Ballard Power Systems Inc.

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Ballard Power Systems Inc.

4343 North Fraser
Burnaby, British Columbia V5J 5J9
Canada
Telephone: (604) 545-0900
Fax: (604) 412-4700
Web site: http://www.ballard.com

Public Company
Incorporated: 1979 as Ballard Research Inc.
Employees: 1,099
Sales: $81.37 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: BLDP
NAIC: 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing

Ballard Power Systems Inc. is the world leader in developing and manufacturing fuel cells based on proton-exchange-membrane technology. Ballard Power's product line includes vehicular fuel-cell power trains, fuel-cell engines, fuel-cell power generators, power-conversion systems, electric drive trains, fuel-cell stacks, and carbon materials. The company's power products provide environmentally clean energy, combining hydrogen fuel and oxygen to produce electricity, releasing steam as the only waste byproduct. DaimlerChrysler AG and Ford Motor Co. own 18 percent and 20 percent of Ballard Power, respectively.

Origins

Ballard Power's role as a technological pioneer began in 1979, when Geoffrey Ballard, a dual U.S.-Canadian citizen, formed Ballard Research Inc. Ballard, whose father had worked on the Manhattan Project, which produced the atomic bomb during World War II, started the company as a research and development firm to conduct work on high-energy lithium batteries. Before starting his company, the Harvard-educated Ballard spent a decade conducting military and energy research for the U.S. government, including a brief term as research director of the Office of Energy Conservation—a fitting post for the founder of Ballard Power. Within several years of its founding, the small start-up's research on rechargeable lithium batteries turned to broader exploratory inquiries into environmentally clean systems with commercial potential. With funding from the Canadian government, the company began focusing on fuel cells during the early 1980s, endeavoring to make technology nearly 150 years old practicable in the commercial sector.

Developed by a Welsh physicist and patent attorney named Sir William Grove in 1839, fuel cells are electrochemical devices that produce electricity without combustion, extracting exponentially more electricity from a fuel-rather than combustion-based technology. Internal combustion engines operate by converting fuel into heat, heat into mechanical energy, and mechanical energy into electric power, with each step in the conversion process leading to decreased efficiency because of heat and friction losses. Fuel cells, in contrast, are elegantly simple and efficienct. Fuel cells use hydrogen fuel (obtained from methanol or natural gas) and oxygen from the air to produce electricity, a highly efficient, one-step conversion process that converts fuel directly into electricity and leaves only heat and water as its waste.

The fundamental design aspects of fuel cells were simple, but turning the technology into a practicable energy system for widespread use proved exceptionally difficult. The size and cost of fuel-cell energy systems rendered them virtually useless in nearly all applications. The National Aeronautics and Space Administration (NASA) used fuel cells to generate electricity aboard space missions during the 1960s, but Sir William Grove's invention found little use in any other setting. Ballard's small group of scientists sought to bring Grove's pioneering work to the masses, beginning, in 1983, with the development of proton-exchange-membrane (PEM) fuel cells. PEM fuel cells were regarded as the most suitable form of fuel cells for vehicles, promising the arrival of zero-emission, highly efficient vehicles with the capability to eliminate vehicular pollution and dramatically reduce the world's dependence on oil. It was Ballard Power's job to turn the promise of a hydrogen-based economy powered by fuel cells into reality, a task that fell to several dozen scientists gathered on the outskirts of Vancouver, British Columbia, in a small town named Burnaby.

Relying solely on government funding, Ballard and his research team worked on perfecting the fuel cell, beginning a laborious process that would distinguish Ballard Power as the worldwide leader in advancing fuel-cell technology. By taking the lead in developing fuel-cell technology, Ballard Power had to become both innovator and promoter, responsible for reaching performance targets and convincing the rest of the world that fuel cells were commercially viable. Specific goals were set to judge the viability of fuel cells, including size and weight, power density (the ratio of power output to weight), manufacturing cost, durability, and the ability to start up in extremely cold conditions. Geoffrey Ballard and his team of 30 scientists experimented with new materials and techniques to improve the performance of PEM fuel cells according to such criteria, registering their first major success in 1987 when they recorded a dramatic fourfold increase in power density. The increase was significant, but Ballard soon began to worry about his firm's future, realizing that its own viability in the business world demanded an experienced management team to help it become more than just a laboratory. To become a profit-making, commercial enterprise, capital needed to be raised, partnerships needed to be formed, and managerial expertise was required to bring the firm's technology to market. Ballard needed help to complete Ballard Power's transition from laboratory to company, hiring Firoz Rasul in 1989.

