Plug Power Inc. (PLUG) Q1 2021 Earnings Call Transcript

Plug Power Inc. (NASDAQ: PLUG) Q1 2021 earnings call dated Jun. 22, 2021

Corporate Participants:

Teal Hoyos — Director, Marketing and Communications

Andy Marsh — President and Chief Executive Officer

Paul Middleton — Chief Financial Officer

Analysts:

Colin Rusch — Oppenheimer — Analyst

James West — Evercore ISI — Analyst

Craig Irwin — ROTH Capital Partners — Analyst

Eric Stine — Craig-Hallum — Analyst

Jeff Osborne — Cowen — Analyst

Paul Coster — JPMorgan — Analyst

Jed Dorsheimer — Canaccord Genuity — Analyst

Amit Dayal — H. C. Wainwright — Analyst

Chris Souther — B. Riley FBR — Analyst

Tristan Richardson — Truist Securities — Analyst

Presentation:

Operator

Greetings and welcome to the Plug Power First Quarter 2021 Earnings Conference. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Teal Hoyos, Director, Marketing and Communications. Thank you. Please go ahead.

Teal Hoyos — Director, Marketing and Communications

Thank you. Welcome to the 2021 first quarter update call. This call will include forward-looking statements. The forward-looking statements contain projections of our future results of operations, or of our financial position or state other forward-looking information.

We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, investors are cautioned not to unduly rely on forward-looking statements and such statements should not be read as a guarantee of future performance or results. And such statements are subject to risks and uncertainties that could cause actual results or performance to differ materially from those discussed as a result of various factors, including but not limited to risks and uncertainties discussed under Item 1a Risk Factors in our Annual Report on Form 10-K for the fiscal year ending December 31, 2020 as well as other reports we file from time to time with the SEC.

These forward-looking statements speak only as of the day in which the statements are made and we do not undertake or intend to update any forward-looking statements after this call or as a result of new information.

At this point, I would like to turn the call over to Plug Power’s CEO, Andy Marsh.

Andy Marsh — President and Chief Executive Officer

Well, thank you, Teal. And good morning, everyone. And thanks for attending our first quarter conference call. We issued our investor letter this morning, which covers our performance for the first quarter. I’d like to comment on a few items before we take your questions.

First item I’d like to highlight is the importance of the resilient green hydrogen network the company is constructing across the United States. We’re presently targeting to have 500 tons of green hydrogen available by 2025 and an additional 500 tons globally by 2028.

The network in the US will go coast-to-coast with sites already targeted for Camden, Georgia to serve specifically Florida, a site outside Lancaster, Pennsylvania, a site west of Fort Worth Texas, a site in upstate New York in Genesee County and a 45-ton plant in Genesee County, New York. The feedstock will be clean electricity generated from Niagara Falls. This will be the largest green hydrogen plant in the world.

What’s important about our plant is there is pent-up demand for green hydrogen solution among our customers today. Over the last few years, our value proposition has expanded beyond improving our customer operations and now is tightly intertwined with companies achieving their CO2 reduction goals.

There are many applications beyond material handling like stationary power, on-road vehicles and other industrial offerings that can only be decarbonized with hydrogen, but to truly decarbonize green hydrogen is required. Our network will not only offer us a revenue and margin opportunity but what I [Phonetic] think about, it’s and accelerator of all our products, both fuel cells and electrolyzers.

Customers want green hydrogen and Plug Power is making that commitment to deliver. One of our advantages in building our network is, unlike the industrial gas companies, we do not have existing fossil fuel base assets. We don’t have to worry about stranding multi-billion dollars of investments. This is an impediment to some companies as they seek to decarbonize. They’re caught in the middle supporting grey or blue hydrogen assets, which are not wanted by companies, governments or the environmental community.

Our network is the hydrogen network for the 21st century and it’s just started. And not only will be delivering green hydrogen but we will deliver it in vehicles that operate from green hydrogen. Plug Power by the way is fuel cells in those vehicles.

Another subject I would like to highlight is that Plug has become a global company overnight. Two obvious examples; our joint ventures with Renault HYVIA and our relationship and the joint venture being established with SK.

Another example of our global efforts is our funnel for the electrolyzer business is already into billions of dollars, with over 80% of the opportunities outside North America. The funnel for vehicles is also similarly distributed and our activity is material handling is rapidly growing in New York.

In 2020, the company was almost exclusively an American company in both sales and opportunities. But over the past six months, the company has been transformed into a global enterprise. And kind of thinking about questions you are going to be asking, finally, we’re almost at the end of the second quarter and we can provide some insight on our progress.

Investors should expect $115 million to $120 million of gross billings for the quarter. This is approximately 40% of our targeted revenue of $475 million per year. Usually at this point in the second quarter where about 33% of our annual revenue will have been achieved. We’re at a run rate that is higher from both the revenue and growth rate level than we’ve experienced in the past. We also foresee a very strong third quarter.

We’re pleased with this level of progress so far this year. So, we’re now ready — Paul and I are now ready to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is coming from Colin Rusch of Oppenheimer. Please go ahead.

Colin Rusch — Oppenheimer — Analyst

Thanks so much, guys. Can you talk a little bit about the contract…

Andy Marsh — President and Chief Executive Officer

Good morning, Colin.

