Bloom Energy Corporation (BE) Q2 2020 Earnings Call Transcript

Bloom Energy Corporation (NYSE: BE) Q2 2020 earnings call dated July 28, 2020

 

Corporate Participants:

Mark Mesler — Vice President of Finance and Investor Relations

KR Sridhar — Founder, Chairman and Chief Executive Officer

Greg Cameron — Executive Vice President and Chief Financial Officer

Analysts:

Michael Weinstein — Credit Suisse — Analyst

Stephen Byrd — Morgan Stanley — Analyst

Mark Strouse — J.P. Morgan — Analyst

Benjamin Kallo — Robert W. Baird & Co. — Analyst

Colin Rusch — Oppenheimer & Co. — Analyst

Pavel Molchanov — Raymond James & Associates — Analyst

Presentation:

Operator

Good afternoon and welcome to the Bloom Energy’s Second Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mark Mesler, Vice President of Finance and Investor Relations at Bloom Energy. Please go ahead.

Mark Mesler — Vice President of Finance and Investor Relations

Thank you. Good afternoon all. We appreciate you joining us on Bloom Energy’s second quarter 2020 earnings conference call. To supplement this conference, we filed our Q2 2020 shareholder letter and earnings release with the SEC and have posted it along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website.

The matters we will be discussing today include forward-looking statements regarding future events and the future financial performance of the company. These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on forms 10-K and 10-Q, which identify important risk factors, including those related to the COVID-19 pandemic that could cause actual results to differ materially from those contained in the forward-looking statements. These include statements about the effects of COVID-19 on the company’s business results, financial position, liquidity, demand for our Energy Server and new applications, timing of new applications and the supporting market ecosystem and outlook. We assume no obligation to revise any forward-looking statements made on today’s call.

During this call and in our Q2 ’20 shareholder letter, we refer to GAAP and non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles and are, in addition to and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between the GAAP and non-GAAP financial measures is included in our Q2 2020 shareholder letter.

Joining me on the call today are KR Sridhar, Principal Co-Founder and Chief Executive Officer and Greg Cameron, Bloom’s Chief Financial Officer. KR and Greg will review the operating and financial highlights of the quarter, and then we will take questions. I would also like to note that we are all dialed into this call remotely, so we apologize in advance for any audio issues that may occur.

I will now turn the call over to KR.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Good day, and thank you for joining us. I’ll talk about our business performance and strategy and then turn it over to Greg to walk through our financial performance followed by Q&A.

When we last spoke on our first quarter earnings call, we were in the early stages of the COVID-19 pandemic and were uncertain about the length of the lockdown, the stress our public health system would face, the effect on our economy and the implication for our business. Fast forward one quarter and COVID-19 remains a significant public health crisis in the U.S. and the rest of the world. This is a fluid, challenging and uncertain time for all of us. We send our prayers to people at home and around the world who have been affected by COVID-19. We convey our gratitude to the frontline workers who are working tirelessly to serve all of us.

In times like this, all businesses and all of their employees are being tested. Bloom Energy is no different. I’m exceptionally proud of how the Bloom Energy team is rising up to the challenge. The team has demonstrated grit, resiliency, resourcefulness and a deep commitment to excellence. At the height of the crisis, Bloom refurbished and supplied over 1,200 ventilators and rapidly deployed two hospital microgrids. We implemented new COVID-19 workflows and protocols at our factories and installation sites, prioritizing the safety of our employees.

Over the last few months, our engineering team developed an affordable and innovative splitter device that can service four patients with one ventilator and obtained FDA approval for it. Our goal is to provide it at cost to the people and places that need it. We think it could be a life-saving innovation for the emerging nations where COVID-19 is on the rise.

Our community response to COVID-19, combined with our strong second quarter performance and the new products and collaborations we announced speak to our culture and the kind of spirit, focus and determination that characterize the Bloom Energy workforce. I’m humbled by their dedication, and my heartfelt gratitude goes out to the team.

Now I want to offer some commentary on the highlights and achievements in the second quarter. Our manufacturing operations, maintenance and service functions and field installation teams have continued to operate and sustained our core business throughout this crisis. As we announced earlier this month, we installed 306 systems in Q2, which is 20% higher than the first quarter of this year, and significantly better than we anticipated heading into April. Considering the restrictions and uncertainties in the macro environment and that our installation process encountered many COVID-related delays, this is a truly remarkable achievement.

In the second quarter, we have further strengthened our relationships with our public utility partners by expanding our relationship with Duke Energy and adding a new financing partner, NextEra. The two transactions were for 28.75 megawatts, and we look forward to many more such transactions with them.

In addition to installing systems for U.S. commercial and industrial customers, we built three sites for U.S. utility partners. One was a four-story tall, 6-megawatt power tower in New York for the Long Island Power Authority. Two other sites were AlwaysON Microgrids in Los Angeles for Southern California Gas Company. These on-site microgrids will provide clean, affordable and resilient energy to key facilities and enable SoCalGas to provide safe and reliable service to their 22 million customers.

