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Operator
Greetings, and welcome to the Plug Power Incorporated third quarter 2021 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded. It's Tuesday, November the 9th, 2021. I would now like to turn the conference over to Teal Hoyos, Director of Marketing and Communications. Please go ahead.
Teal Hoyos
Thank you. Welcome to the 2021 Third Quarter Update Call. This call will include forward-looking statements. These forward-looking statements contain projections of our future results of operations or our financial position or state forward-looking information. We intend these forward-looking statements to be covered by the safe harbor provision 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 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. As such, statements are subject to risks and uncertainties that cause actual results or performance to differ materially from those disclosed 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 31st, 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 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 CEO, Andy Marsh.
Andy Marsh
Well, thank you, Teal, and welcome, everyone, to Plug's third quarter conference call. My opening will be brief since details are provided in our investor letter. I was at COP26 last week in Glasgow, and hydrogen was front and center at the event. It really reiterates Plug's belief that our first mover advantage will be a definite benefit as we advance our business. We plan to remain the leader in building out of the global hydrogen economy. We're aggressive on all fronts, and have a vision of building out the hydrogen ecosystem today. Let me emphasize today, and this is one of the reasons we are building out the first green hydrogen network in the United States. We view green hydrogen as a great accelerator of all fuel cell applications, many of which will be provided by plug power. We don't believe we can do this alone. We've done this via successful acquisitions, such as American Fuel Cell, to provide us with leading-edge MEA technology. We are doing this with joint ventures with leaders such as SK, Renault, Fortescue, and Axiona, also through partnerships with companies such as Airbus and Life. Acquisitions and partnerships have provided us both technology and access to markets. You'll continue to see Plug travel down this path as we aggressively stake our claim in the potential market of $10 trillion. The acquisition of Frames provides Plug multiple benefits. Let me just name a few. Frames is used to executing on large projects and has worked with Plug for a number of years. They provide us with integration capabilities to address large-scale gigawatt electrolyzer plants. This matches with their global supply chain reach, provides us a unique capability when we match this with plugs, leading edge stack and electrolyzer technology. Now, let me just divert a second. I mean, just yesterday, I was in London working on a 750 megawatt deal. Being able to do large scale plants is really, really critical. When the technology front Frames brings in expertise in water management, which is critical in the electrolyzer industry. We are now in a better position to address waste and ocean water to provide ourselves and our customers a better, more cost-effective, environmentally friendly solution. We are thinking a great deal about offshore electrolyzers, and between Frames' water management expertise and offshore platforms' expertise, This is real value. Additionally, their ability to manage gases such as drying hydrogen is a critical capability that FRANES brings to the table. Also, it makes us very European. Of the pure plate hydrogen fuel cell companies, we will have one of the largest employee footprints in the industry with operations in France, the Netherlands, and Germany. They also provide us 150 employees in India to provide back-office engineering support for both our electrolyzers and stationary products. Finally, they have long-term relationships throughout the world with companies that have net-zero carbon goals. We believe this acquisition provides us the strongest technical and operational team in the electrolyzer industry. Also, I'd like to comment on applied cryotechnology announcement that may have been lost in all the activity around the plug power symposium. Today, liquid hydrogen is the only practical means for storing and delivering hydrogen to most customers based on the high volumetric density versus gases hydrogen. We believe the future storage and delivery of hydrogen will be a mixture of gaseous hydrogen delivered by pipelines, salt caverns, and liquid hydrogen. We believe liquid hydrogen will be a necessity in storage for mobility and stationary application, even when hydrogen is delivered to a depot via pipelines. We believe applied cryotech provides us with the following. A liquid hydrogen delivery network and fleet, liquid hydrogen storage, and a real cool one hydrogen mobility fueling, which is particularly important for ports. And as you know, that hydrogen will be exclusively green. Again, Applied Cryotech was a company known by Plug. When we analyzed our need for hydrogen trailers for the coming four years and recognized the cash saving associated with this transaction paid for the acquisitions. They also bring us market and technologies. We're also aggressively pursuing increasing the sales for applied cryotech, especially with some of our announced partners. These acquisitions allow us to increase our guidance to $900 million to $925 million in 2022. Finally, I'd like to discuss gross margins, especially hydrogen service. We are the largest user of liquid hydrogen in the world. and are building a green hydrogen network that is resilient and is not burdened by fluctuating commodity pricing. We have taken the burden managing the hydrogen network so our customers always have hydrogen. You know, our competition is electricity, and for large customers, electricity is always there, and with long-term contracts, pricing is consistent. With our green hydrogen network across the U.S., we can be the same. Our green hydrogen network will eliminate price variability and simplify logistics. In the short term, we're taking the burden so that green hydrogen is viewed as a dependable source of energy. This activity, as our network comes online, will become quite profitable for Plug Power. The service business, Plug, has demonstrated over 50 sites that we have the right equation to have a cost-effective service offering. We'll now roll these changes out across our network. In our shareholder letter, we said we expect a 30% savings by the end of 2022 and 45% by the end of 2023 in our service business. We also see even more advances with our next generation product. So now let me turn the phone over to questions. I have three members of our team with me today. Paul Middleton, our CFO, Sanjay Shrestha, who's the GM of our hydrogen energy business, as well as Jose Crespo, GM of our material handling business. We're now ready to take your questions.
Operator
Thank you. So everyone, if you'd like to register a question, please press the one followed by the four on your telephone. You'll hear a three-tone prompt acknowledging your request. If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by the 3. But once again, for any questions, please press 1-4 on your telephone. Our first question comes from the line of Colin Rush with Oppenheimer. Please go ahead.
Colin Rush
Thanks so much, guys. Andy, just so I understand.
Operator
Hey, Colin.
Colin Rush
How are you doing? Okay. Just so I understand, you're talking about developing, you know, electrolyzer assets offshore. and piping hydrogen, you know, back on land. Did I hear that right or did I misunderstand something?