Colin Rusch — Oppenheimer — Analyst

Andy, it’s always great to hear your voice. Can you talk a little bit about the sales process for the green hydrogen? Obviously there is a lot of moving pieces on the demand side from the truck building perspective and availability, plus routes, quantification and whatnot. But could you talk to us about where you are at with your customers in terms of preparation to really roll out fleets and move towards a zero emissions structure for their businesses?

Andy Marsh — President and Chief Executive Officer

Sure. So, Colin, I think the first item is that one of the unique advantage Plug has is that we have demand for our hydrogen products today. So the qualification process for the purity of hydrogen is relatively straightforward and we don’t see that as an impediment at all. As you know, we’re already in the hydrogen delivery business and logistics business. And we’ll have, by the beginning of October, 10 tons of our own capacity. So that’s really not an issue.

So when you start taking a look at it, I think, during the second half of this year, you’ll see a number of commitments for our green hydrogen plants. And I would expect by the end of the year about 40% to 50% of the demand by 2025 will already have in the sales funnel. And most of that will be tied to present applications.

Colin Rusch — Oppenheimer — Analyst

Perfect. That’s incredibly helpful. And then, with the aerospace opportunity here, it’s the first time we’re seeing some real articulation around timeframes and opportunities here. But obviously that’s a very large opportunity that’s incremental. So what you’ve got in your guidance plans that you’ve stated in the past, could you talk a little bit about potential partnerships, new strategic positioning on that opportunity as you go forward and how we should think about the cadence of [Indecipherable] coming out?

Andy Marsh — President and Chief Executive Officer

Yeah. So I’m going to give you a long answer, Colin, I’m sorry. I kind of position the aerospace as the kind of three buckets. One, I think very, very short duration flights, batteries will be an interesting choice for customers. I think, for the majority of flights where regional flights and transcontinental flights category falls in, I think hydrogen will be an interesting solution both for fuel cells and using present internal combustion engines. And I think when you start talking about long range, I think sustainable aviation fuel will have a place in the market.

With Plug in 2025 with Universal Hydrogen will be doing the first deployments of converting regional planes, propeller prop planes to fuel cell power. I think that’s a real interesting opportunity. I think we think a lot about — and we’re talking with many of the major players who were thinking about how they go about deploying both the small players and many of the new emerging companies about how they can source green hydrogen.

I think that many people would conclude that the pathway for aviation, which represents 3% of CO2 reduction, hydrogen will be the most significant player in that industry. I think it will grow gradually between 2025 and 2035 and then I think by 2035 it may start having certainly a dominant position for all new planes coming off the line.

Colin Rusch — Oppenheimer — Analyst

That’s absolutely fine.

Andy Marsh — President and Chief Executive Officer

I’m going to add one last item, Colin. To me, it’s also my technology deployment — technology development platform. If you think about what a plane needs, lightweight, high power density, simple storage, all those are applicable to on-road vehicles. And that also is, it’s more to me than just the market. It’s also how we develop technology simultaneously as we develop new markets.

Colin Rusch — Oppenheimer — Analyst

Perfect. Thanks and super helpful. Thank you so much, Andy.

Andy Marsh — President and Chief Executive Officer

Okay.

Operator

Thank you. Our next question is coming from James West of Evercore ISI. Please go ahead.

Andy Marsh — President and Chief Executive Officer

Good morning, James.

James West — Evercore ISI — Analyst

Hey. Good morning, Andy. Hey, Andy, how are you?

Andy Marsh — President and Chief Executive Officer

How are you? Okay.

James West — Evercore ISI — Analyst

Doing well. Andy, some of your pedestal customers like Amazon and Walmart have announced pretty aggressive decarbonization plans. And I suspect that’s driving a nice pickup in your activity with them. Could you perhaps describe kind of how those plans are playing into your business and greater adoption or further adoption or further penetration into their various facilities?

Andy Marsh — President and Chief Executive Officer

Sure. So, many of these activities are starting today as we mentioned, James. And I guess, I’d like to start off by just kind of discussing what’s the future distribution center look like, which is not too far from being a reality because we’re doing work with all these items today. One of the real advantages and by the end of the year we’ll have over 170 fueling stations and hydrogen storage at customer sites, that the hydrogen already is there which is a huge advantage.

And when you look at the different applications from material handling, from powering robots, leveraging those same platform we have for drones, from fueling stations and we are modifying the outdoor dispensers we have at some of our customer sites for on-road vehicles today. Obviously those on-road vehicles will be using Plug Power green hydrogen to fuel their vehicles, coupled with the fact that when you go and look at things like how do you backup a facility and we’ll be doing some backup deployments this year for our backup stationary products to backup distribution centers.

Again, since the hydrogen is there, so you start thinking about all that and then you’ve been going further back in the chain. We have the ability to generate that green hydrogen. So obviously the discussions with our customers have intensified. We are working through some rather large plans with many of our major customers, how to be deploying green hydrogen not as a long-term goal but as some near-term goal to help them support their decarbonization efforts.

James West — Evercore ISI — Analyst

Okay. Okay, that’s very helpful. And then, Andy, when you and I were talking late last year as you kind of alluded to in your opening comments, you were more of a domestic company and now you’re global. So, I’m curious how you and the rest of the team thinks about this global rollout and the execution of becoming a — what’s going to, I think, be a very, very large global company. How do you think about from just a personal standpoint, from a logistics standpoint, from a facility standpoint and all kinds of things to think and how are you guys planning for this?