Bloom Energy, at its core, is a technology company transforming the energy sector. We are a global leader in our field. The Bloom Energy platform enables us to commercialize new features with low capital costs and adapt to new market requirements rapidly. We develop these new features for applications with large market cycles. In commercializing these new applications, we have forged win-win partnerships with industry-leading partners who co-invest in our commercialization and assist us in opening up new markets. These partnerships follow a similar approach to our existing partnership with SK in the South Korean market, which has already resulted in sales of 120 megawatts of fuel cells in South Korea and generated over $1 billion in equipment and future service revenue.

Partners can add great value by bringing strong regional expertise in the areas of sales and marketing, installation, financing and service. Our partners recognize that Bloom’s technology is critical for them to maintain market competitiveness. To that end, I’m excited to discuss two very important developments that we recently announced.

First, the shipping industry has a substantial opportunity and a real need to reduce emissions and improve air quality on seas and at ports across the world. To serve this need and capitalize on this commercial business opportunity, in late June, we announced a joint development agreement with Samsung Heavy Industries of South Korea to develop fuel-cell-powered ships using Bloom Energy Servers. Samsung has set a goal to replace all existing main engines and generator engines with our highly efficient solid oxide fuel cells. With this move, Samsung has the potential to lead the industry in helping their customers meet the International Maritime Organization’s 2030 and 2050 environmental requirements.

Because the fuel cells create electricity through an electrochemical reaction without combusting fuel, these ships would be able to improve air quality by reducing particulate emissions, NOx and SOx, by more than 99%. They will also reduce carbon emission. Our target is to present the design to potential customers in 2022. Based on market analysis, both our companies anticipate that the Bloom Energy Servers on Samsung ships will grow to 300 megawatts annually once we have reached commercial production.

Next, I’d like to talk about hydrogen. As some of you may recall, in June 2019, we announced that our fuel cells could operate with hydrogen as a fuel. Just two weeks ago, we announced that we are entering the commercial hydrogen market by introducing two products: one, hydrogen-powered fuel cells that can produce zero-carbon electricity; and two, electrolyzers that produce renewable hydrogen. We will introduce both products in South Korea first. We chose our market entry to deepen our highly successful partnership with SK E&C and to meet the South Korean government’s mandate for building a hydrogen economy.

The law requires the construction of 15,000 megawatts of hydrogen fuel cells and 1,200 hydrogen fueling stations for 6.2 million cars by 2040. By the end of 2020, we expect to ship a 100-kilowatt pilot hydrogen server to South Korea to power an SK E&C facility in early 2021. The second phase, a 1-megawatt hydrogen server installation, is targeted for a 2022 deployment. SK estimates our market opportunity for fuel cells in South Korea will be 400 megawatts per year in the future.

The second aspect of our entry to the hydrogen market is our electrolyzers. It is a “back to the future” moment for Bloom to run the platform in Mars mode. The company’s origins can be traced to the NASA Mars electrolyzer projects. Bloom is capitalizing on its leadership in commercial solid oxide technology and reversing the process it uses for fuel cell power generation. Operated in reverse, the product is called an electrolyzer and it takes terrestrial renewable power and produces hydrogen from water. The renewable hydrogen when produced in this manner can fuel cars, power resilient AlwaysON Microgrid, or be injected into natural gas pipelines to reduce carbon emissions.

Since 2002, Bloom has been awarded 19 patents for its solid oxide electrolyzer technology. The rapidly reducing cost of bulk, solar and wind intermittent power should help the hydrogen generated with Bloom electrolyzers reach the U.S. Department of Energy’s goal of gasoline price parity faster than other technologies.

I would like to now talk about transitions in the Bloom leadership team. We welcome Carl Guardino in the newly created role of Executive Vice President, Government Affairs and Policy, effective August 3. Carl comes to us from the Silicon Valley Leadership Group, a prominent public policy trade association that represents more than 350 of Silicon Valley’s most respected companies. In his role as President and CEO, he has championed public policy at the local, state and federal level for more than three decades. Known throughout the Bay Area as a highly successful consensus builder, Carl will focus on engaging policymakers and key stakeholders to help us build a energy-resilient post-COVID world.

Our Chief Marketing Officer, Matt Ross, will retire from Bloom for medical reasons and focus on his health. All of us at Bloom will miss Matt’s daily presence and send our prayers for his well-being. Matt, we are extremely grateful for your amazing contributions to the company and for your help in building our amazing Bloom culture. Thank you.