Rasul at the Helm Beginning in 1989

Born in India, raised in Uganda, and educated in Europe and Canada, Rasul spearheaded the company's efforts to become a commercially active manufacturer of fuel cells. Rasul's goal was to wean Ballard Power from its reliance on government contracts and to develop and then dominate the global market for fuel cells. "If you guys are looking for a Nobel Prize, you are in the wrong place," Rasul informed Ballard Power's research team upon his appointment as president and chief executive officer, according to an account quoted in the March 1998 issue of Ward's Auto World. "If you are here looking to make a lot of money, you are in the right place," Rasul added.

Committed to delivering its technology to market, Ballard Power pressed forward with perfecting PEM fuel cells under Rasul's command. The company developed sub-scale and full-scale prototype systems between 1992 and 1994, a period that included two significant events, one on the technological front and the other on the corporate front. In 1993, Ballard Power demonstrated the world's first zero-emission, fuel-cell bus, the same year Rasul completed the company's initial public offering of stock. Ballard Power's conversion to public ownership made its share price a barometer of the investing public's belief in the viability of fuel cells, with gains and losses indicating the prevailing faith in the technology. Ballard Power's stock debuted at $6 per share. By 1997, it had soared to $82 per share, reflecting optimism roused by several important events that augured well for the future of Ballard Power.

After dedicating itself to perfecting fuel cells for roughly 15 years and devoting $200 million to the cause, Ballard Power had much to celebrate in 1997. In the fall, it became the only company in the world to put a fuel-cell vehicle on the road when it delivered three fuel-cell powered buses to the Chicago Transit Authority (public transportation became the first market for the company's fuel cells). The year also brought much needed capital to the company, conferring, as well, legitimacy to its campaign of promoting the use of fuel cells in the automotive industry. By 1997, 11 of the leading car manufacturers were developing emission-free, fuel-cell drive trains, and eight of those manufacturers were working with Ballard Power, led by Daimler-Benz AG, the parent company of Mercedes-Benz. During the year, Daimler-Benz invested $325 million for a 20 percent stake in Ballard Power, becoming the company's partner in reaching the goal of mass-producing fuel-cell vehicles by 2004. Before the end of the year, Ford Motor Co. followed suit, investing $420 million for a 15 percent stake in the company. Together, the three partners were investing nearly $1 billion in the belief that fuel cells would power the cars of the future, a belief grounded in the significant advances in fuel-cell technology made by Ballard Power.

By the late 1990s, Ballard Power was the undisputed expert in fuel cells, maintaining an estimated three- to five-year lead over the technological accomplishments of all of its rivals. "Ballard has the best road map to solve technology, packaging, and cost problems," a Ford Motor Co. executive said in a March 1998 interview with Ward's Auto World. The company's biggest challenge was lowering the cost of a fuel-cell engine, which was $35,000 in 1998, or more than 15 times that of a conventional internal combustion engine. Although the high cost of the engines in 1998 kept the emergence of a fuel-cell car on the drawing board—the hand-built fuel cells in a prototype Mercedes-Benz unveiled in Washington, D.C., in 1999 cost a staggering $350,000—Daimler-Benz AG, Ford Motor Co., and the investing public were encouraged by the advances in technology. By 1998, Ballard Power had lowered fuel-cell costs by 80 percent since 1990, achieving the reduction by advances in materials technology. The company, for instance, had reduced the use of expensive platinum by 90 percent (platinum is the catalytic material that coats the two electrodes found at the fuel cell's core). The results were promising, fueling optimism in the advent of a hydrogen-powered world, but much remained to be done. Further improvements in size and cost needed to be completed, as well as the enormous task of building either a regional or national re-fueling infrastructure, a project that would require billions of dollars of investment.

Company Perspectives:

At Ballard Power Systems, our vision is Power to Change the World. Our mission is to develop fuel cell power as a practical alternative to internal combustion automotive engines through technology leadership.

Moving into the 21st Century

As Ballard Power entered the late 1990s, it chased its objective with purpose. Geoffrey Ballard resigned from the company because of health problems in the late 1990s, leaving Rasul in sole command over the company's progress. In the fall of 1998, Vancouver followed Chicago as the second city in the world to make zero-emission, pure-hydrogen buses part of its public fleet. The city purchased three buses, each priced at $600,000 and powered by stacks of fuel cells that converted hydrogen, which was stored in tanks on the roof, and oxygen drawn from the air, into water to produce electricity. In October 1999, Ballard Power completed construction of the world's first high-volume, fuel-cell manufacturing plant, a facility situated adjacent to the company's headquarters in Burnaby. The plant was officially opened the following October by Canadian Prime Minister Jean Chretien, and the manufacturing infrastructure was put in place by the end of the year, completing the final stages of preparation for manufacturing to commence in 2001.