Andy Marsh — President and Chief Executive Officer

Sure. So that’s a long question ahead [Phonetic]. So, James, I’m going to try use Europe as an example.

James West — Evercore ISI — Analyst

Okay. Thank you.

Andy Marsh — President and Chief Executive Officer

In Europe, I think we had two airports where we’re working to do some activity with partners and we’re working to some activities alone. If you think about it, the two largest economies in the EU, France and Germany, really where we’re focusing a good deal of our retention. The Renault JV provides us an opportunity to have a home in France that’s much broader than just the vehicles we’re putting on the road. But we’ll be building the infrastructure and providing the hydrogen to support those activities in France.

And that JV, we have a number of Plug Power employees who are happily volunteering to go to France to support that activity and really help build up that enterprise as rapidly as possible. We’re opening a business center outside Deutsch [Phonetic], Germany to support the German market, which will primarily be focused on our electrolyzer business because of the huge opportunities there. We’re staffing — we have a fairly strong sales team in Europe and we’re staffing service and application engineers to really support that effort to grow that business.

And then when you go down to the Iberian Peninsula, we have a nice position, as you know, with ACCIONA and we expect to close that JV in the third quarter. We were targeting 20% in the green hydrogen, which will support both our Renault activities and other activities we have in material handling elsewhere going on in Europe.

I think one of the key items is, it’s really kind of a mix of how you successfully leverage partners, how you successfully leverage relationships and obviously we can’t do it alone to grow this rapidly, but finding the right partners, right relationships and deciding which items we will pursue our own. And so that’s really how we’re thinking about it. And if you look globally, from a facilities point of view, there certainly will be a gigafactory in France supporting the JV as well as maybe some other activities, as well as in South Korea with SK.

James West — Evercore ISI — Analyst

Okay. Makes sense. Thanks, Andy.

Andy Marsh — President and Chief Executive Officer

Thanks, James.

Operator

Thank you. [Operator Instructions] Our next question is coming from Craig Irwin of ROTH Capital Partners. Please go ahead.

Craig Irwin — ROTH Capital Partners — Analyst

Hi. Good morning and thanks for taking my questions.

Andy Marsh — President and Chief Executive Officer

Good morning, Craig. How are you today?

Craig Irwin — ROTH Capital Partners — Analyst

I am absolutely fantastic.

Andy Marsh — President and Chief Executive Officer

Let me ask. Were you in London?

Craig Irwin — ROTH Capital Partners — Analyst

No, I’m not in London. I’m still in the US. We’re doing our virtuals [Phonetic] London this week, but hopefully we’ll see you in London next year, Andy, as we did two years ago.

Andy Marsh — President and Chief Executive Officer

Yeah, right.

Craig Irwin — ROTH Capital Partners — Analyst

Busy day. Looking forward to the meetings with you later on today, so thank you.

Andy Marsh — President and Chief Executive Officer

Yeah.

Craig Irwin — ROTH Capital Partners — Analyst

So my question, right, is in the last year, it became really obvious to the market, the broader market that customer and government interest and support for the adoption of a hydrogen economy is really taking place, right. We’ve seen many different layers of the story develop considerably. You’re even talking more in your release and on the call today about the aviation market, which is one that I’m personally a fan of, given how dirty aviation fuels are and the potential. Is there anything left for you to pursue? Is there anything you see as low hanging fruit? You’ve got charts. You’ve got data centers. You’ve got cell sites. You’ve got a future in aviation. Where can you fill out the portfolio?

Andy Marsh — President and Chief Executive Officer

Well, that’s a good question, Craig. I think — let’s move to the hydrogen front. And I do believe that there is real opportunities in green hydrogen for decarbonizing — helping to decarbonize the natural gas pipelines. We’re getting lots of request for injecting hydrogen into pipelines. I think that there’s opportunities in industrial applications like steel and concrete where the hydrogen market could be, not the sectors [Phonetic] markets, Craig, but the hydrogen market could be really interesting.

Now, from an apps point of view, I think that if you think about areas like we talked about airports and ports in general, I think there is large opportunities across the board to decarbonize our airports, which is ground support equipment, which is airplanes, which are the bands running around the airports. And I see most of our activity expansion really has to do with how to think through fleet vehicles or ecosystems around airports and ports in other areas where all Plug Power production and capabilities can be deployed. That’s kind of how I look at it.

I kind of use it as an example in the back of my mind is that distribution center were beginning to think about it, as I explained to before, as kind of the mini system where we can do everything to meet customer’s needs. And for those applications where fuel cells make sense, and there’s many where batteries make sense, we’ll be able to decarbonize. So that’s how I’m thinking about it. And you know what, there will be people who will think of — there will be apps and opportunities that pop up through talking to customers that quite honestly I haven’t even considered yet.

Craig Irwin — ROTH Capital Partners — Analyst

Understood. That makes a lot of sense. So, my second question is about margins, right. So, most investors that look at companies like Plug Power, companies with aggressive growth potential, look at growth first. And they look at the longer term margin potential later. So, you did a really good job in your shareholder letter laying out some of the issues in the hydrogen market, the force majeure events. Can you maybe describe for us what the longer-term potential of green hydrogen offers to your margins and overall customer profitability, not just the environmental footprint, which is what a lot of people have been considering?

