Bloom Energy Corporation (BE) Earnings Call Transcript & Summary

All right, everyone. Welcome back for the final panel today, Bloom Energy. We've got Greg Cameron, CFO. We've got Ed Vallejo, VP, IR. We are going to chat about Bloom prospects around hydrogen, fuel cells and everything in between. So thank you, again. If you got questions, ping on us on e-mail or chat, probably the best way to do this think about questions. And with that, I'm going to turn it over to Greg thoughts, observations, you all have made some strides here, you've [ been in a ] a lot of different data points this year, even in the back half of the year, lot of data points on electrolyzer solution that's coming to market on hydrogen. Greg, you want to -- you want to just provide us some thoughts and observations on Bloom's positioning here?

Yes. So it all start -- it all starts with our solid oxide technology. The way the company was built around was the efficiency benefits of solid oxide. And the founders of the company had the core thought to think about all the multiple applications that our hot box had, and we've built at the beginning around a natural gas conversion fuel cells to electricity with non-combustion that, that is migrated into biogas, could migrated into hydrogen. They can operate on land, they can operate on sea. But it's that same hot box operated in reverse that creates the electrolyzer. So we're really excited about it. We announced in the summer that we are -- have a commercially viable product meaning that we're out doing customer discovery and working with developers and others around different applications for our electrolyzer. You're beginning to say, as you said, you're beginning to see some announcements that we've made. So we had the SoCalGas announcement this week. That was important for us for 2 reasons. One is it, obviously, the use of our electrolyzer and injecting it into a gas grid was great. But if you followed the story down, that, that mix of [ 90-10 ] is going to power existing Bloom fuel cells that are there. So we're so showcasing not only the electrolyzer, but the fuel flexibility of our installed base with our server that's there on campus. Saw the announcement from Heliogen earlier around using solar, specifically solar concentrators, where you get the benefit of the green electricity as well as -- as well as the heat. And then we're real anxious to publish the results here that we're working with the Idaho National Lab's around nuclear capability, and we think that's going to be applicable not only in the U.S. but other countries as well. So we're really excited about our products. We think we have an efficiency benefit versus other forms of technology with or without heat. And we think we like our strategy being a product company in this space. We get good margins on our core product today. We expect to get good margins on that product as well. And we think we can grow nicely on a lot of different use cases.

Excellent. Thanks, Greg. And again, folks, if you've got question, ping me here. But Greg I -- let's talk about the National Lab's publication. When should we expect that? What do you think that's going to show? And then really, let's get to the fun side here be honest. I mean, let's talk about when you guys can sell product into the nuclear end market, right, partners, as you say abroad as well.

Yes. So what to expect out of that is in probably -- if not weeks, it's months, we're going into holiday here, and they're still working at it out. They own the data. So it will be for them to publish, not for us to publish. But what they'll give you is, is a real good baseline around our efficiencies with and without heat. It will be a real life example, and it's intended to primarily provide data to the nuclear industry. And we think based on the write-offs and the math we're doing going into it and what we're seeing and expect to see in performance, it will be right in line with that. Listen what's going to happen here is we obviously have an electrolyzer that works. We've had it in different sites. You're going to see it in a lot of different places. But the real product development work now moves from the electrolyzer to the product integration work. And what do I mean by that? So as you think about all the work that happens upstream from the electrolyzer, whether it's the inverters or the water cleanup or the heat on the water, all those activities need to happen. It's a well known, well understood industry. It's not something we have to go invent, but it's folks we have to partner with. And the same is true once we've created the hydrogen. Our ability to dry it, to compress it, to put it in storage, to put it into trucks, to mix it with ammonia, to make ammonia, to use it for blended fuels, all those different use cases each come through there. As we did the announcement this summer that we had it, it was really, as we've done this customer discovery. And what I mean by customer discovery is sitting with folks that either -- that have thought through, where is the electricity going to come from? Where is the hydrogen offtake going to happen. And they are pulling together a project, but it's very clear that it's going to be a multi-partner project not quite a consortium, but multi-product collaboration in order to get the hydrogen to whatever use case it needs to be at the end. And that's probably the biggest step we have in commercializing our product. We have allocated 30 megawatts. It's my allocation within the capacity for next year. We're going to build the product in 10-megawatt building blocks. So that will give us the opportunity to do 2 or 3 customer shipments next year. But I would consider those to be more demonstration units. I think the commercial applications for this will be in the hundreds of megawatts based on what we're learning through our customer discovery.

So let me ask you hundreds of megawatts, I mean, the nuclear plant is a fairly large asset. Why -- I mean, in that perspective, why is it only 100 megawatts cumulatively, if you want. Sorry if I'm not understanding...

