Interest in Ballard Shifts Into Overdrive as Hopes for Fuel Cells Rise

The Canadian company has become the odds-on favorite to develop technology widely viewed as the successor to the internal combustion engine.
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Like an apocalyptic haze, smog has crept up on many North American cities. And in almost every case, the automobile has been the culprit of choice.

Vehicular emissions from bumper-to-bumper traffic have prompted activists and civic leaders to grapple with the small picture. Debates rage about the merits of public transportation, incentives for using high-occupancy lanes and erecting even more freeways.

There is, of course, another option. Rather than rethinking the way we move, companies like

Ballard Power Systems

(BLDP) - Get Report

are revisiting the concept of how cars themselves move. In doing so, the Burnaby, British Columbia-based company has turned itself into the odds-on favorite in the '90s

grand prix

for the auto industry: environmentally friendly power sources for vehicles.

Ballard is attempting to develop a fuel cell that creates electricity through combining oxygen and hydrogen, the building blocks of the water it will give off as exhaust. Their revolutionary recipe is neither junk science nor pie-in-the-sky thinking. Automobile manufacturers have not only accepted the advent of the fuel cell as a possible successor to the internal combustion engine, some have also embraced the technology in the hopes that it can make the electric car a viable reality at some point in the future.

Mind you, hydrogen-powered transportation still has its detractors, thanks in part to the disastrous flight of the

Hindenburg

(the gas was blamed for the zeppelin's fire). Nonetheless, Ballard has no shortage of credible and cashed-up believers.

DaimlerChrysler

(DCX)

and

Ford

(F) - Get Report

both hold significant stakes in the company, owning 20% and 15%, respectively. Ballard also counts

General Motors

(GM) - Get Report

,

Honda

(HMC) - Get Report

,

Nissan

(NSANY)

,

Volkswagen

and

Volvo

(VOLVY)

among its customers. And just last week,

Yamaha

announced that it was jumping aboard Ballard's fuel-cell bandwagon, cutting a small but symbolic C$365,000 pact. Could a silent, emissions-free motorcycle be in the works?

Harley-Davidson

(HDI)

purists must be shuddering.

The barrage of deals involving high-profile auto manufacturers has helped create an active base of punters, many of whom tend to buy and sell Ballard's volatile shares on any tidbit of company news. But according to Kevin Binnie, technology analyst with

Pacific International Securities

, these speculators may be missing the point: Judgment day for Ballard is at least five years away.

"In terms of value, this is a long-term story," he says. "For anyone talking about commercially viable cars based on Ballard technology, we're looking at 2003, 2004."

The future may not be that far off for investors in the company. Since listing on the Nasdaq exchange in late 1995, Ballard's shares have put the pedal to the metal and outperformed the underlying index by a whopping 671 percentage points, according to

Baseline

, a securities information provider. They currently change hands at about 35 1/2.

The excitement over fuel-cell power has spawned a new breed of "Baby Ballards" in Canada, smaller companies working on variations of the sexy technology and capitalizing on a combination of hope, hype and innovation.

Global Thermoelectric

, for example, is developing an emissions-free system that can be fueled by natural sources other than hyrodgen and requires much higher temperatures to operate. The Calgary-based company, whose shares trade on the

Toronto Stock Exchange

, saw its shares triple on April 16, by C$7.21 to C$10.70, after signing a deal to develop a fuel cell for

Delphi Automotive Systems

(DPH)

.

And

Westport Innovations

of Vancouver is currently developing a means of converting diesel engines to run on natural gas, signed a deal in early June with Ford to create a prototype natural-gas car engine.

Looking to the win-win clustering effect that has made the Silicon Valley a hit with the information-technology industry, Binnie believes the pack of fuel-cell upstarts in Canada can only enhance the sector and the standing of Papa Ballard.

"Competition isn't necessarily a bad thing," he argues. "Long term, you'd like to see some competition here. You generate a significantly greater amount of interest if you have more expertise in the area."

But like any revolutionary technology, there are bound to be concerns for the sector's future. Players like DaimlerChrysler and Ford may have a significant financial interest in fuel-cell development, but there's no guarantee that consumers will respond to the final product.

"I don't think there's any doubt that fuel cells are going to be a replacement for the internal combustion vehicles," Binnie says. "The question is, When are we going to see a takeup and at what rate?"

Gentlemen, start your engines.