Andy Marsh — President and Chief Executive Officer

Yeah. I think that’s good. When you think about the full margin picture, Craig, the number that I think should tell investors we’re on the right track is the margins for products in the first quarter, which were 38% with all the challenges of transportation the world has seen. On the hydrogen front, we believe green hydrogen will be a 30%-plus gross margin business and that the long-term when you look at it, it’s really — the cost is really tied to the cost of renewables. Our folks have done a great job like Sanjay [Phonetic] finding low cost renewables that make it attractive versus natural gas today. You have a better product in, you have a better offering, and with the deployment of our networks and especially the resilient network we’re building, we’re in a much, much better position to support much higher margins for hydrogen.

And I would like to add which probably gets lost is, we’re actually really — if I look at the force majeures logistically, we actually were able to manage that without impacting customers using our own logistic network and asset to make sure that customers are taken care of. To me that was a significant achievement. So, I think margins and green hydrogen will be in line with our product margins. And the service business actually performed up to our expectations for the quarter and we’re beginning to see continual improvements. So that business should become a 30% plus gross margin business. And look, we expect to be there across the board by 2024.

Craig Irwin — ROTH Capital Partners — Analyst

Great. My last question, if I may, is about the DOE loan guarantees you’re applying for. So it’s really nice to have a Department of Energy that once again is willing to lean in and support business transformation and the transformation of energy. Can you maybe talk to us about the process where you are in a process? And if there is maybe potential for other capital projects that Plug will pursue over the next few years to be a recipient or at least apply for similar financing?

Andy Marsh — President and Chief Executive Officer

Yeah. So, Craig, we’re in the beginning of phase two with the program. We’ve got a lot of work. Actually folks have told me, we’re about halfway through phase two. And I think when we’re looking at this, it’s just not for one project. It’s actually the applications looking at three or four projects to deploy across North America to support all our networks. So, we’re looking to do it at stages, but our thought process is somewhere between $500 million to $1 billion of support to build out these networks of low cost loans.

Craig Irwin — ROTH Capital Partners — Analyst

Understood. Thanks again for taking my questions. Congratulations.

Andy Marsh — President and Chief Executive Officer

All right. Thanks, Craig. Pleasure.

Operator

Thank you. Our next question is coming from Eric Stine of Craig-Hallum. Please go ahead.

Eric Stine — Craig-Hallum — Analyst

Good morning, Andy.

Andy Marsh — President and Chief Executive Officer

Good morning, Eric. How are you today?

Eric Stine — Craig-Hallum — Analyst

Doing well. Doing well. Thanks. So just want a quick come back on the margins and obviously with the green hydrogen network here, you’re putting plans in place for the long-term. But just in the near-term, any thought, I know you’ve been asking this in the past, but any thought on potentially owning your own tanks so you don’t have to necessarily switch hydrogen providers or that you’re able to buy hydrogen more cost effective rather than from one source?

Andy Marsh — President and Chief Executive Officer

Yeah. That’s a good question, Eric. We actually do own probably. I’m going — Paul, what you think a third of our tanks at the moment?

Paul Middleton — Chief Financial Officer

Probably even two-thirds annually. We’ve been buying tanks on our own. And even this transition, we moved towards installing our own tanks. And so, we haven’t rented a tank from one of the providers in years. And so, I would just say in a very short order, we’ll be — in the majority of our locations, we own our own tanks.

Andy Marsh — President and Chief Executive Officer

Yeah. But I would say, Eric, that’s great. But also you need to be in contractual relationships with your partners, which the expectation is that they build these tanks. I think that — what I’ve been thinking more about, Eric, is actually our ability to pick up hydrogen at the sites — at their facilities, which can help also drive down the cost of hydrogen. So, if I think about our near-term containments, our plant in Tennessee is expanding and will expand on October 1. The supply issue has been relieved with the addition of 35 tons of capacity coming online, which is highlighted in our investor letter. And look, we’re obviously in negotiations to try to reduce our cost. It was with some of the severe conditions, it was a tough quarter making sure customers got their hydrogen and it caused the price to go up.

That being said, prices are going down again, which is helpful, by being probably more important as we build out our network. And I think the fact that we’re geographically spreading the network will have really positive impacts for us to control. So, I think in the next 12 months, life becomes much easier as more and more of our own capability comes online.

Eric Stine — Craig-Hallum — Analyst

Got it. And I would assume that makes it easier to — you’ve got some leverage on the contract side.

Andy Marsh — President and Chief Executive Officer

I think that would be fair to say, Eric.

Eric Stine — Craig-Hallum — Analyst

Okay. And then, maybe last one for me. Just on the SK agreement, I know you’re working towards joint venture and finalizing that in the second half. But just curious given the significance to the market, what the pipeline looks like, any work that you’ve done in advance of closing that and then I would — I guess, specifically on the utility scale power side, wondering the type of traction or the outlook you have there going forward.

