Nuscale Power, Energa, PGE, Tauron et ZPUE. Then come those which I used to flirt with, namely Lucid Group, First Solar and SolarEdge. Finally, there are businesses which I just keep watching from a distance: Rivian, Fuel Cell Energy, Plug Power, Green Hydrogen Systems, Nel Hydrogen, and Next Hydrogen.
The other classification is based on the concept of owners’ earnings such as defined by Warren Buffett: net income plus amortization minus capital expenses. Tesla, PGE, Energa, ZPUE, Tauron, First Solar, SolarEdge – these guys generate a substantial stream of owners’ earnings. The others are cash-negative. As for the concept of owners’ earnings itself, you can consult both the investor-relations site of Berkshire Hathaway (https://www.berkshirehathaway.com/ ) or read a really good book by Robert G.Hagstrom « The Warren Buffett Way » (John Wiley & Sons, 2013, ISBN 1118793994, 9781118793992). I guess the intuition behind hinging my distinctions upon the cash-flow side of the house assumes that in the times of uncertainty, cash is king. Rapid technological change is full of uncertainty, especially when that change affects whole infrastructures, as it is the case with energy and propulsion. Besides, I definitely buy into Warren Buffett’s claim that cash-flow is symptomatic of the lifecycle in the given business.
The development of a business, especially on the base of innovative technologies, is cash-consuming. Cash, in business, is something we harvest rather than simply earn. Businesses which are truly able to harvest cash from their operations, have internal financing for moving to the next cycle of technological change. Those in need of cash from outside will need even more cash from outside in order to finance further innovation.
What’s so special about, cash in a business model? The most intuitive answer that comes to my mind is a motto heard from a banker, years ago: “In the times of crisis, cash is king”. Being a king means sovereignty in a territory, like “This place is mine, and, with all the due respect, pay respect or f**k off”. Having cash means having sovereignty of decision in business. Yet, nuance is welcome. Cash is cash. Once you have it, it does not matter that much where it came from, i.e. from operations or from external sources. When I have another look at businesses without positive owners’ earnings – Nuscale Power, Rivian, Fuel Cell Energy, Plug Power, Green Hydrogen Systems, Nel Hydrogen, and Next Hydrogen – I shift my focus from their cash-flow statements to their balance sheets and I can see insane amounts of cash on the assets’ side of the house. These companies, in their assets, have more cash than they have anything else. They look almost like banks, or investment funds.
Thus, my distinction between business models with positive owners’ earnings, on the one hand, and those without it, on the other hand, is a distinction along the axis of strategic specificity. When the sum total of net income and amortization, reduced by capital expenses, is positive and somehow in line with the market capitalization of the whole company, that company is launched on some clear tracks. The business is like a river: it is predictable and clearly traceable in its strategic decisions. On the other hand, a business with lots of cash in the balance sheet but little cash generated from operations is like lord Byron (George Gordon): those guys assume that the only two things worth doing are poetry and cavalry, only they haven’t decided yet the exact mix thereof.
That path of thinking implies that a business model is more than a way of conducting operations; it is a vehicle for change through investment, thus for channeling capital with strategic decisions. Change which is about to come is somehow more interesting than change which is already there. Seen under this angle, businesses on my list convey different degrees of vagueness, and, therefore, different doses of intellectual provocation. I focus on the hydrogen ones, probably because in my country, Poland, we have that investment program implemented by the government: the hydrogen valleys.
As I have another look at the hydrogen-oriented companies on my list – Fuel Cell Energy, Plug Power, Green Hydrogen Systems, Nel Hydrogen, and Next Hydrogen – an interesting discrepancy emerges as regards the degree of technological advancement. Green Hydrogen Systems, Nel Hydrogen, and Next Hydrogen are essentially focused on making and supplying hydrogen. This is good old electrolysis, a technology with something like a century of industrial tradition, combined with the storage and transport of highly volatile gases. Only two, namely Fuel Cell Energy and Plug Power, are engaged into fuel cells based on hydrogen, and those fuel cells are, in my subjective view, the real deal as it comes to hydrogen-related innovation.