Sharelynn Moore will be joining Bloom Energy as Executive Vice President and Chief Marketing Officer on August 3. She previously served as Senior Vice President of Networked Solutions at Itron where she had P&L responsibility for Itron’s largest business segment. In addition, Sharelynn had responsibility for Itron’s smart city strategy and business. Sharelynn brings more than two decades of experience in the energy and technology sector and a very strong background in all aspects of marketing. We are delighted to welcome her to the leadership team.

With that, I will turn it over to Greg.

Greg Cameron — Executive Vice President and Chief Financial Officer

Thanks, KR. It’s great to have completed my first quarter at Bloom. When I began my next chapter with this team, I knew they had something very special. But as I’ve engaged with the operations and learned more about the products’ platform capability, I’m even more excited about the opportunities for this company and its impact on our world.

Based upon the products’ design, it can serve as a platform from which to evolve into different applications with limited R&D or manufacturing investment. The core product or platform is essentially the same in each of these applications but, of course, will be optimized to the specific purpose. This has significant implications for our operating and financial model as we address each of these new markets and applications. This is a key element to my confidence that Bloom will continue to grow through new applications and new or expanded markets. My role is to provide the operating cadence, transparency and funding to ensure we execute the playbook.

With that said, let me turn to the financials. For your reference, we’ve provided a summary of key financials along with a summary P&L and balance sheet. I do not plan to walk through each slide, but I do want to emphasize some of our key deliverables and provide context for our strong second quarter performance. Given the operating environment, evaluating our results versus prior quarter is more relevant comparison and we’ve made progress on nearly every metric. I’d also note comparisons versus prior year are less relevant as we benefited from a PPA upgrade that did not repeat this year.

Revenue for the second quarter was $187.9 million, up 19% from prior quarter and an equal increase on the number of acceptances. On gross margin, we continue to make progress. We delivered a 30 basis point improvement versus prior quarter as we continue to improve our profitability through lower product costs and improved service business performance. Adjusted EBITDA was a positive $2.1 million, driven by a strong gross margin and lower operating expenses.

We ended the quarter with $324.1 million in consolidated cash and short-term investments. Our cash balance, excluding restricted cash, is $144 million, a decrease of $36 million from prior quarter. The decrease is primarily due to a timing of $25 million in cash collections for a couple of installations that occurred outside the quarter but did not impact revenue.

Let me now address our capital structure. We are committed to being a well-capitalized growth company that has the resources to develop, sell and service our products. We are an attractive long term partner who can work alongside some of the largest companies in the world and capitalize on opportunities to service existing markets and enter new ones. One of my first priorities as CFO was to begin the journey of aligning our liquidity and balance sheet with the size of our current business and the significant future potential of Bloom. This approach comes with an eye of creating value for all of our investors. With the assistance of our advisers and the guidance of our Board, we continue to evaluate options to improve our capital structure and align it with our growth initiatives. We will provide updates as we make progress on these efforts.

We executed very well operationally in the second quarter. The pandemic continues to provide risk to our supply chain, manufacturing capability and the completion of installations. As we discussed last quarter, this can impact the timing of revenue recognition as delays could move revenues outside a reporting date. While we have successfully navigated these challenges in the second quarter, the potential risk remains in the timing of revenue. For this reason, we will continue to suspend quarterly guidance.

Despite the macro environment, no customer had canceled their contract or had asked for a project to be delayed. Additionally, we continue to have a strong pipeline. This demonstrates the importance of our products and the quality of our backlog. As we discussed previously, for the balance of the year, we expect our revenue and quarterly cadence to be similar to last year. We’ve gained better clarity around our ability to install our systems in the current environment and we have re-initiated our production ramp that will increase our system output versus the first half.

In addition to the technology milestones we’ve announced over the past few weeks, we continue to make progress on our core platform – the Bloom Energy Server. We remain on track to introduce Bloom 7.5 with field tests later in the year and ramp production next year. I’d like to emphasize that over the past two years, we reduced our product cost on current technology of Bloom 5.0 by 30% through improved design, manufacturing and supply chain improvements. These benefits will be leveraged in Bloom 7.5, and when coupled with increased power density, we expect to maintain our current trajectory in driving costs down.

We continue to make progress on finding and working with partners that can allow us to globally scale. KR mentioned our new relationship with NextEra and our expanded relationship with Duke Energy. Our strong relationship with SK in South Korea remains a template of cooperation we hope to find both in the U.S. and in new markets. Strong operators with sufficient capital and resources dedicated to deploying our technology will provide Bloom the opportunity to invest and develop markets while managing operational complexity.

I want to summarize that Bloom had a very strong operating quarter. We are finding partners that will help us scale and are bringing exciting technologies to market. We’re working to align our capital structure with our long term growth initiatives. We feel Bloom is uniquely positioned commercially and have the resources to capitalize on our growth tailwinds.

With that, operator, let’s open it up for questions.

Questions and Answers:

 

Operator

[Operator Instructions] Your first question comes from Michael Weinstein with Credit Suisse. Please go ahead.