Andy Marsh — President and Chief Executive Officer

One of the real advantage of the SK relationship is that we expect that to be — by 2025 to have over 400 megawatts deployed with SK alone at their facility. So, it’s — we have a built-in customer with the JV partnership, which is really advantageous. So if you think about 400 megawatts by 2025, you’re deploying it in ’24, that’s in the range of $400 million in revenue.

We also have, not surprising, a good deal of activity going on in the electrolyzer business, but also with hydrogen fueling stations with SK because of their position. I know SK has huge, huge ambitions. We’ve had teams over there, positioned material handling equipment already, working with some bus manufacturers and positioning ProGen with SK itself. And as you know, it’s a — as we’re talking here, I actually wonder South Korean conference also going to present at 9:30. This is really a hot topic in South Korea. And we’re deeply engaged with SK to really make this a big market.

Eric Stine — Craig-Hallum — Analyst

Okay. Thanks a lot.

Andy Marsh — President and Chief Executive Officer

Thanks, Eric.

Operator

Thank you. Our next question is coming from Jeff Osborne of Cowen. Please go ahead.

Jeff Osborne — Cowen — Analyst

Hey. Good morning, guys. A couple of questions on my end.

Andy Marsh — President and Chief Executive Officer

Good morning, Jeff.

Jeff Osborne — Cowen — Analyst

Good morning. A couple of questions here. On the electrolyzer side, great to hear you, we’re recording billions of business I think you said and 80% outside of the US. I was wondering any of you could give us an update on when you thought some of those are at peace would come to a closure when you might be awarded any business? Is it an event that you think will happen this year or more next year?

Andy Marsh — President and Chief Executive Officer

I can tell you, Jeff, I believe it’ll happen this year, and mainly because there are big opportunities but there’s probably four opportunities and I think we’re in a leadership position. And that I would expect that very, very possible that they could close either at the end of third quarter or early fourth quarter. And I would think we have an opportunity to close 500 megawatts this year with most of the deployments next year. So, now I’m really — I’m really pleased. I think that many — I think the combination of the fact that PEM technology can work from variable energy sources and the fact that costs are coming down — were coming down, especially since we can leverage our gigafactory. I think that’s — they’re all really promising signs for us.

Jeff Osborne — Cowen — Analyst

That’s great to hear. And this would be leveraging that group induced growth that you referenced earlier, I assume, or no?

Andy Marsh — President and Chief Executive Officer

No, no. Actually, the gigafactory is in Rochester. But we will be — for the European market, we do have a partner, I think you’ll hear more about who will be supporting, building the systems within Europe. Look, we also have opportunities in places like Australia, New Zealand, India, across the world to support different activities we’re engaged in.

Jeff Osborne — Cowen — Analyst

Got it. That’s great to hear. Just a couple other housekeeping questions.

Andy Marsh — President and Chief Executive Officer

Yeah.

Jeff Osborne — Cowen — Analyst

One, I saw the units sold for revenue, but can you give us a total units which would include the lease units for GenDrive?

Andy Marsh — President and Chief Executive Officer

Paul, I think you have it. Paul I think it’s 1,380, isn’t it Paul? I’ll let you take this one Paul.

Paul Middleton — Chief Financial Officer

Yeah. For the first quarter, it was 1,308 was total that got deployed in the quarter.

Jeff Osborne — Cowen — Analyst

Got it. And then, what’s the capex plan for this year and next, just given the — maybe announcements you had I just want to make sure we’ve got the right expenditure profile for ’21 and ’22.

Andy Marsh — President and Chief Executive Officer

That’s you again, Paul.

Paul Middleton — Chief Financial Officer

Yeah. Well, I would say, some of the long lead items are little tough to plan exactly when the money will be spent, but I would — I mean, just — I think $750 million this year and $750 million next year is probably a pretty good proxy to have.

Jeff Osborne — Cowen — Analyst

Got it. And last one, the stationary Power where we have our first deployment of that in live in the third quarter, I think that was your prior target for the data center backup.

Andy Marsh — President and Chief Executive Officer

I’ll say this, Jeff, we better, so yes.

Jeff Osborne — Cowen — Analyst

Okay. Good to hear.

Andy Marsh — President and Chief Executive Officer

Okay.

Jeff Osborne — Cowen — Analyst

That’s all I have.

Andy Marsh — President and Chief Executive Officer

Great. Thanks, Jeff.

Operator

Thank you. Our next question is coming from Paul Coster of JPMorgan. Please go ahead.

Paul Coster — JPMorgan — Analyst

Good morning, Andy.

Andy Marsh — President and Chief Executive Officer

Good morning, Paul. I think I’ll be talking to you later today, right?

Paul Coster — JPMorgan — Analyst

I believe so. You’re a busy man. So, Andy, starting off with the near-term, obviously the 2Q guidance is pretty encouraging. And 3Q, I think, you said is very strong whatever that means. It sounds like it’s increment to be better over 2Q, so perhaps you can elaborate. But what is driving the near-term demand? Is it the pedestal business or is it other stuff? Perhaps you can just give us some color there.

Andy Marsh — President and Chief Executive Officer

So, I think, the answer to that is that primarily the pedestal business and I think in the third and fourth quarter you’ll see the electrolyzer business pick up significantly. But if I look at it, there are today five customers who really are driving the material handling business. The biggest point is actually Amazon, there is a lot of new developments with Amazon. Amazon is not only buying fuel cells but electrolyzers from us. So that’s a huge — that’s a big part of our funnel, Walmart, Home Depot, GM.