Andy Marsh
Yeah, that is it. Yeah, and let me be clear, Colin. They bring that capability to the table. I don't see that as critical for the next three to four years. We'll have demonstration projects in the coming years, you know, at a small scale doing that. Now, I see a couple advantages to that. So the advantages of moving hydrogen versus electricity, for the same price in a pipe, you can deliver 15 times more energy. It just makes a lot of sense if you can do it in the ocean. And if you look at the buildouts, for example, in Long Island, it's a large opportunity. You know, frames, though, and let me be clear, Colin, in the next three to four years, you know, We have plants that we're working on customers with which are more than a gigawatt in size. They're used to executing on large projects. They've been working with us and have been developing over, have been working with us on the system with over 30, 35% of our system integration. I thought it was time to make them part of the plug team. They additionally, when you look at some of these large bids and proposals. Just to give you a feel, one bid and proposal was over 750 pages long. You know, it's really detailed, and the capability in India really adds that to the equation so that we can respond to customers rapidly. The level of activity in electrolyzers can't be understated. You see a lot of activity going on with green ammonia, with methodization, with green hydrogen, of course. And quite honestly, you know, I've been beginning to think about we have our grand opening of the Gigafactory on Friday. I've actually began to think about I need to expand really quick because the opportunity set is so large.
Colin Rush
That's super helpful, Andy. And then I guess maybe the second question is for Sanjay. You know, it's really about, you know, preparation of the supply chain to support the build-out of electrolyzer capacity with all the consumables, you know, not just the CapEx here, but just all of the different elements that go into the full process and, you know, the preparation of those folks to, you know, kind of march lockstep with you guys in this scale-up.
Andy
Yeah. So, again, Colin, how are you?
Colin Rush
Good to hear from you, Sanjay.
Andy
Indeed. So, look, I think this is something we spend a lot of time thinking about, right? And not just that. This, if anything, is one of the key competitive advantages and the differentiation that we have because we're the company that actually is controlling how, where, and how do you do the electrolyzer stack, how do you take the cost down, how do you think about the balance of plant, right? And that's one aspect of it which I think really makes us very unique and puts us in a very, very strong position to be able to really execute on all this green hydrogen generation plant that we're building. And second thing, right, as Andy talked about, all the bids and activity that's happening in the electrolyzer space also puts us in a position where We are our own customer, becomes a huge reference for the third-party customers as well, right? And obviously, look, from a supply chain perspective, we have a gigafactory. We've been adding a lot of resources, a lot of talent to make sure that we have all the components that we need. And we have a detailed timeline, Colin, right? When we think about exactly when the electrolyzer needs to show up, you know, for example, in our plant in Georgia, for example, for our plant in New York, you know, and we have actually mapped that out. We know exactly when the manufacturing is going to happen in our gigafactory. When do we get the electrolyzers showing up at the site? When do we get the liquefier and the cold box showing up at the site? So we obviously, there's a lot of planning and the detailed work that has gone on. That gives us the level of confidence when we talk about, you know, for example, Georgia, the plant is being up and running in the summer of next year, which, by the way, is almost like 12 months and less than even 12 months since we broke the ground, right? So we feel pretty good about what we're doing, how we're managing the supply chain, being able to control it ourselves really puts us in a position to be able to execute on this strategy. Anything you want to add, Andy?
Andy Marsh
I think you hit it, Sanjay.
Sanjay
Thanks, guys. Okay.
Operator
All right, thank you. Our next question comes from the line of Craig Irwin with Roth Capital Partners. Please go ahead.
Craig Irwin
Hey, Craig. Hey, Andy. Hey, everybody. Andy, I should say congratulations. You know, I've known you and Sanjay and George Racknick, your chairman, for 20 years, or more than 20 years. And I would say this last year, I think there's been more progress and more changes of plug than the prior two decades. And that is tremendous. But I have a confession, right? My head is spinning, right? I have followed this company forever. I know a lot of your partners, a lot of the key people in the supply chain. And, you know, when I talk to investors, there's a lot of different directions they're looking and they're, you know, people are sometimes just a little bit confused. So, With that context, when I step back, I see green hydrogen as the most important strategic initiative at Plug Power right now because that's what allows the carbon footprint that everybody wants to achieve by adopting fuel cell technology. And with that fundamental baseline, I look at the shareholder letter and the fact that you're looking at margins improving by five percentage points per hydrogen in the first quarter to as much as 20% exiting the fourth quarter, there's clearly something seismic going on, something really fundamental. Can you maybe bridge the gross margin improvement for us as far as what's going on with this hydrogen strategy, what's really working, and how the benefit rolls on over the next four quarters?
Andy Marsh
Great. Craig, I am going to let Sanjay answer that. But let me just add that I agree with you. I kind of view green hydrogen as kind of the iPhone that enables all these apps for fuel cells, as well as for chemical processes to allow people to turn green. But Sanjay, why don't you talk about the gross margin growth? Sure.