Michael Weinstein — Credit Suisse — Analyst

Hi, good afternoon guys.

KR Sridhar — Founder, Chairman and Chief Executive Officer

How are you, Michael?

Michael Weinstein — Credit Suisse — Analyst

Hey, good. Can you talk a little bit about the expense ramp? You said you expect the expense ramp to be declining going into next year. Where do you stand now? Where do you think you’ll be next year?

Greg Cameron — Executive Vice President and Chief Financial Officer

Yeah, Mike, let me take that. I think on the product cost, we talked about it in the script of it being 30% down over the last two years as we’ve really worked on our current technology. In fact, that is accelerating. I’d say over the period ’18 to ’19, we were down 13% quarter-over-quarter and 19% last year to this year, and we continue to see that as we go through — look sequentially into this year as well. I think what you’re going to see is a continued decline around that same pace every quarter, about the same level as we go through. We’ll introduce 7.5, but it won’t be a step function as we bring it in. As we ramp that product up, we think we’ll continue to get to those same type of levels of the 15% to 20% that we’ve seen over the last couple of years.

Michael Weinstein — Credit Suisse — Analyst

I mean do you think with 7.5, you’ll achieve like a 33% reduction that would be commensurate with a 50% increase in power density?

Greg Cameron — Executive Vice President and Chief Financial Officer

Yeah, it will. It will come in over time, right? And that’s where it’s important as you introduce the new technology and bring that in. You have all the learnings that you get from your supply chain, you have your learnings that you get from your manufacturing process. So we plan to introduce that ramp in a way in which we will get the levels of savings that you’ve seen over the last couple of years. So I wouldn’t expect a step function at all, and that’s what I mean by trajectory as we go forward. You’ll see that similar movement over the next few years and we — as we look out forward, we see that curve continuing to bend as we continue to take cost out of 7.5 as well.

Michael Weinstein — Credit Suisse — Analyst

So along those same lines of thinking, you’ve announced a lot of opportunities in Korea over the last couple of weeks. And I’m wondering if — is that — do you think those opportunities might cause you to focus more on Gen 5 improvements and rather than Gen 7.5 developments as you go forward?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Michael, this is KR. For us, it is an “and” and not an “or.” We will do both. As you have seen, the beauty of our platform is it gives us the ability to introduce a new platform — a new generation of that platform when we went from 2.5 to 5, where the 2.5 costs are coming down, the 5 got introduced with an option — with a great opportunity to bring down cost. And what you saw as we ramped it up quarter by quarter to a sustainable level when it got to full ramp, we saw the benefits of it while 2.5 was continuing to fill the gap and the cost of 2.5 was coming down.

Now it is that same approach that we are going to bring to the layers that we put on top of the platform. The marine is a layer. The hydrogen electrolyzer is a layer. The hydrogen fuel cell is a layer. When we do these things, we are confident that working with our partners, we have an opportunity to actually do these things in a capital-efficient, resource-efficient way, working with them and be able to do all these things without having to deprioritize something.

Michael Weinstein — Credit Suisse — Analyst

Got you. There’s a lot of opportunities to try and pursue. So anyway, thank you very much, I’ll get in the back of the queue. Thank you.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Yes. It’s all about focus and it’s all about looking at each program and staffing it right and that’s why Greg talked about making sure that we have the right partners who can open up real markets for us that we believe in and we can go and execute to them.

Operator

Your next question comes from Stephen Byrd with Morgan Stanley. Please go ahead.

Stephen Byrd — Morgan Stanley — Analyst

Hi, good afternoon.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Hi, Stephen.

Stephen Byrd — Morgan Stanley — Analyst

I just wanted to wish Matt Ross well. I hope he is well and hope his health continues to be okay, certainly thinking about him. I wanted to just cover a couple of things around the pipeline of new sales. I guess in terms of on the positive side, with respect to existing customers, are you seeing any sort of increases in share with existing customers? And then just on the risk side, are you seeing any cancellations in the pipeline as you go through this process of sales?

KR Sridhar — Founder, Chairman and Chief Executive Officer

So on the — we don’t comment on intra-year bookings and we are going to keep it that way, but here is what we can share with you. It’s that on our backlog that we have told you and what we have showed you, there are no cancellations. There is no customer telling us that they don’t want to receive our systems. In fact, if anything, in a few cases, we have seen a request of can we do something earlier rather than later. Greg, do you want to add anything else to that?

Greg Cameron — Executive Vice President and Chief Financial Officer

No. I think as we’ve gone through and looked at it, it’s — where we look at the quality of our pipeline and we look at the quality of our backlog, we obviously don’t publish that every quarter because there’s some volatility to that. But I do want to emphasize, yes, specifically about customers’ delays, projects canceled, all those things, I would say none of that we’ve experienced at all. If anything, we’ve had a general pull from customers to continue to get our systems to their sites because it gives them the resiliency that they need, as well as the cost savings.