And we actually have a fifth customer, which I’ll tell you more about to assume when they let me announce that we’ll do over $25 million in the second half of the year. So, we’re fueling — the business is really healthy. I mean, the factory is packed. And I think that’s really — I think the nice item is, we’re beginning to spread that revenue across a larger and larger customer set.

Paul Coster — JPMorgan — Analyst

Got you. You mentioned electrolyzer. So it sounds like some of the material handling sites will have electrolyzers collocated. Is that a correct statement? And more broadly, as you look at that, I think you said billions in the funnel for electrolyzers. Can you give us some color on geography on customer type, is it centralized, decentralized, how big the probable deployments in terms of kilograms per day or whatever? Some kind of color would be helpful.

Andy Marsh — President and Chief Executive Officer

Sure. So, Paul, if I step back in, this is a point that I probably should have made earlier in the call. We’re becoming better at bundling the offerings to really — the total system solution now incorporates our electrolyzer technology. And if I think about how we’re going and sell today, we can provide you with the electrolyzer, we can provide you fueling stations, we can provide you the material handling equipment and the vehicles, especially in Europe. And that ability to bundle is actually probably what attracted both Renault and SK to work so closely with Plug Power.

When I look at the deals, if I was going to spread out geography, many of the sites are, call it, 250 megawatts and above range. A lot of the sites are — and they are — the big projects are really centralized sites. But often centralized sites which may be spread around three or four different locations, that add up to a gigawatt. And if you think about 250 megawatts of electricity, you’re talking plants which are in the 500 ton, good-sized tonnage, hundreds of tons of hydrogen. So, I think very attractive and I think that — I think that’s really the mix of sites. And from a geography point of view, you see in Europe, we’re seeing it in Australia, we’re seeing activity in India, we’re obviously South Korea, so it’s really kind of a mixture across the board.

Paul Coster — JPMorgan — Analyst

One last question, please. You said the 35 tons of hydrogen is coming online to supplement that, which was previously available, you’ve seen disruptions. Why wouldn’t — is this grey or blue hydrogen and is it subject to the same kind of variability and risks as it’s — as the hydrogen you were previously consuming domestically?

Andy Marsh — President and Chief Executive Officer

Yeah. Good question, Paul. It is grey hydrogen. And obviously we want to transfer eventually to green. It’s not Plug Power, but it is coming of — it’s getting cleaned up versus the pipelines which are tied in large-scale storage with caverns. So I think the variability of that hydrogen is much, much lower.

Paul Coster — JPMorgan — Analyst

Got you. Thanks so much.

Andy Marsh — President and Chief Executive Officer

Okay, Paul.

Operator

Thank you. Our next question coming from Jed Dorsheimer of Canaccord Genuity. Please go ahead.

Jed Dorsheimer — Canaccord Genuity — Analyst

Hey. How are you, Andy?

Andy Marsh — President and Chief Executive Officer

Good morning, Jed.

Jed Dorsheimer — Canaccord Genuity — Analyst

Good morning. So, just two questions. I guess, first, sounds like the contribution of revenues by end market is changing. Today, kind of first time I’m hearing you talk a bit more on the aerospace or it sounds like that’s — so a bit of shift. So I was just wondering, does that change any of the projections, I think on May 10, you’ve talked about sort of the 475, 750, 1.7 billion. Are those numbers still solid? Is it just what’s kind of the moving parts underneath to support the top-line? And then have a follow-up.

Andy Marsh — President and Chief Executive Officer

Yeah, Jed. They are our numbers today. 475 is rock-solid. And we’re continuously looking at — we’re — and the 750, feel great about. I think we’re spending — I think when we have — we’ll have our Plug Power Symposium in September and hope you can attend. And I will give you not only — will give you much broader outlook not only what we expect for 2024 and 2023, but also kind of what the geographical and product mix will be.

Jed Dorsheimer — Canaccord Genuity — Analyst

Great. I hope you have the Symposium, you should have it at the electrolyzer, the gigafactory, that will be great.

Andy Marsh — President and Chief Executive Officer

I think at the moment, we’re scheduling NASDAQ, but I think we’re debating that, so you’re voting on putting up the gigafactory?

Jed Dorsheimer — Canaccord Genuity — Analyst

Yeah, NASDAQ is not nearly as exciting as being at a gigafactory.

Andy Marsh — President and Chief Executive Officer

I agree, Jed. That’s my vote too.

Jed Dorsheimer — Canaccord Genuity — Analyst

So, just as a — I do have a follow-up though. And as I hear, it’s interesting in terms of the European, particularly Germany and France, which really have paradoxical views on energy production. So I’m wondering how that — those conversations, particularly France being pro-nuclear and Germany being quite against, Germany’s electricity prices being the highest of any first world nation. I’m curious how does hydrogen play into that discussion and how are the two countries thinking about Plug and hydrogen production? Is there a difference and do you see a difference of scalability?

Andy Marsh — President and Chief Executive Officer

Yeah. I think when you first take that in both countries as well as the EU, I think there’s a general acknowledgment that to decarbonize hydrogen’s required and fuel cells are required. It’s why Jed that — which we’re know — it’s the CEO Luca of Renault tells me that every time he talks to the minister in France, the first question is what are you doing with fuel cells and hydrogen.

