July 02, 2009      

Summary: Protonex Technology Corp. produces ultra-light fuel cells that power hybrid and low emission vehicles. The high power-to-weight ratio of its products has landed it continually expanding contracts with the U.S. military, but its small size has prevented it from expanding the technology into civilian markets that provide more growth potential in the long term.

Advanced, ultra-light fuel-cell developer Protonex Technology Corp. is having a good year, but the high demand in its primary market is bad news for its ambition to diversify into a secondary market to increase its customer base and stability. It’s also bad news for recreational vehicle owners hoping for environmentally sensitive ways to power their microwaves and satellite TVs when they get away from it all in the wilderness this summer.

In June 2009 Protonex announced the latest in a series of endorsements of its hybrid fuel-cell systems by the U.S. military: two extensions to the $3.3 million contract it announced in March to develop fuel cells capable of powering small unmanned aerial vehicles (S-UAV) through extended flights. The first extension added $500,000 to the contract for S-UAV power-cell development specific to the U.S. Naval Research Laboratory; the other added $265,000 for specifications from the U.S. Air Force Research Laboratory.

The company also announced in April that a Foster-Miller, Inc.; Talon unmanned ground vehicle (UGV) used a hybridized fuel-cell/battery power system from Protonex to triple the unit’s mission range from 15 km to 45 km. The long-distance Talon is being developed for the Defense Logistics Agency and the Crane Division of the Naval Surface Warfare Center.

Protonex also announced it had released a pair of portable power systems designed to lighten a soldier’s load by replacing the stash of mismatched batteries used to power GPS units, computers, radios and other electronic devices, including the heads-up displays and other advanced networked gear being developed for the Army’s Advanced Combat Brigades. It has not announced any contracts to sell the units to the U.S. military, however.

The nine-year old company has been working feverishly to get a new power unit ready for the civilian recreational-vehicle market. Its M250-B hybrid fuel-cell system is designed to replace noisy, smelly gas or diesel generators with a quiet methanol-burner whose emissions are low enough that it can be run inside an RV, and plug into existing electrical systems through an inverter or directly to batteries.

Protonex’ military contracts are taking up the bulk of its development resources, however, according to financial documents it filed in accordance with British financial disclosure laws. Protonex is based in Southborough, Mass. but went public in 2006 on the London Stock Exchange’s Alternative Investment Market, which has been attracting IPOs from small technology companies because it has delivered higher returns than stalled U.S.-based exchanges.

Consumer Product Delay

Between the military work, a projected ship date that would miss the heaviest-spending part of the RV-preparation and vacation season, a generally depressed economy that is holding down spending on recreational vehicles and other non-essential consumer products, and the likelihood that its own research will make a lighter, cheaper consumer product possible in 2010, Protonex delayed introduction of the new consumer system until next year.

The decision was probably a good one, given the cost of a new product introduction and timing, but it’s unfortunate for Protonex in the long run. Though its military sales are rising quickly, most of Protonex’ products are in prototype or are driving products that are themselves prototypes. Expanding into a new market could help spread the cost of its development across more products and reach a new customer base that could improve its bottom-line numbers. It generated $7.9 million during fiscal 2008 and lost $10.9 million. It landed $11 million in venture funding in the year before it went public.

Protonex’s technology appears to have a solid future in government work, and will likely find a number of takers among recreational-vehicle owners of all types, not just for camping. ATV, dirtbike and motorcycle manufacturers are introducing hybrid or electrically powered vehicles in response to continued worries about gas prices and the need to reduce carbon emissions.

In an environment like that, Protonex’ compact, clean, quiet power sources could be a real hit. With losses in the double-digit millions, a new source of revenue would have been a tremendous boost to both its research and the value of the company itself.

—Kevin Fogarty