Andy
Happy to do that, Andy. And hey, Craig, good to hear from you. So, look, I think you picked on something really interesting here, right? So, and as Andy mentioned it during his prepared remarks, what has been our big focus in 2021, even though we're paying more for the hydrogen, we're trying to make sure that none of our customer ever run into any challenge from the availability of hydrogen to run the mission critical application. And that is by far the most important thing for us and our primary focus. But as you go into 2022, And when you go from Q4 to Q1, right, first thing, we will actually have our tenancy plan that is now, instead of being 6.4 tons, it's going to be at 10 tons, right? So that expansion has happened. That will contribute to reduction in the cost, number one, from a blended cost perspective. Second thing that will happen as you go into the second quarter of 2022 is We also have some additional supply from other industrial gas customer that we're able to secure that is also going to reduce the blended cost of hydrogen as well when you go into the second quarter. But more importantly, what really happens, Craig, as you talked about that seismic shift is in the second half of 2022, As some of our green hydrogen plants come online in the summer of that year, towards the end of that year, that's really what dramatically drives the cost of that blended hydrogen when you go into the second half of the year. And that's the reason why, not just 2022, we talked about what happens in 2023, right? This fuel business goes from being a negative margin business to starting to approach break-even. And as you start to think about 2024, now you're talking about 30% kind of a gross margin numbers, right? That is all driven by what we expect the cost of our green hydrogen production is going to be, which I've shared with you all. And you've actually also seen it in the shareholder letter. That number is below $4 a kilogram. And you all know, you know, you all can back into what the ASP is to our end customer is, and that's why we feel quite good about, you know, look, 2021 has been tough. Margins will improve in 2022, especially as you look at the second half of the year. It's going to continue to improve as you go into 23 and dramatically even improves as you go into 2024 as we build this first-of-a-kind, force majeure, resilient green hydrogen generation network in North America. And Craig, I think one of the things that's really important to note here is when we build this green hydrogen generation network, it of course helps our margin. It of course helps from a sustainability perspective. It is a must, as you highlighted, in the energy transition. But what this also does is this helps the entire hydrogen economy This actually creates a situation where our customer gets more comfortable, but even other hydrogen players in this industry will also get that resilient supply that allows them to even mitigate and manage through some of the force majeure that they have seen in the past, right? So that's how we see it unfolding. So couldn't agree more with you with your assessment here.
Craig Irwin
Thank you for that, Sanjay and Andy. My next question is obviously, you know, the big one is guidance, right? You are clearly seeing acceleration across the board, abundant initiatives that are being incredibly well received by your customer base, where you're adding new verticals almost every month. You know, aviation is going to be really exciting to watch. What can you say is surprising you the most? or has made much faster progress than you would have expected maybe at this time last year?
Andy Marsh
Craig, I think without a doubt it's the electrolyzer business. I say this in a good way. I am consumed by meetings with chairmen and chief executive officers. I'll give you an example of I was in Scotland on Friday, and the chairman of a company in the ammonia space asked me to come and stay in London for the weekend to discuss huge opportunities. And that happened. I had that meeting. I ended up leaving London last night around 9 o'clock or 6 o'clock. That's really commonplace. I had another worldwide large utility leadership grab me on the phone today, this morning, and wanted to talk to me for an hour. It is constant where the inflow for electrolyzers never stops. And it's why we made the Frames acquisition. It's also, you know, I think one of the real advantages we'll have is we're going to be the person with capacity that can actually build electrolyzer plants. And I think folks are recognizing it. The company I was with Monday highlighted the fact that they've been looking at this space for two years, and they've concluded we have the best technologies, the best products, and the best manufacturing capabilities when it came to PEM technologies, and really we're the only ones could execute and help them meet their needs and help them meet their net zero goals. I didn't expect that a year ago. I think somewhere in 2023, electrolyzers will be bigger than material handling. And I think sometime in 2024, green hydrogen will be bigger than material handling.
Craig Irwin
Love it. Thank you. I'll hop back in.
Andy Marsh
Okay.
Operator
All right, thank you very much. Our next question comes from the line of PJ Juvicar with Citi. Please go ahead.
Andy
Yeah, good morning, Andy and Sanjay. Good morning, PJ.
Andy Marsh
It's been a long day.
Andy
Good evening.
Andy Marsh
Where are you?
Andy
I'm based in New York here.
Andy Marsh
Ah, gotcha. Good evening.
Andy
Clearly, your margins and business has been hurt in hydrogen with purchase hydrogen costs going up. It started going up in second quarter. And, you know, what was the impact in third quarter? And then we look at your gross margins goal of 30% in fuels by 2024. What are the main risks in achieving that number in your mind? Is it renewable energy prices, electrolyzer costs, transportation costs? Can you just walk us through that?
Andy Marsh
I'll let Sajay talk about that, PJ. Yes. Hey, PJ, how are you?
Andy
Good to hear from you. Again, look, I think, PJ, you obviously know the industrial gas market quite well, right? And you know what kind of pricing you're seeing in this market, right? So if anything, if we were to just extrapolate and say the green hydrogen pricing should be very similar to what the gray hydrogen pricing in the market is right now, based on what you see we're paying for it today, if anything, I think that 30% margin ends up being conservative, right? But our goal here is to really make sure that that we're providing our customer with green hydrogen at prices that are arguably better than what we have to pay for gray hydrogen in the market today. Our goal, as you know, is to grow the size of this pie, not trying to go after existing pie and take a small piece of the pie, right? We want to make sure green hydrogen is economical, ubiquitous, so that there's more and more application that becomes available. Now, more specifically to your question on what are the risks, look, there's always things that can happen that is not anticipated. But as you know, from a renewable pricing perspective, We buy renewable prices on a long-term basis, right? That's something we can control. We know what that is. There are some areas where we've got to manage the demand charge and things like that, but we know how to do that. We know how to contain the cost of renewable electricity, and that's an area where we've spent a tremendous amount of time. Second, electrolyzer. Look, this is something we control, right? That, again, is a huge differentiation and competitor of Janus we as Plug Power have. And another thing, as you know, is from a liquefaction perspective, I just touched on how we've already expanded our facility in Tennessee to 10 tons a day. We know how to run liquefiers. Now, one other thing that we're doing that I think is going to be tremendously helpful, if anything, going to help both the logistics cost as well as the delivery network for us and for the entire industry is once this North American network is built out, if anything, you can actually optimize how do you transport hydrogen to various end customers, right? There are always things that can happen that are unanticipated. But look, as we sit here right now, given that, you know, renewable cost is the biggest chunk of the variable cost in terms of producing green hydrogen, we control the electrolyzers. So we're sitting here feeling pretty good about heads down, execute, and get these plants built.