I think, from a feedstock point of view, I think you’re right. I think France is thinking a lot about how to leverage their carbon-free nuclear assets to the electrical stock for feedstocks for hydrogen. I think, in Germany, I think folks are thinking more about renewable curtailment as well as offshore wind as the feedstock for electrolyzers. So, I think both of them are very committed to fuel cells and hydrogen. I think there is a different view on what the feedstock should be based on their own internal infrastructure.

Jed Dorsheimer — Canaccord Genuity — Analyst

Does that have a different economic? I would think the impact, if I have a base-load versus curtailments, while in one I’m solving a problem of a subsidized technology being intermittently for the renewables, in the other though it would be lower cost electricity prices. Does that change the dynamic in terms of the value proposition for green hydrogen or do you see it as net the same?

Andy Marsh — President and Chief Executive Officer

Yeah. I probably see it net. I mean I think that underlying everything is where the costs of renewables are going. And I think like the US, Europe has and one has to be thoughtful about numbers that are put out there. I think both Europe and the US strongly feel that hydrogen generated for renewables can be lower costs than hydrogen generated by natural gas. And certainly it’s a journey, but it’s a journey that I think both nations, France and Germany, feel that it’s the best source — it will be the best source of energy for many, many applications. I mean, I think commercial vehicles, large scale stationary, how you support these networks like ports, I think if you look and you hear these numbers, 20% of world energy from hydrogen, they really think hydrogen is really the solution to meet those needs.

Jed Dorsheimer — Canaccord Genuity — Analyst

That’s it for me. Thanks, Andy.

Andy Marsh — President and Chief Executive Officer

Thanks, Jed.

Operator

Thank you [Operator Instructions] Our next question is coming from Amit Dayal of H. C. Wainwright. Please go ahead.

Amit Dayal — H. C. Wainwright — Analyst

Thank you. Good morning, Andy. Good morning, Paul.

Andy Marsh — President and Chief Executive Officer

Good morning. Amit, how are you today?

Amit Dayal — H. C. Wainwright — Analyst

I’m good, Andy. How are you doing?

Andy Marsh — President and Chief Executive Officer

Very good.

Amit Dayal — H. C. Wainwright — Analyst

So, Andy, you mentioned 500 megawatts potentially closing for electrolyzers this year and deployments next year. Is any of this in the current guidance for this year or next year or would this be incremental?

Andy Marsh — President and Chief Executive Officer

I would say, some of it is in the present guidance for next year.

Amit Dayal — H. C. Wainwright — Analyst

For next year?

Andy Marsh — President and Chief Executive Officer

Yeah.

Amit Dayal — H. C. Wainwright — Analyst

Okay. Thank you.

Andy Marsh — President and Chief Executive Officer

That is in the special [Phonetic] guidance for Q2.

Amit Dayal — H. C. Wainwright — Analyst

Okay. Okay. And you indicated another large customer. Is this a pedestal customer? And maybe just in that context, are there any additional level — pedestal level customers in the pipeline?

Andy Marsh — President and Chief Executive Officer

So, yes, this is a pedestal customer. It’s in the auto industry. And I’d say, it’s a global auto manufacturer. And the answer to your question is, yes, especially in Europe, we have a number of pedestal customers which are pending.

Amit Dayal — H. C. Wainwright — Analyst

Thank you. And with recent increases in commodity cost, supply chain challenges, etc, has that impacted your capex expectations?

Andy Marsh — President and Chief Executive Officer

Yeah, it’s a good question. Paul, do you want to take a crack at that? I mean, I look at our product margins. It’s — they’ve been relatively very healthy. And Paul, maybe you want to comment on, I think, some of the construction work we’re doing for the gigafactory. I think it’s such a modest proportion of what we’re doing that it hasn’t been that impactful or maybe you have some thoughts on that, Paul?

Paul Middleton — Chief Financial Officer

Yeah. If you look at our history and even our projection, outside of green hydrogen investments, it’s a fairly nominal percentage of sales. And so — but yet the gigafactory will be pretty impactful from a margin standpoint from many different facets. So, I don’t expect it to have a major impact on our product margins and I don’t anticipate it will as we go forward. In fact, the depreciation obviously is a gap effect but the margin enhancement will more than offset the depreciation impact because of such a small percentage of capex from sales respectively.

Amit Dayal — H. C. Wainwright — Analyst

Understood. And maybe just a high level question. I don’t know if you have an answer to this. The total [Phonetic] solution freight from you guys with the electrolyzers and all the other components wasn’t just buying sort of one set of solutions, like how much does that impact the customers IRR and these types of investments?

Andy Marsh — President and Chief Executive Officer

Well, I think that it really, I think, simplifies the process for them in it to be able to go to one place and have someone put the whole solution together for them. I think that’s probably the most attractive part of this. I mean, I think, in the applications they see healthy IRRs and then you kind of compound it with the fact that they’re doing activity that really supports their long-term mission to decarbonize, be it 2035, 2040. I think, being able to go to one person say, take care of all this and having somebody who is an expert in all these technologies, I think is a real differential advantage.