No, no, each application. So each application would be hundreds of megawatts, right?

Okay.

I think What I -- yes. So the example I try to make for people is, if you look the way the fuel cell business progressed, right, starting at 150 kilowatts, going to 600 kilowatts, pushing the business to get above a megawatt. And now a lot of our customer engagements are in the tens of megawatts, and we've scaled that business pretty well over time. If I look at the electrolyzer business, I think what's going to happen is, you're going to go from tens of megawatts being the customer demonstration units to orders being in the hundreds of megawatts, and that's for each installation, whether that's on a distributed basis or on an economy to scale, large scale plant, some of those will be in the several hundred megawatts by the time it gets all pulled together.

Got it. Okay. But that's going to be not in the single side, you're going to -- the idea here is you don't have use for enough hydrogen at a given plant today to really scale the -- because the given nuclear plant today is likely a gigawatt plus. So the point is you're not getting waste that's equal to that, A, and B, you don't have use for hydrogen onsite. So you're going to see these things come in 10 megawatt plus, if you will. And it sounds like you're using a lot of these sales -- early sales could be abroad as well, right, specifically?

We think so. I mean, given some of the other countries and their commitments to both nuclear and to renewables provides a nice opportunity where when the sun shining and the wind's blowing that nuclear energy could be going to create 0 carbon-based hydrogen. So we're excited about it broadly, and we're anxious to move into that market. I think what's -- sometimes, Julien, where we get caught up is people think we need the heat right, in order to be efficient. We are more efficient straight up on a water-based application without heat. We think we're 15% on moving kilowatts to kilograms on hydrogen. And since 80% of the cost of breaking water is going to be the energy cost, we think we were out of the gates more efficient. If by chance, we can find a form of waste like in this nuclear application, and that heat can displace needed electricity, as a form of energy, we can move up to 40% to 45% more efficient, given that's where the -- primarily the cost driver is going to be a breaking water, we think we have a really good mousetrap that works across multiple different applications.

Totally hear you. Now let me come back to this, if I can. When you think about that, that waste heat example for a second, I mean, what -- how much of an advantage could you guess that, right? I mean, we talk a lot about that like heat example. I mean, I would imagine that would be your niche, right, to win, right, with that heat advantage, right? If you're going to get early wins, it's with high heat applications, where you shine, no.

No, no, no, I could be -- I could be 15% more efficient without the heat, right, using electricity to generate the heat of the machine, even with that, we're 15%. I'm moving kilowatts to kilograms on that basis. If I get the waste heat, for sure, I get even more competitive. That's true for nuclear. That's true for solar concentrator. That's true for industrial applications, blast furnaces, other things, where we can take that heat in. Yes, it increases the distance between me and the competition, but that distance exists even without that heat.

Got it. Okay. All right. Fair enough. I appreciate this. I mean just when you think about your own, should we say, milestones and targets on having customers sign up? I mean, how is that going there in terms of just not commercializing, but effectively selling this product, right? How are you -- how is it going in these first months in competing with alternative electrolyzers?

It's a -- it is playing out exactly how we thought. And what did I mean by that? So when we made the announcement and I got the same question, I suggest, as you think about it, what you're going to see is different use cases for our product, some being large, most being small. So over the last several months, you've seen announcements around solar concentrators, you've seen the announcements around the Idaho National Lab, you saw the SoCalGas announcement this week, you've seen a storage announcement out of India, where they're using the electrolyzer and the fuel cell to store electricity. You're seeing a number of different announcements in different use cases for our technology. That's a way as part of our customer engagement. We want to make sure that we're casting the net as broadly as we can for different types of development opportunities. Say where we are today is a lot of discussion with folks. Now we've moved into each one of those use cases looking for a demonstration opportunity in that 10-megawatt size scale, right? I want to get to the point, where we move off of proof-of-concept pilots to get to demonstrators, demonstration projects, gets you the financing you need to go do the large scale hundreds of megawatts projects. So over the course of -- as we move out of making these announcements, which have been in the works for several months, we now move into customer engagement that should lead to either MOUS, LOIs, purchasing options to buy down the road, those types of things is what you're going to see over the next month to 6 months. And we expect those to happen with some of those being hopefully delivered by the end of next year. It's a stretch for the team to get all that work done, but I'd like to get a few of those done over the course of 2022. And as we move out to '22 and 2023 and we start to have success with some of those smaller demonstration units, that's when we expect to move into the larger announcements around more large-scale projects to move forward. So I think we're on track. But just to set expectations, don't expect for me to announce tomorrow that I've got a firm order for next -- for 12 months on the hundreds of megawatt scales. It's really around how do I make small shipments in the tens of megawatt like -- that enable large shipments in '23, '24.