Andy
Great. Sanjay, thank you. And my second question is on the Gigafactory. If that ramps up, you know, you have the order book in front of you. with electrolyzers needed for your own hydrogen plants, your fuel still stacking capability needed for materials handling business. So as the Gigafactory ramps up, you know, that operating leverage should translate into significant incremental margins. I was just wondering if you can just, you know, has that been taken into account in your guidance, and when does the real inflection point come?
Andy Marsh
I'll let Paul take that, PJ.
Paul
Yeah, and good afternoon, PJ. Good to hear from you again. So, it's going to have a significant effect next year. I mean, it's turning on as we speak. We're going to be ramping production out of that facility. And I would just broaden your comment by saying, when you look at the next 12 months, it really is amazing what's going to happen in that time period. So, we're turning on the green hydrogen platform, which is going to have a substantial impact. We're scaling the Gigafactory. and turning it on and going to have a full year of production out of that. We're scaling the new products. I mean, Andy talked about the growth of electrolyzer. With our internal use as well as external sales, that's going to grow tenfold next year. We've got other new products in EV and stationary scaling next year. We've got the joint venture scaling next year. We've got two acquisitions we've just made. that are meaningful both in terms of sales and margin and synergies on our existing spend of products and CapEx. We've got all the service improvements that we've been talking about. You know, it's really – and we're scaling the material handling business, and, you know, it's going to be growing over 30% to 40% next year. So the next 12 months are going to be another – you know, Craig mentioned a few minutes ago how big last year was – I think the next 12 months are going to be equally exciting and big in terms of the growth of the company. We're guiding over 80% growth over this year, and then you tack on all of these margin initiatives. They're going to have meaningful impact. Those are all baked into our guidance and why we're extremely excited about the projections and how we're going to get to that 30% run rate in the midterm strategic planning horizon.
Andy
Great. Thank you, and I'll pass along.
Sanjay
Great. Thanks, PJ.
Operator
Our next question comes from the line of Eric Stein with Craig Hallam. Please go ahead.
Eric Stein
Hi, everyone.
Andy Marsh
Good evening, Eric.
Eric Stein
Good evening. So just... As we think about the 2022 guidance, I mean, obviously characterize your business as accelerating. Just curious if you're able to break down maybe the impact of the frames acquisition, how much of it is just, you know, ongoing acceleration in your business. And then, you know, as we think about frames, you know, how do you kind of prioritize that internal initiatives versus going after what is arguably a very sizable market opportunity?
Andy Marsh
Sure. So if you look at it, the internal business organic growth is 508.25 next year, Craig. We're looking at frames and apply cryotech to move it up into the 925 range. That's kind of how I think about it. What was the second part of the question? I'm sorry, Craig. I was just jotting. What was that, Simon? What was the second part of your question, Craig? Oh, yeah.
Eric Stein
So it was simply, you know, just prioritizing. Obviously, you're acquiring this because of what it means for your internal business, but you've also got a big pipeline. I mean, how do you prioritize those two?
Andy Marsh
Well, it's actually why, you know, One of the biggest challenges, as you know, for companies that are growing is employees and having the right staff and the right number of people. By year end, we'll have 2,500 people. Pre-COVID, I was under 700. So I've had this massive increase. And look, we've been hiring skilled individuals. We've been acquiring companies to help us really ramp and reach the needs. When we look at prioritization, Sanjay has his whole organization. I was reviewing over the weekend with the team the layout of the play at New York. That was developed by his team exclusively. He has the skill sets integrated into his business unit. And this was a key decision we made as an organization that we were going to make these business units very, very self-sufficient. And Sanjay has the team. And really, Sanjay, I don't think need additional resources to execute on our present plans. Oldies team and electrolyzers, you know, frames will primarily support that activity. You know, obviously it will help when we can. with Sanjay, but that's really how, you know, we really have these business units, be it Jose's material handling business or Keith's new markets business. We try to keep them as self-sufficient as possible. You know, obviously areas like there are certain areas of platform development for technology, which is centralized, finance and legal, government affairs, but that's really how we go about managing the business. You know, These GMs we've put in place, quite honestly, all of them are very, very strong. And, you know, Ken, you know, our goal is that they will be the drivers to make sure these businesses are successful. Paul, would you like to add to that? I think that covers it. Yeah.
Eric Stein
Okay. And maybe this last one for me, just on the stack upgrades, I know you mentioned that you're going to, Do those at the 10 largest users. Just thoughts on what the cost of that may be and then thoughts of is this something that we should view as kind of an ongoing initiative and to do that more broadly across your customer footprint.
Andy Marsh
Sure. I'm going to let Paul take that one. I didn't get the context of the question. We're talking about, Paul, the service costs associated with the upgrade of the products.
Paul
Sorry, I missed that. Yeah, I think we've launched a new stack system. We launched it last year. We've seen how that's performed in the new units that we've launched since that time. We've put a number of new units into the field. It's tracking incredibly well. It's actually tracking better than what we anticipated. As we continue to roll that back into our existing fleets, which we can fairly easily retrofit, it has a meaningful step function change in stack life, which is obviously the biggest cost and impact on our service costs. Along the way, This year, we've actually added a number of new resources and then people to help focus, go forward reliability and improve that curve even faster. And that's paying dividends in what we're doing. So I think you're going to see those benefits roll out fairly quickly. And Paul, we have a lot of that cost already accrued for it. Yeah, exactly. We have it baked into our cost accruals of the increments of the overall portfolio of what it takes to get there.
Sanjay
Okay, thanks.
Operator
Thank you. As a reminder, everyone, if you do wish to queue up for a question, please press 1-4 on your telephone. Our next question comes from the line of James West with Evercore ISI. Please go ahead. Hi, James.
James West
Hey, Andy, how are you?
Andy Marsh
How are you doing?
James West
Okay. Andy, you've been a busy man. I'm glad you have Sanjay and the rest of your team, and Paul to help you out given that you're the top development.
Andy Marsh
You know, James, I was up 25 hours straight. That's not meant for young people, but I'm still energized. I'm not 25 hours now.