The first years of the 21st century included promising advances toward Ballard Power's vision of the future, but the period failed to usher in the age when large fleets of hydrogen-powered cars filled the highways. Ballard Power, as it had been for more than 20 years, was a company built on expectations. The company also, as it had done for more than 20 years, continued to make progress toward its goal. In 2001, Rasul completed two acquisitions that made the company a more comprehensive player in the industry it dominated. In mid-2001, Ballard Power acquired the carbon products business unit of Wilmington, Massachusetts-based Textron Systems. The unit, which became a Ballard Power subsidiary named Ballard Material Products, developed and manufactured several carbon materials for automotive and fuel-cell applications, including a gas diffusion layer for use in PEM fuel cells (gas diffusion layers allowed the even diffusion of gases against the membrane at the heart of PEM fuel cells). In October 2001, Ballard Power completed an all-stock deal valued at $348 million to acquire the interests held by DaimlerChrysler (formerly Daimler-Benz) and Ford Motor Co. in XCELLSIS GmbH and Ecostar Electric Drive Systems, two companies formed in 1998 through the partnership of DaimlerChrysler, Ford, and Ballard Power. XCELLSIS developed and manufactured PEM fuel-cell engines and integrated fuel-cell engines and electric drive trains to form fuel-cell power trains. Ecostar developed and manufactured electric drive trains for use in electrically powered vehicles and power conversion systems for microturbines, internal combustion engines, and fuel-cell products. In 2003, DaimlerChrysler delivered to public transportation authorities in Madrid the first zero-emission Mercedes-Benz Citaro Bus, powered with a Ballard fuel-cell engine The bus was the first of 30 buses to be delivered by 2004 to nine other European cities: Amsterdam, Barcelona, Hamburg, London, Luxembourg, Porto, Reykjavik, Stockholm, and Stuttgart.

As the company prepared for the future, one that it desperately hoped would herald the dawn of a hydrogen economy powered by fuel cells, a new leader took the helm. Rasul, whose masterstroke had been forming an alliance with DaimlerChrysler and Ford Motor Co., handed the responsibilities of chief executive officer to Dennis Campbell in March 2003. Campbell had joined Ballard Power the previous year after serving as president and chief executive officer of Home Care Industries, a filter manufacturer. Rasul stayed on as chairman until May 2004, when he was named chairman emeritus and replaced by John Sheridan, former president and chief operating officer of Bell Canada, who was named chairman in a non-executive capacity. The challenge of making Ballard Power's vision of the future a reality fell in large part to Campbell, whose thoughts on the company's immediate future were captured in his letter to the company's shareholders written in March 2005. "I sit down to write this letter at a time when the hydrogen fuel cell future seems increasingly clouded in uncertainty," Campbell wrote. "Competing automotive technologies such as hybrid electrics and advanced diesels are making headlines while the pundits are dismissing fuel cells as too costly, too frail or too fraught with challenges. Early optimism around fuel cell commercialization has been replaced in many cases with discouragement and pessimism. While I won't deny the considerable challenges we continue to face, if I might borrow the words of Mark Twain, 'the reports of our death have been greatly exaggerated.' It's worth noting that in 1901, two years before that historic day at Kitty Hawk, Wilbur Wright told his brother, Orville, that it would take at least 50 years before man could learn to fly."

Principal Subsidiaries

Ballard Power Systems AG; Ballard Power Systems Corporation; Ballard Material Products Inc.; Ballard Generation Systems Inc.

Principal Competitors

FuelCell Energy, Inc.; Plug Power Inc.; United Technologies Corporation.

Key Dates:

1979:: Ballard Power is formed to conduct research on rechargeable lithium batteries.
1983:: The company focuses its research and development efforts on proton-exchange-membrane fuel cells.
1989:: Firoz Rasul is appointed president and chief executive officer.
1993:: Ballard Power completes its initial public offering of stock.
1997:: Daimler-Benz AG and Ford Motor Co. take substantial equity stakes in Ballard Power.
1999:: Ballard Power completes construction of the world's first high-volume, fuel-cell manufacturing plant.
2003:: Dennis Campbell is named chief executive officer.