Stephen Byrd — Morgan Stanley — Analyst

Understood. And in terms of just — I guess shifting over to the Korean market. Obviously, there’s a very large market for hydrogen fuel cells. Could you talk a little bit about the timeline over which you would transition away from your methane-based fuel cells over to hydrogen-based fuel cells? Is that something that, given policy in the nation, that you’re going to need to do it fairly quickly or do you see sort of a long glide path ahead of methane-based fuel cell sales? Over what time frame roughly should we sort of think about that transition to hydrogen for your product sales?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Stephen, that’s a wonderful question. And the beauty of the Bloom platform is when we designed it, and I think you know this, going back to our early founding documents, we wanted to make our platform and our technology fuel-agnostic. Whether it is natural gas or hydrogen, our systems are going to be able to operate and not just operate, operate best in class with either of those fuels. So — and the beauty of our platform is we are future-proofing our customer. When they buy a product from us today for natural gas, should hydrogen become available to them? It’s a fairly easy swap for them to switch to that fuel.

And remember, our hot boxes, typically today, lasts about five years. So every five years, you have this opportunity and even in between, you can go and make that change if you need to. So from our perspective, the beauty and the strength of the Bloom platform is we can develop both and we can put both out in the market, and we can prove it out and we can be the best in class and best in value. When those fuels come into the market and how they play is going to be dictated by policy, by geography, by nations, by what they want to do. We don’t control that. To some extent, as a citizen of the world, we would like to see this hydrogen economy come sooner rather than later because it’s better for the planet. But we don’t control it, but we don’t need to control it because we are future-proofing ourselves, as well as our customers by the architecture that we have chosen.

Stephen Byrd — Morgan Stanley — Analyst

Understood. And just to maybe follow up on that and I’ll get back in the queue, the — is there a possibility of sort of a smooth transition in terms of that shift in Korea towards hydrogen or do you see a period where you’re going to need to replace a lot of the stacks, a lot of the hot box sort of replacements? Broadly speaking, is that — is it possible to kind of allow for that smooth transition or do you see a sharper transition?

KR Sridhar — Founder, Chairman and Chief Executive Officer

I think it’s going to be a smooth transition and that ramp is going to last for a long period of time, simply given the size of this market, simply given the physical amount of megawatts that you’re talking about around the world, not just for us, but for anybody else to be able to transition from the natural gas economy to the hydrogen economy. It is going to be a gradual ramp that’s going to happen. But again, here’s where I can emphasize what we do. Our manufacturing lines, our supply chain, they all have the same common elements. The same operator who knows how to put together the natural gas fuel cell knows how to put together the hydrogen fuel cell. The same machines that build the natural gas fuel cells build the hydrogen fuel cells. The same install people do, the same kind of monitoring we do.

So from our perspective, if you told us to wake up tomorrow morning and switch everything once we have this commercial unit done, we should be able to switch, and that is the beauty of what we bring to the table. Right? And once our hydrogen product is commercialized and we have given you that timeline, we can, on the fly. And my vision — and I’ll paint this for you, the best-in-class automotive factories when they came out in Japan on an assembly line simply did not have to change lines. You could have an ambulance, a fire truck, a off-roader, a sedan and a roadster, all following one after another in an assembly line. And you can just do them without stopping the line.

For us, whether it’s a hydrogen fuel cell or a natural gas fuel cell, our assembly lines can just crank them out. And it just depends on when the market wants it. We would like to see the market want it sooner, but that depends on how soon the nation and the countries embrace hydrogen.

Stephen Byrd — Morgan Stanley — Analyst

That’s really helpful. Thank you so much.

Operator

Your next question comes from Paul Coster with J.P. Morgan. Please go ahead.

Mark Strouse — J.P. Morgan — Analyst

Yeah, hi, this is Mark Strouse on for Paul. Thanks for taking our questions. Just wanted to kind of follow up on some earlier questions. Can you kind of summarize the timeline for both the marine and the hydrogen business as far as how long it’s going to take to reach commercial production, just the start of that. And then once you get to that point, how long does that take before you can fully ramp to achieve some of the numbers that you talked about in the script?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Great question again. Thank you. And so I’ll address one by one. There are three elements to this. Pardon me. I have to answer each one separately, which is, first one is marine, the second one is hydrogen as an electrolyzer, and the third one is hydrogen as a fuel cell. So I’ll address all three.

With respect to the marine, what we have announced is we have formed the — we have a joint development agreement now with Samsung Heavy Industries. We have formed the teams, and the two companies have resourced it such that in the next two years, we will do all the validation testing and all the packaging necessary because our fuel cells, for the first time, will go from a stationary application where it’s on the ground to a mobile application on a ship. So there are changes that have to be made for that on the external, nothing on the internal platform, same exact internal platform adjusted for packaging to be able to deal with a mobile platform.