James West
Good, good, good. We're glad to hear it. Maybe a question probably for Paul as we think about the 2025 guidance. And, Andy, you touched on some of this, the moving parts where you think, The electrolyzers get bigger than materials handling, and green hydrogen eventually gets bigger as well. What should the revenue mix of that $3 billion or so look like when we get to $25 billion? How are you guys thinking about that?
Paul
Yeah, I don't have the exact numbers in front of me, but in terms of the $3 billion, I think, as Andy said, electrolyzers are as big, if not slightly bigger, than material handling. And so those, you know, that coupled with the green hydrogen are the big three chunks of the revenue. We're certainly seeing growth in the new markets on stationary and EV as well, but the majority of revenue will come from those three pillars. Okay, okay.
Andy Marsh
You know, James, no one's asked me this on the phone, so I'm going to add it in. You know, talking about new markets, You know, one of our goals with Renault is that we do rollouts of 10, essentially 10 customers with rollouts next year to demonstrate technology. They won't be big rollouts. We already have seven customers lined up. So I think you may have seen me driving the van at the Plug Power Symposium. But, you know, that to me, you know, if, you know, Craig asked a question earlier what surprised me. I think, you know, from last year, I think next year at this time I'll be talking about what we're doing with that Renault JV.
James West
Right. Okay. Okay, good. And then maybe just the last one, if I could sneak it in here. The green hydrogen sales that you're anticipating as these facilities come online, do you believe that you'll have pre-sold most of your capacity?
Andy Marsh
I'm going to let Mr. Sanjay take that.
Andy
Hey, James, good to hear from you. So, look, I mean, today we have not done your traditional way of how, you know, I think the industry is done, right? You pre-sold the plan, then you decide to build it, right? So as we sit here right now, is the plan completely sold out? No, it's not. But frankly, that's somewhat intentional on our part right now because of all the new applications, all the new opportunity that we see unfolding here. So we want to make sure that we're actually really reserving that capacity, which is also why we've gone down the path of essentially – you know, making sure that, you know, making sure that we're actually building these plans with our own capital so that way you're not having to go down the path of project financing and having to have that long-term offtake and things like that, right? So, you know, so again, but this is something we'll obviously shift focus on, make sure that the plans are loaded up as they come online, right? But today, that's the approach we're taking to make sure that we have that reserve capacity to support all the new apps that we anticipate unfolding over the next several years.
James West
Okay, got it. Thanks, guys.
Operator
Thanks, James. All right, thank you. Our next question comes from the line of Greg Lewis with BTIG. Please go ahead.
James
Yes, thank you, and good afternoon, everybody.
Andy Marsh
Hi, Greg.
James
Yeah, I was hoping to dive in a little bit more into how we should think about, you know, kind of the buckets of what's driving the margin improvements In terms of, you know, as we think about maybe it's pricing, maybe it's, you know, an improvement in the supply chain, maybe it's economies of scale. I mean, you touched on the frames and the ACT acquisition. Maybe some of that's internal savings. Any kind of, you know, broader strokes we can think about and how we're achieving that, you know, 2022 and 2023 improvements?
Paul
Yeah, I think, you know, we've been... So why don't we let Sanjay do hydrogen, and Paul, you can answer the rest.
Sanjay
Yeah.
Andy Marsh
And maybe you can run through hydrogen first.
Andy
Sure. Happy to do that, Andy. Right. So, Greg, again, I think, as I briefly mentioned to one of Craig's questions on hydrogen, right, so today we're obviously... you know, buying hydrogen other than our plant in Tennessee, right? So we're paying what we're paying. That's the market price, you know, obviously impacted by various commodity price fluctuation and things along those lines, right, with the goal that make sure customers have hydrogen available all the time so their mission-critical work and application is not impacted. And as we look into 2022, you know, we see a couple of things that are going to have a meaningful impact to this margin profile. First, the Tennessee plant is no longer 6.4. It'll be 10 tons a day. That'll have an effect in the first half of the year. We're obviously working with our strategic suppliers. and adding a few more supply options that is going to help us from a pricing perspective in the first half of the year. But when you go to the second half of 2022, as some of these green hydrogen plants come online, that will obviously help quite a bit from the blended price perspective. And that's why we said you should expect to see that meaningful margin improvement from Q4 of this year to Q4 of 2022. As you then go into 2023, where by the end of 2022, we plan to have about four of these hydrogen plants, you know, basically being commissioned, right? So by the end of 2023, we're looking at having about six hydrogen plants up and running. So when you look at 23, with all that contribution of new plants being built in the second half of 2022, you're looking at a break-even margin performance. Then you shift into 2024 and beyond, where you're we're targeting and we're looking at, which we've shared with you all multiple times, that we expect green hydrogen cost to be below $4 a kilogram. You guys can back into what our ASP is today. Obviously, that's a function of various different end markets, plus and minus, depending on which application it is, but it gives us a very good confidence and a visibility based on where we see the cost going to talk about this 30% margin that we refer to, especially in 2024 for our hydrogen business.
Paul
Yeah, and in the letter, we included a chart there that shows, to Sanjay's point, we're reducing it by 50%. I mean, that's fundamentally a step change function. And I would just add to Sanjay's comment that not only are we going to be able to produce it and sell it to our customers at a cheaper cost, having, as Sanjay alluded to earlier, gaining greater control over the logistics of and the network is incredibly impactful on the efficiencies of the systems. We have become the world expert on, you know, distributing hydrogen and managing the networks for our customers. And so one of the incredible things that we've learned is the importance of managing that logistics network and how that can be impactful to the efficiency of the system. So, you know, just to step back to answer your question, it really stems from kind of three things, really. One is hydrogen, which Sanjay talked about. Second is service, which we've talked about tonight in terms of a lot of things we're doing, and we expanded on the letter in improving that profile. And the third is scaling the equipment programs. You know, we've already shown routinely margins on our equipment profile at 30% to 35% as we scale further material handling as well as scale these new products like electrolyzers, I mean, a tenfold increase next year in volume in that business is substantial. And at a scale where, you know, as we start leveraging the Gigafactory and other things that we're doing, it's going to allow us to achieve, you know, that margin profile on all the equipment programs that we have. And as that holistic business grows, and we're talking about total growth next year of 85 percent, that's very meaningful in terms of the mix and the margin impact for equipment. It's really those three fundamental things, and, you know, the acquisitions and the JVs and all those things help on a global basis grow the scale of equipment sales, which allow us to drive that curve even faster.
