Rupert Merer: Great. Thanks. And a follow-up on that. So you’ve talked about some of the advantages you’re going to have scaling up your Bipolar Plate in MEA. Of course, a big part of your cost is coming from balance of plan. Can you give us an update on the cost reductions you’re seeing there and the commitments from your suppliers to bringing their cost down to where they need to be?
Randy MacEwen: Yes. Great question. And I think it’s worth noting too. Like we’re working now on our ninth generation of fuel cell engine. And we’ve learned a lot through eight generations as you would expect, and including eight generations operating in the field. So we have a massive competitive advantage on this front. But what I would say is we kind of — if you look at the ninth generation, we have more of what we characterize as an open architecture, and this has enabled us to integrate the DC/DC but also reduce significantly the number of parts, reduce the volume and the weight and improve the powertrain integration and ease of service, but also significantly reducing the manufacturing time or the assembly time, so this is all going to help reduce costs and improve the total cost of ownership for customers.
What I would say is the balance of plant component is a very significant cost reduction initiative at Ballard. We have a fairly large balance of plant team that is working with the supply chain every day on making sure we’re improving performance, reliability, availability and uptime, warranty terms, payment terms but importantly, moving down costs. And we’ve seen a step change cost reductions on a number of components that will be coming into production in 2025. So we’re pretty excited about some of the cost reductions we’re seeing on the balance of plant components. And we look forward to kind of unveiling the ninth generation of product, including some of the metric improvements that we’re seeing there.
Rupert Merer: That’s great. Thanks for the color.
Randy MacEwen: Yes. Thanks, Rupert.
Operator: The next question comes from Jordan Levy with Truist Securities. Please go ahead.
Jordan Levy: Good morning, all and thanks for taking my questions. Maybe just to start on the stationary side, as you see work and some of the momentum there with your customer in Europe, maybe if you could just talk to kind of the opportunity size over in that market near-term and then how you see that progressing over the next couple of years?
Randy MacEwen: Yes. I would say so far, we’ve been fairly constrained in our view on the market opportunity size for kind of the total TAM for the stationary power market. We characterize it kind of around $4 billion. I think that’s dramatically understated. I think what’s changed in the last year since we kind of assessed that $4 billion market opportunity is really the data center market opportunity. Obviously, there’s a lot of publications out the last six months on the growth and the expected growth of the data center market. And the number one challenge the data center operators have, particularly the hyperscalers is the access to green energy. And then I would say, number two, importantly, is having the opportunity to get permitted quickly.
And one of the challenges with permitting is to make sure that you have total clean energy solutions, and we’re seeing a number of markets that are cracking down to make sure that backup power is also clean energy solutions. So we see a very significant market opportunity for data centers. And that’s a market that I think is going to take that TAM significantly higher. So we have more work to do this year with a couple of key partners that are very large players in the data center market to kind of validate that TAM. But I would say, this is going to be a market that we’re going to see a lot of lumpiness, and we expect to see more opportunities in 2024. Obviously, we’ve announced this 15-megawatt opportunity orders. We expect to see more developments in this market in 2024.
That will really set us up in 2025 and 2026 to make sure that we have the right partners and customers to really move forward in that market.
Jordan Levy: Appreciate that. And then as a follow-up, a separate topic, recognize the solid benefits for the FC and maybe some of the other credits that you can realize from the Rockwall plant. But maybe just talk to how important you see finalized PTC guidance to the local market opportunity for that plan and maybe more broadly the investment case for Rockwall?
Randy MacEwen: Yes. First of all, Rockwell is designed to provide us with product that we can use globally, frankly. But it’s going to be used to provide products primarily for the North American and European market. And that will take us, in my opinion, likely through to at least 2030. So we have very good kind of capacity coming out of Rockwall and very cost effective and efficient additional incremental phasing if we wanted to scale that up in the future. So in terms of the PTC, we have the guidance that was published in December. The whole industry has provided feedback. I personally have talked to the US DOE recently about the volume of feedback they’ve received and the kind of the nature of the feedback. So there’s a lot of work going on there with the IRS and the DOE looking at the feedback to kind of square the objectives of making sure that they have the right incentive mechanisms to support the growth they want while also trying to make sure that the hydrogen that is produced has the clean hydrogen attributes that the policy is targeting.
There’s a lot of debate around the regionality, the additionality and the time matching. I think regardless of how this gets settled, there’s really no major impact to us from the sales opportunities that we see through 2030 for Rockwell. Really, I think the cost and availability of hydrogen with the PTC, even in the constrained case where they take the most onerous — or their most restrictive interpretation of the PTC still provides us with the cost of hydrogen that is significantly lower than it is today. I think with $3 per kilogram production tax credit for clean hydrogen as that’s defined, you’re probably looking at around 50% of the cost of green hydrogen being subsidized. So, for us, we view this as a really significant enabler to the market.
Of course, we’d like to see the most flexible interpretation of PTC, but we’ll see how that shapes up. We’ve submitted our response to the guidance and are waiting to see how that bakes out.
Jordan Levy: Super helpful. Thanks so much.
Randy MacEwen: Thank you.
Operator: The next question comes from Craig Shere with Tuohy Brothers. Please go ahead.
Craig Shere: Good morning. Thanks for taking the question. To start with, give or take, you’re bleeding about $20 million cash a quarter in operating cash flow. And I understand you’re saying that your margins will — gross margin will approach breakeven by the fourth quarter on higher volume, but higher volume can have a working capital impact. And then you’ve already alluded to a seasonality like the first half of next year might then return to lower volumes and negative margins. So, just in terms of this $20 million cash burn from operating cash flow, do you have any trends, color, expectations heading into the fourth quarter and first half next year about what we might anticipate.
Paul Dobson: Yes. So, thanks for the question. It’s something that we look at all the time is this is still a relatively immature market and the impact on our cash flows. When we look at different scenarios all the time. What we have to factor into that, though, is balancing our — what’s in our sales pipeline and talking to customers, their expectations, they want a supplier that is going to be able to grow with them as they deploy these — their various fleets and various applications. Also, our investments in products and to reduce our product cost, as we talked about, not only decreased the unit costs, but increase the performance and quality and the investment in manufacturing to enable the scale benefits and grow. And you’re balancing all of that against the cash on hand.
And I think we’ve said in the past that we’re looking at our funding and seeing all of these coming together and seeing that we’re going to need funding, additional funding probably in the 2026, 2027 timeframe. And so we’re looking at various ways of doing that. We are very fortunate to announce the DOE grants and the investment tax credits. As Randy alluded to, there are other things that we’re looking at as well, non-dilutive financing that is going to be helpful there. And we’re also having a hard look at all of our activities across the business and our — where we’re doing business in various locations and finding ways of redirecting spending on reducing overall spending on both OpEx and CapEx and to kind of rationalize the product set and the rest of our costs.