Number two is similar to cars getting a rating from the Federal Transportation Authority and every part that you have, getting a UL rating, ships have their own certifying agency. It has to go through certification. So this is the activity that will go on for two years. And in 2022, we hope — the two companies hope to go — have this all completed and present a sales proposal to the offtakers of ships, to the buyers of ships. Samsung predicts based on their past history, within two years from then, the first ship using that technology will be out at sea. And they predict in commercial production, we should at least have 300 megawatts a year annually based on their market analysis. So that’s the shipping industry timeline for our marine application.

And again, similar to the answer I gave Stephen from Morgan Stanley on hydrogen versus natural gas, the beauty of our platform, I have to emphasize again, it’s the same units being built in our factories just getting packaged at the very end differently for the ship. So we don’t have to make any changes other than that to what we need to do. It’s the outside packaging, not the internal guts of what we do.

With hydrogen fuel cells, we intend to ship the first field unit, 100 kilowatts, by the end of the year to SK. It will get tested early next year by SK. And also by the end of the year, next year, we would have done a 1 megawatt. The two companies are fully funding that, and it’s fully funded. And after that, it’s purely up to the Korean government in terms of how quickly they want to move. They have indicated their desire to move very fast on creating significant opportunities for the hydrogen fuel cells.

With respect to the hydrogen electrolyzer, this is now — the first part, the hydrogen fuel cells take hydrogen as a fuel and produce electricity with zero carbon in addition to all the benefits that we bring, which is, number one, it’s clean, no NOx, no SOx, no particulates. Number two, it’s on-site, it’s resilient. Forest fires, hurricanes is not going to bother it unlike the grids, so you get all those benefits plus you get to zero carbon. That’s the hydrogen fuel cell.

Now somebody needs to produce that hydrogen. And if you produce that hydrogen like you are today from natural gas, that has a carbon footprint. However, if you use renewable electricity from solar and wind and break water to hydrogen and oxygen using an electrolyzer and use that hydrogen, that is renewable hydrogen with a zero-carbon footprint. That’s our hydrogen electrolyzer product, and we expect that we’ll have our first commercial unit for the hydrogen electrolyzer out next year. Sorry, it’s a long answer but it was three parts.

Mark Strouse — J.P. Morgan — Analyst

Yeah, no, that was extremely helpful. Thank you, KR. And just a quick follow-up. So it doesn’t sound like there’s a lot of investment needed on the hydrogen side but maybe more so on the marine side. How do we think about the investments near term to get those to production? And then longer term, any reason why those two or three businesses would be — have a different margin profile than your core business?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Look, when we evaluate markets and businesses, the way we think about it is, number one, is there a partner who really understands that market and really knows where that market is going and seize a real competitive advantage to putting this into that product and getting the competitive advantage? And ultimately, is there a willingness to pay by the — pay for that advantage by the customer, which is when you command margin? In our opinion, we think in these things that we have announced, based on all the diligence we have done with these amazing global partners, in one case Samsung and in other case SK, that, that is there. So we shouldn’t, in any way, expect why we shouldn’t be able to command the margins that we expect to command, given that these large multinationals have looked around the world and sought us out because we have a unique platform and technology that nobody else has. Okay? That’s number one.

Number two question that you asked was on our spending. And again, I have to emphasize, for all these three applications I talked about, the same factory setups, the same kind of equipment, the same kind of operators and training, it is in the balance of plant and the packaging, which is the external mechanical and how you absorb shock or vibration or tilt. These are the things that you have to add on features. A pretty significant portion of that will be handled by our corporate partners who are going to integrate our platform into the ship, but we will be working closely with them.

So we expect, relatively speaking, the capital investment related to these things to be fairly light on our side. That’s what we expect. But we do expect a certain expense. But I think the key takeaway for you is our early investors and our employees have invested a lot to build this platform. And going forward, we can reap the benefits of all that investment with marginally small amounts of investments, given the opportunity that we have. That’s the takeaway if you’re looking for one.

Mark Strouse — J.P. Morgan — Analyst

Okay, very helpful, thank you very much.

Operator

Your next question comes from Ben Kallo with Baird. Please go ahead.

Benjamin Kallo — Robert W. Baird & Co. — Analyst

Hey, thank you, guys. So thank you KR. And I think following on to that question, just as I look at the addressable markets of three different markets, could you talk about how you allocate capital? And is it just — is it we’re going to grow despite what the margins are in these three buckets because we need to grow in those markets and improve our technology or is there a threshold on some type of returns? That’s my first question.

And then my second question is, I’ve been reading different articles, most recently that Capital Dynamics did a deal with Switch, where there’s lithium-ion batteries from Tesla, and I’m just wondering where you stand on your levelized cost of electricity and if that’s how you frame it when you sell to a data server company or what have you, or if you’re selling, it gives lithium ion. Thanks.