James
Okay, that was super helpful. Thank you for that. And then just I wanted to talk a little bit more about ACP and in thinking about, you know, I mean, hey, this was a good – it's a good company, good technology, maybe a little bit undersized prior to the acquisition. But I guess now that it's inside the plug umbrella, what's the kind of the thought process? And Andy, you mentioned that one of the harder issues is getting the right people in place to do this. But as we think about the opportunity for ACT in 22 and 23, as you look at how plug is going to grow, I mean, you guys are growing like a weed. Is ACT in and of itself where it needs to be to meet your growth, or should we be thinking about things like hydrogen trailers and everything else that ACT does? We're going to have to continue to rely on third-party providers as well.
Andy Marsh
Greg, I expect to buy most of my trailers from ACT, Applied Cryotechnologies. I also expect that we will, you know, hydrogen trailers are much more complicated than stationary hydrogen tanks. This year, I probably purchased 65 stationary hydrogen tanks. I see this as a huge margin opportunity for plug power, as well as a potential sales opportunity. And with their technology, we're going to be able to move in to even further vertically integrate the business. We look at what we have down there. We're working one shift at the moment. There's no reason we can't expand the number of shifts and expand the capability. We have the land. I've already been staring and looking to see where we could add additional capability on the site. We've had a lot of outreach from some of their customers already. Now that plug with our stronger balance sheet and ability to support the effort, you know, the business is much more interesting. So, you know, we view that as very complementary to our vertical integration strategy, but also see that, you know, we could double or triple the size of that business in the coming years.
James
Okay, great. Thank you all very much for the time.
Andy Marsh
Okay.
Operator
Thanks, Greg. Thank you. Our next question comes from Bill Peterson with J.P. Morgan. Please go ahead.
Greg
Hi. Good afternoon. Hi, Bill. Andy and the team. Hope all is well there. Sounds like you might be jet lagged. Hope you'll feel better soon.
Andy Marsh
Well, I feel good, Bill. Just talking to you guys, get me going.
Greg
Okay. Well, you certainly sound excited about the electrolyzer business, talking about how it could be even larger than some current businesses. I'm actually wondering about 2022. The recent symposium you mentioned, 100 megawatts in external sales and 300 megawatts for your internal use. Can there be more upside to this or is this capacity limited? I I guess are you fully booked through 22 and are you starting to get close to 2023 now?
Andy Marsh
I believe that we will. Below out the 2022 electrolyzer numbers that I suggested at the symposium. You know we are not overbooked because we we we've built a big factory. And, you know, knowing the deal flow and the activities we have going on, I could see us during our update call in January for 2022, I think there's a high probability we'll be increasing that number.
Greg
That's terrific. Thanks for that update. I want to talk about EVs a little bit. We didn't spend too much time on this. I guess with Renault, you have obviously some light commercial duty. This is an area that seems well-suited for BEV, so I guess I'm kind of curious of what you see as advantages for this fuel cell, and maybe switching to medium or heavy duty. I believe a few quarters ago, you had talked about your being in negotiations for maybe some partnerships in heavy duty. I'm wondering where this stands. I think you expected me to make some announcements, but Is this still on track? Would you take kind of an OEM approach here or just do direct sales? I'm curious on what your activities are more in the medium and heavy duty side.
Andy Marsh
So there are some real good negotiations going on, Bill. Let me say that I'm not eager to be an OEM parts supplier. Ultimately, that is a low margin business. We're looking for And we're engaged in discussions to have relationships that look very similar to the Renault model where Plug jointly owns the vehicle. I probably agree with you that obviously heavy duty and medium duty vehicles are very interesting. But when you look at work that's been done by people like DHL and you look at the European goals, for delivery vans. DHL always points out if you go over 200 kilometers, which is often needed, that fuel cell vehicles, they're essentially carrying batteries around instead of packaging. I also think that fuel cell vehicles, and I think this is understated, gives operators a great deal more flexibility to keep vehicles on the road. and to use vehicles for multiple purposes. Now, as I say, kind of in this call that, you know, if this year electrolyzers surprise me, I think next year I'll be talking a lot about vehicles.
Sanjay
Okay, great. Thanks for that.
Operator
Thank you. Our next question comes from the line of Jed Dorsheimer with Canaccord Genuity. Please go ahead.
Sanjay
Hey, Jed. Are you there, Jed? Jed, you may be muted on your section.
Jed
Yeah, yeah, I'm muted. Sorry, guys. Andy, hope you get some rest. Sounds like an incredible couple days, so look forward to hearing about it. I guess – what's that?
Andy Marsh
Yeah, I look forward to talking to you, Jed. Thanks.
Jed
I guess the first question, and I just have a couple here, but with the updated guidance, and maybe Paul gave this already or you gave this, Andy, what's the breakdown of revenues in terms of material handling in the near term here? So, of the 900 to 925, what would that be in terms of the different end markets?
Andy Marsh
You want to take it, Paul?
Paul
Yeah, I don't think we've given that out specifically, but I think Andy just kind of said, you know, 825 is our core businesses and moving to the 925 is with the acquisitions. So, I mean, I think, you know, what we have given has been a number I think we quoted with electrolyzers next year being around 150. You know, I think, you know, looking at material handling kind of growing in that 30% plus range next year. If not higher, that's the guidance and insights that we've kind of given so far.