Amit Dayal — H. C. Wainwright — Analyst

Understood. That’s all I have. Thank you, Andy. Thank you, Paul.

Andy Marsh — President and Chief Executive Officer

All right. Thanks, Amit.

Operator

Thank you. Our next question is coming from Chris Souther of B. Riley. Please go ahead.

Chris Souther — B. Riley FBR — Analyst

Hi. Good morning, guys.

Andy Marsh — President and Chief Executive Officer

Good morning, Chris.

Chris Souther — B. Riley FBR — Analyst

Awesome. So, the first piece I wanted to touch on was the fueling margins. You talked about improving sales in the second half and into ’22 as some of these industrial gas partners are expanding capacity and then the longer-term target of about 30%. Maybe you can just discuss when and where we see those breakeven levels as far as kind of positive gross margin. Is that really some — the first three facilities are coming online, we’ll start to see that kind of switch over?

Andy Marsh — President and Chief Executive Officer

I think — Chris, I think they’ll see gradual improvements. And you’ll see — I mean we’ll have some improvements with our own additional capacity coming online in October. I think you’ll start seeing that transition mid-2022.

Chris Souther — B. Riley FBR — Analyst

Okay. That’s helpful. And then, you mentioned Amazon is now buying electrolyzers which is great to hear, in that 80% of the electrolyzer opportunities are coming from abroad. Can you maybe walk through the customer decision you’re seeing between buying their own electrolyzers versus signing up for long-term hydrogen offtake agreements with the facilities you guys are building out, that sounded like Home Depot Southern Company where’re more kind of an offtake, I’m just curious is that only site specific, geography specific, customer specific, how everybody is kind of looking at — that kind of build it themselves versus buying it from you guys over time?

Andy Marsh — President and Chief Executive Officer

Yeah. I think that’s — if you look at it — as you mentioned, I think it’s real mix. I think that there are companies that are building hydrogen networks in other parts of the world in which they are looking — their main business is selling hydrogen. I think that when you’re looking at the small deployments, I have some activity going on in New Zealand, for example, which is smaller. There people are more inclined to buy small scale electrolyzers to support. I think most large enterprises that are, call it, the Amazon, the Walmarts of the world, I think their primary focus will be, they want to buy green hydrogen from us. I think there will be opportunities where the facilities already have a low cost renewable energy feed, which makes sense to use electrolyzers.

So I think those were in the — those were the companies that we deal with who are primarily users of hydrogen. I think they will want to buy hydrogen from us. And there are companies which are primarily, what I’ll call, want to be generating suppliers of hydrogen. And I think they’ll be more of our electrolyzer base. So — and then I think along the way you, have a mixture of the two. But I think from a primary base point of view, that’s how I think it will line up.

Chris Souther — B. Riley FBR — Analyst

Okay. That’s very helpful. Thanks, guys.

Andy Marsh — President and Chief Executive Officer

Thanks, Chris.

Operator

Thank you. Our next question is coming from Tristan Richardson, who will be our final question for today and he is with Truist Securities. Please go ahead.

Tristan Richardson — Truist Securities — Analyst

Hey. Good morning, gentlemen. Thanks for squeezing me in.

Andy Marsh — President and Chief Executive Officer

Good morning, Tristan.

Tristan Richardson — Truist Securities — Analyst

Just quick one maybe on stationary power. I appreciate the update on the order book or opportunities you’re seeing this year, but curious about how that trends throughout the back half of the year and into next year. Can we see a stationary power customer become a pedestal customer over time or conversely could you see a pedestal customer become a stationary power customer over time?

Andy Marsh — President and Chief Executive Officer

Yes and yes. Boy Tristan, you asked a question and you’re going to get — an hour into the call and you’re going to get a new answer. We have over 100 customers in the funnel for the stationary products. And they range from large-scale data center customers which could become pedestal customers to folks who are our present customers today, which are looking to back up their distribution centers with hydrogen since it’s already available. So, there is — I had — every Monday like most businesses, I do a review of each week of the quarter, I do each week of the month, I do it with different market. And it was our stationary products. And the funnel for that, it’s astonishing and many of those customers could become pedestal customers.

Tristan Richardson — Truist Securities — Analyst

Helpful, Andy. Thank you. And then, just a quick follow-up. I appreciate all the commentary on electrolyzer opportunity you’re seeing. And just specifically in your letter, you noted deployments this year in New York, Georgia and Europe, but just thinking is there a way to think about how much of that is third-party versus deployments for your own internal need?

Andy Marsh — President and Chief Executive Officer

So those — so, I guess, you’re talking about, Tristan, the green hydrogen plants we’re building. Ordinarily — and use a word our own internal needs, the more that’s captured by our own internal need for on-road vehicles and other applications that become significant, I would think that by 2025 about 75% of that will be consumed by our own internal needs, if not more. And when I say that, it’s hydrogen that we’re selling to pedestal customers for all the applications that we’re developing.

Tristan Richardson — Truist Securities — Analyst

That’s great. Appreciate it. Thank you guys very much.

Andy Marsh — President and Chief Executive Officer

All right. Well, thank you everyone for joining our call today. I really appreciate everyone’s attention and I really look forward to talking to everyone for the second quarter, which should be at late July or early August. So, thank you everybody. Bye now.

Operator

[Operator Closing Remarks]