Greg Cameron — Executive Vice President and Chief Financial Officer

Hey, Ben, it’s Greg. Let me take the first half of the question, then I’ll turn it over to KR on the batteries. So on the investment of capital, right, building on KR’s answer from last time, the great thing that I’ve really seen as I’ve gotten in here and understand how the product is designed and built and executed, a lot of that investment’s already been made in our supply chain, in our production capability, in our distribution, etc. So one of the things I’d like to do as I talk to people is just talk about how big this company is and how we’ve built out all those with a great growth trajectory on it.

As we think about making capital investments and where do we get the return on our capital and trade-offs between that, as we look at our product roadmap on the things that we’ve introduced so far and are attempting to commercialize or things that are still waiting to come through that pipeline and be commercialized, we think that the majority of the application and the majority of the product base that was in there is going to be very similar. There may be differences to each of those systems in order for it to do its specific purpose, but the vast majority of that product and how it looks will look very much the same.

So it is not in a situation where you were, say, where you’ve got adjacencies to a product and you’re building out a whole new technology that you’ve got to go through the bugs and bringing it, designing it, engineering and building our supply chain, working with that and then taking it to market. So it works all through the same process from an application standpoint. As we think about the returns of those in each of those markets, it’s one of the reasons that things wait sometimes to be introduced. KR talked about the hydrogen and just whether it’s the electrolyzer or the fuel cell, you really sometimes need to wait for — not necessarily for your individual technology to be developed. Sometimes, it’s waiting for the market to be developed so you can then sell into that market with your partners in order to achieve the scale and returns that you need.

I think from a global business model, when we think about it, since there’s so much similarity along the product and since there is limited capital investment to move across those products and the thing I would point to is, we expect within our current planning to stay kind of at the same run rates around R&D and capex and things as we bring them different products to market. We expect a similar type of financial profile both in where we think our prices will be relative to each of those application, where we think our margins will be, what type of service revenues and margins we’ll get on over the life of those individual products as we expand with our customer relationships. So they’re not dramatically different. They’re not dramatically different business models because it’s relatively the same product being used in different applications.

Hope that’s helpful. And then I’ll turn it over to KR on your second question.

Benjamin Kallo — Robert W. Baird & Co. — Analyst

Thank you very much. That’s great.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Hey, Ben. So this is a question we get all the time, right, batteries versus fuel cells. You can go and do a lot of research from everybody, analysts, people who study this academically, the DOE labs, as well as industry publications. The — even when you look at it, if you want power for a few hours at a time and it is relatively small amount of power as a backup, batteries are a solution. If you wanted more than seven, eight hours either into a watch, if you want it for more than a day, it is, hands down, fuel cells will be better. So if you are sticking with the 20th century model of putting Band-Aids to an electric grid because the grid only fails every once in a while, you’re not falling down every day and hurting yourself. So just having a few Band-Aids is fine. Batteries are okay.

However, if you are dealing with what is going on today in the world, where the grid fails so often and many times for long periods of time and it’s not as reliable, it’s not as resilient, batteries cannot do it because it’s like a bank and you can keep taking money out but there’s only so much money that’s in the bank. After that, if there’s no economic activity and no economic growth, you don’t have money. And so that’s the kind of way to think about fuel cells.

So depending on the application, it is an “and.” Data centers will have batteries and they will have it for peak savings. They will have it for short duration and uninterrupted power. But for long duration, non-interrupted power, especially in city centers and other places where if you don’t have power generation happening right there, you don’t have a large renewable farm right there, you need on-site generation to be reliable. And there, the LCOE is not relevant. What is relevant is behind-the-meter electricity cost, and that’s what Bloom plays in and we have a tremendous value proposition for that.

Benjamin Kallo — Robert W. Baird & Co. — Analyst

Great, thank you very much. I’ll leave it there.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Sure.

Operator

Your next question comes Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch — Oppenheimer & Co. — Analyst

Thanks so much. As I may have missed it, but can you give us a like-for-like ASP trend in Asia and the U.S. on a year-over-year and a quarter-over-quarter basis?

KR Sridhar — Founder, Chairman and Chief Executive Officer

I don’t think we break it down between geographies. But we can give you the trend, for competitive reasons.

Greg Cameron — Executive Vice President and Chief Financial Officer

Yeah, we don’t break it down. Yeah, it’s Greg. So we don’t break it down by geography for just that reason that KR talked about. In the shareholder letter, though, we do have some trending around where our total prices are from an ASP standpoint and you can see that trend. I would say in any particular quarter because that includes the installation cost, there may be slight volatilities around that based on the application. So for this quarter, KR talked about a 6-megawatt LIPA structure that went in place and that’s obviously going to be at a higher cost. So it’s going to be in the ASP. But if you’re looking for a trend, I would point you to the — I’d point you to the shareholder letter that’s there.