Andy Marsh
So it would be about material handling, about 600. 150 from electrolyzers, and I've already probably said could be more. New market, 75. Acquisitions, 100. I think that gets us there, Paul. That's about right.
Jed
That's helpful, guys. And then... I was wondering if you could help me a little bit just on the math, because it sounds like there's a variable that I'm missing in terms of maybe a big step function on the cost down on the electrolyzer or the efficiency. But if I look at getting a kilo of green hydrogen, it's about 65 kilowatt hours of electricity to get that kilo in liquefied water. So is that a fairly constant number to use, or do you see that dramatically changing? I guess that's my first question. The second is, then if we apply sort of a $0.05 cost of behind-the-meter electricity, I still struggle to get to under $4.50 of cost. So Jed,
Andy Marsh
I'm not paying. I'm paying below 3.1 cents pretty much everywhere. OK, and and and almost approaching two and a half cents of places. I think your analysis is kind of right here. You can think kind of thing about the electrolyzers is 52 kilowatt hours. You can probably think of. 11 to 12 kilowatt hours for the liquefied today. I think you probably can start Liquefiers getting down at the eight, eight and a half kilowatt hour range. And probably electrolyzers, you probably can see seven, eight percent of improvement over the coming two years or so. Got it. That's helpful. I think that, Jed, you hit it on the head. It's the cost of how you negotiate the cost of electricity. is the key to providing low-cost green hydrogen. And as you know, Sanjay is really an expert at that.
Jed
Well, Sanjay is a master negotiator, I guess. But I guess maybe you or Sanjay. I guess the question on that lower level of electricity pricing, particularly from renewables, have you figured out, is that really a mechanism of curtailment that you're taking into account to get those prices? Or is there anything you might be able to add other than Sanjay's negotiating skills?
Andy Marsh
I'll let Sanjay answer that question.
Andy
No, I mean, Sanjay, it's not the curtailed power, right? But you do bring up a really interesting point. And as you know, today, to be able to really access that curtailed electricity, given whether it's ITC or PTC, there's a lot more negotiation that has to go on, right? So I think it becomes more challenging from that perspective. But going forward, that would be an interesting area where you could in fact see even a benefit from a cost of renewable electricity. But today, look, these are new plants, right? And you've lived this jet in the past and also still now, right? Every time you've seen the new generation of whether it's solar or wind or new capacity is being built, LCOE has gone down, right, because driven by the capex, given by the cost of capital. And look, and I think Andy's given you some sense of what the numbers are. I don't want to go too much more detailed than that, right? I think we do want to preserve some of that from a competitive standpoint, but these are the numbers, and that's why we have said what we said about what do we think is going to be the cost of our green hydrogens.
Jed
Got it. Well, listen, that's super helpful. I'll jump back in the queue. Thanks, guys.
Sanjay
Got it.
Operator
And our next question comes from the line of Tom Curran with Seaport Research. Please go ahead.
Tom Curran
Andy, I'm still picturing you in a conference room in Seoul and almost said good morning.
Eric Stein
Oh, Tom.
Tom Curran
Returning to the North American green hydrogen generation question, uh build out so you're you're expecting to exit 2022 with with four plants uh that collectively will be producing uh 70 tons per day um and then you know as you turn to 2023 you expect to exit there um with six representing 200 tons per day at this point Just for the exit points of 2022, 2023, Sanjay, could you share with us the percentage of that output that you expect to be looking for third-party offtake? In other words, do you already have the visibility, whether it's a percentage or it's a range, for how much of that 70 tons per day you'll be looking to contract by the end of 2022, and then, you know, how much of the incremental 130 by the end of 2023? Yeah.
Andy
So that's a really good question, right? So let's take them first on 2022. And look, as you know, right, we are obviously the largest user of liquid hydrogen in North America, and we have many new applications, right, that we're seeing a lot of traction on. That is going to create, and some of these numbers you guys might not necessarily put together, if you would, for that incremental demand that materializes. But the typical rule of thumb, the way we want to think about it, As these plans come online, we want to make sure that the 80% or so of that capacity is called for. We want to make sure that there is about 20% buffer. Why is that important? Maybe even 25% buffer, given what we've seen here so far. Because there's always an event that happens in the industry. We want to make sure that we have that excess capacity to be able to support our customer and, frankly, the entire hydrogen industry. So we'll be talking to you guys a lot more as we go into the second half of next year. how we have loaded these plants that are coming online, and we'll talk to you a lot more about it in, again, 2023. But one thing that I think is really important to keep in mind, right, when you think about material handling industry, it's 1 kg per day of consumption, right? Then you go to light commercial vehicle, that's 6 kg. You go to stationary power, and if it's 24-7, it's more than a ton per day, right? So the multiply effect that you see for this hydrogen demand, given all the application we're working on, is pretty substantial. So frankly, as we sit here right now, we're not super concerned about loading the plants. We want to make sure that we're balancing how we load this plant so there is some buffer to be able to mitigate and deal with any type of situation or curtailment or force majeure that the industry might face so that we can really support the entire hydrogen economy, our customer, and frankly, even some of the other players in this market.
Pierce Hammond
Great.
Tom Curran
That's helpful. And then turning to new markets and one of the new markets that hasn't gotten much love yet thus far in the call, stationary power, data center backup power. Andy, you mentioned that you're expecting 2022 to be the inflection year for fuel cell mobility and in particular the Renault JV. What year does it look like could be the inflection year for stationary power?
Andy Marsh
Good question. I think actually I haven't thought about that way, but now you've given me a new model to talk about. I do think it's 2023 between what we're doing with SK, what we're doing with data centers, the work Keith and his team are doing to get products out the door now. I think next year is a big testing year. I think 2023 is where this starts taking off.
Sanjay
Thanks for taking my questions. Thanks.
Operator
Our next question comes from the line of Pierce Hammond with Piper Sandler. Please go ahead.