Colin Rusch — Oppenheimer & Co. — Analyst

Okay. And then as we look at you guys commercializing this electrolyzer technology, how should we think about the cadence of key technical milestones over an X period of time? It sounds like you’re going to have to get through some testing and some approval, those sorts of things. But how should we think about the key benchmarks over the next couple of years on that effort?

KR Sridhar — Founder, Chairman and Chief Executive Officer

That’s a very good question, Colin. And look, the company, like I said, has its roots in hydrogen, hydrogen generation using this technology and fuel generation using this technology, oxygen generation using this technology for Mars. From 2002 onwards, we have 19 issued patents in this area. So there’s active research and we have intellectual property in this area already for a long time. Now what we are doing as we speak is doing some extensive testing, accelerating that work. And the first benchmark you should see is to hear about our — about the introduction of our commercial product next year. And what we expect to show is a best-in-class performance when it comes to electrolyzers. That’s the benchmark to look for.

Once we do that, it’s purely, again, given that we can use our same lines and everything else to operate, it is purely going to be a market pull in terms of how many products we build and who we ship it to, because it’s the same lines that can produce the fuel cells and electrolyzers so we can mix and match as we need.

Colin Rusch — Oppenheimer & Co. — Analyst

Okay, thanks so much, guys.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Sure.

Operator

[Operator Instructions] And your next question comes from Pavel Molchanov with Raymond James. Please go ahead.

Pavel Molchanov — Raymond James & Associates — Analyst

Thanks for taking the question. I want to go back almost exactly one year ago when you talked about California and New York with 100% zero-carbon power standards and the headwinds that this was creating in terms of customer adoption. What’s happened with that issue in the last 12 months? To what extent is this as impactful as you thought it would be a year ago?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Very good question, Pavel. I think it was not even a few months after we spoke the very tragic events up north happened with the forest fires and the wildfires. And it was unfortunate that similar to Hurricane Sandy, similar to the hurricane that happened in Puerto Rico, similar to the same thing here in California, people did not have power. And there were lives lost not because of the national disaster event but because medical attention, medical needs could not be supplied for lack of power. That is unconscionable in the most advanced nation in the 21st century.

So I think for the first time, some people who did not quite appreciate the need for resiliency, as we are dealing with the climate change issues, started to understand that. We’ve had significantly good conversations of an “and” conversation. It is not an “or.” It is not sustainability or resilience. It is sustainability and resilience. We have been very successful in having that conversation, and we’ll continue to have that conversation. And we think the state will be — is very receptive to receiving such a message now, having lived through PSPS, having lived through days of the utility simply shutting the power off. Okay? And during those times, you need systems like what we bring to the table.

And a good example of that for you would be then a emergency hospital had to be stood up in a parking lot for COVID patients. Diesel gensets were not the option because they put out SOx, NOx and particulates that people should not be breathing even when they’re healthy, let alone when they are gasping for their last breath. So Bloom erected a clean, reliable solution for that. We put that, and the state was fully supportive and helped us get that emergency power as quickly as possible.

So there’s tremendous realization and understanding. And there is also understanding that of all the technology that’s out there, Bloom is the cleanest way to take that natural gas and produce power. And also, Bloom is developing solutions with biogas and hydrogen and things that can cut the carbon out. So I think we are sitting in a significantly different place in terms of policy and understanding and need than where we were before. I appreciate you asking that question of what a different place we find ourselves.

Pavel Molchanov — Raymond James & Associates — Analyst

My follow-up is on policy on the other side of the Atlantic. You’ve never historically sold into the European market. But now we’re going to have the European climate law and net zero by 2050. Does that change your perspective on the opportunity in Europe?

KR Sridhar — Founder, Chairman and Chief Executive Officer

Yes, we do. Great follow-up question. We didn’t plan this, but it was the same week that we announced our hydrogen with South Korea that you saw the EU put out its hydrogen roadmap and all the articles that came towards that very aggressive move. So we are looking at that market with cautious excitement, and we hope that we will find the right partners to work with and enter that market at the appropriate time, given the emphasis.

Pavel Molchanov — Raymond James & Associates — Analyst

Appreciate it.

Operator

That is all the time we had for questions. I’ll turn the call back over to KR Sridhar for his closing remarks.

KR Sridhar — Founder, Chairman and Chief Executive Officer

Thank you so much. I really appreciate you all taking the time this afternoon. As you know, we are continuing to innovate and execute on our business plan. We are derisking our business, focusing investments in new applications for our Bloom Energy Server technology, and we are getting the support of very strong partners with real commercial business prospects. We are rising to the challenge and advancing our mission of providing clean, affordable, reliable and safe energy to everyone.

Please stay safe and healthy, and we look forward with hope and optimism to a day where the COVID-19 pandemic is behind us. We appreciate your support and interest in our company. Thank you.

Operator

[Operator Closing Remarks]