Pierce Hammond
Yeah, good afternoon, and thanks for taking my questions.
Andy Marsh
You're patient, Pierce. Thank you, Andy.
Pierce Hammond
Well, I'll try to be quick. I guess my first question, just following up on all the questions on hydrogen, this is probably more of a housekeeping question. So with the customers and hydrogen delivery, do you simply pass along your hydrogen cost to the customers, or do you have to wear the hydrogen price risk, or is that the customers?
Andy Marsh
So Pierce said, with our new network, when we control everything, that issue goes away. At the moment, as Sanjay talked about, we're buffering some of this because we want the hydrogen economy to be successful. That's what we're doing. And look, let me tell you the difference between the network plugs running and the network that you may see in California that one of the large industrial gas companies provided. We actually make sure hydrogen's at the site every day on time to keep operations going. And in the end, we strongly believe our approach of having share and then being able to substitute with our green hydrogen. And I can tell you the fact that we're dependable, reliable, and have provided stable pricing is going to be a great incentive in the future, and I can tell you in some discussions, to displace some of the incumbents.
Pierce Hammond
Thanks, Andy. I appreciate the answer, and that's it for me.
Operator
Okay, thanks, Peter. All right, thank you. Our next question comes from the line of Joseph Speck with RBC Capital Markets. Please go ahead.
Peter
Hello, Joseph. Hey, Andy. So look, I know you guys are building this business to be profitable and to sort of stand on its own. But going back to sort of the green hydrogen and bringing the molecule cost down by 20% by the end of next year, I want to confirm that that doesn't include any PTC. And if we were to consider that, what would the cost go down to? And Do you have like an internal sensitivity as what that could do to demand and profitability?
Andy Marsh
Absolutely. You want to take that, Sanjay? Sure.
Andy
Happy to do that, Andrew. Good to hear from you as well. Look, I think first part of your question, no, we have not baked the PTC into that, right? And look, obviously, I think it's a very important policy issue. not just for the US but also for the entire hydrogen economy and as a part of the energy transition effort. Hydrogen has to be a part of that mix and green hydrogen has to be a part of that mix But as we've told you that, you know, and we give you a number of 30% gross margin, right? And that is based on what the ASP is in the market today and what we expect the cost of our green hydrogen could be by 2024 timeframe. And if you were to have $2 or $3 of production tax credit, depending on the structure of is it PTC, is it cash grant, you could certainly see substantial cash generation potential out of that, right? But look, things like this are super critical, though. This is exactly what got the wind energy and LCOE to where it is right now. Investment tax credit in solar got the solar industry to be where it is right now. So we see a similar benefit for the green hydrogen as well from PTC. But to your question, for 2022, that margin expansion does not take that into consideration.
Peter
Okay. But if we did, it sounds like your 24 or 25 targets can be maybe pulled forward by a couple of years?
Andy
I think that would probably be a fair characterization, yes.
Peter
Okay, and then the second question is just, you know, there's, as has been pointed out numerous times, a lot going on here, and, you know, Plug itself is doing a lot of organic investment, a bunch of JVs, a bunch of partnerships, a bunch of M&A. I think sometimes it gets a little bit hard to judge the efficiency of maybe how you choose to sort of spend your capital. I think, Andy, your comments earlier that it doesn't make sense for you to be, so you make some sense, but if you could just shed a little bit more light on, like, how you approach a given situation within the hydrogen economy as to sort of whether you do that organically via a venture or via an acquisition.
Andy Marsh
I think that's – so, you know, I think when you think about how we think about ventures, I think a lot about sales channels and – You know, if you think about the Renault JV, you know, it provided us, you know, in theory, I could have gone into the vehicle business. You know, Renault has two distinct advantages that we could not develop over the next three to four years and even longer. One is their electric vehicle capability. The other is their long customer reach and reputation in Europe. They provide us instantaneous credibility. We have the same, you know, what we bring to the table obviously there is, you know, we actually know how hydrogen ecosystems work. And so, you know, I wasn't going to walk into Europe and be European tomorrow. I wasn't going to walk into Korea and be Korean tomorrow. But let's talk about SK. Why would we do it with SK? Not only is it a partnership, it's a market. They have the hydrogen. They have the policy in Korea to allow us to put stationary products at scale. We could not do that alone. When I think about the acquisitions we make, have made, many of them have been technology-oriented to fill in the hydrogen ecosystem. If you think about every one we've done, ones that many in the audience may not remember here, SELECS, which allowed us to get into material handling, AFC, which got us into membrane businesses, Energy Ore, which is the aviation platform business that we have. You know, what we've done with frames is really strengthen our electrolyzer technology. Giener brought electrolyzers to stack to the equation. So if I kind of look at, you know, I would say that the partnerships and ventures are probably more sales channel oriented. while the acquisitions are more technology-oriented so that we can serve every element of the hydrogen ecosystem. Hope that was helpful, Joseph.
Sanjay
Yeah, thanks. I appreciate that, Colin.
Andy Marsh
On that note, I think we're done here as far as questions go. I appreciate everyone's patience who's called into this call. Look, we're building something really special here. We are the company. You know, I was at COP, and I was invited to meetings, which I never would have been invited in the past, sitting there with John Curry side by side, talking about the hydrogen ecosystem. Plug's invited to these meetings because not only are we talking about it, You can see we're doing it. And we are the company that if you want to build an electrolyzer system at scale, no one else that has the manufacturing capability to do that. If you want a full range of fuel cell solutions from stationary to on-road vehicles, Plug actually makes systems that are complete, not just components. This is a unique company. And I shouldn't forget the hydrogen, green hydrogen network we're building out. We're doing it. We've broken ground. Plants will be online third, fourth quarter. This isn't a pipe dream in PowerPoint. This is real engineering, real people, 2,500 of them now who are making this business real. So thank you all for listening, and I Look forward to talking to you in January for our business update call.
Operator
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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