Excellent. Thank you. All right. Maybe one other question here that I think is pretty critical. We've had a number of folks throughout the course of today talking about their, I'll call it, cost curve, right? I mean we've seen some impressive numbers on dollar per kilo equivalent electrolyzers. I mean we had someone this afternoon, VC stage, talking about $300 kilowatt electrolyzers, again, just everyone's competing away here on their respective niches. How do you see -- again, you're starting up again, I don't think it's fair to frame this like your technology is starting, right? You have a technology, you effectively pivoted into offering electrolyzed solution. And we know that you have a technology curve on the fuel cell side, already, but you guys are pretty [indiscernible] how does that translate back to the other side, if you will, on your expense projector.

Yes. So the math yeah, so the math is, and you know the story, well, you followed us since the IPO. It was about a $6,000 a kilowatt price point on a fuel cell basis prior to IPO-ing the company. Our latest print is somewhere around the 2,200 to 2,300 basis. Now that's on a fuel cell basis, our basic building block today is our Bloom 5.0 machine, meaning it operates at 50 kilowatt. It's a basic modular building block. We obviously put those together to create the larger applications. When you run that same hot box in reverse, you can put 120 kilowatts into it in order to break water. So the power rating is a 2.4x to 1.0x. So let's just make it easy and say, if we are -- got the price down from 6,000, call it, 2,400, that's in the 1,000 equivalent basis on a -- on an electrolyzer basis and it doesn't need all quite the parts. So I think the math we did last year was closer to 900. Now, couple of things, we take out year in and year out 10% to 15% out of our cost. We do that by increasing the power density and the generation of the product. We do that by engineering a simpler project every year once you put a new generation in, like all industrial companies, we look to simplify the product, simply the manufacturing, and we grow volumes here around 40% a year. So it gives us incredible fixed based cost leverage. All 3 of those we utilize one more than other in any year, but we're not dependent on any one of those to go. So our full expectation is, even with the supply chain issues we're having this year, we're down low single digits. We'll be back down to 15% next year, 10% to 15%. That will be the goal of the team. I don't think on a fuel cell basis, I think we can take it down another 50% before we start screaming about where how close we are to entitlement. Our 7.5 will be helpful to do that, but not dependent right away. So I would give you 2 thoughts. I give you one is, we've got a proven track record of taking cost down, and we'll take it down 10% every year. The other thing I'll tell you is based on our efficiency advantages, whether we -- whether we are operating in a steam mode, meaning we're getting excess heat or we're operating in a water mode, where we need to heat it, we're going to be more efficient. And if 80% of the cost is going to be around the energy needed to break the water, the initial cost of the machine, whether it's 300, 500, 750, I would tell you is almost irrelevant. It's the efficiency that's going to matter, and we think we're going to win there. So listen, we understand the value of the cost curve. We've driven it down on the solid oxide for a decade. We think we can continue to do that for decades to come. But we also say at the end of the day, it's going to be what is the kilowatts required to make kilograms of hydrogen. That's where the true cost point is going to be. Now when you start translating into that and say, okay, Greg, do the next logical step is give me your dollars per kilogram then, the question becomes under what use case? Because all of us know that the electrolyzer is only a part of that broader delivered hydrogen. We may be in the single, low single dollars, but as you start adding up the other pieces of technology and costs associated with delivering that technology, then, we're all going to face into that. So what is the ultimately delivered cost of hydrogen? We think no matter, where you pick it on the value chain, we're going to be cheaper.

Excellent. Thank you. Fair enough. Now, hey, let me turn into BBB here. We're front and center on this thing that matters a lot in theory. I mean, how are you guys thinking about that opportunity? Again, listen, I want to frame like what does it mean for you [indiscernible] could happen, right? Like we're not going to talk to you on the day it happens, put it that way. If it happens, what does it mean like next day you're doing [indiscernible] how you pivot this?

So -- so -- yes, so I think about both bills, right? I think the one signed in the law on the Infrastructure Bill, I think it was valuable that -- value there for the hydrogen hubs. I think it's driving a lot of good discussions, hopefully, a lot of good investments. I think the electrolyzer demonstration money and the carbon capture demonstration money is valuable.. If you look at Build Back Better, the things that we like about that bill, first is an extension of ITC at the 30% with opportunities to earn bonuses above that. Now whether or not we qualify for those bonuses or not is yet to be seen, but it's an economic math at the end of the day, but just knowing for 5 years, you've got 30% ITC around our core product is really important. The second thing that we really like is the $3 production tax credit for hydrogen and it scales with blue to green, right, based on the carbon intensity. We think that, that helps drive down the cost curve. I don't know, you pick it from me 7.5 to 10.0 years at the speed of people being able to drive down those cost curves, that production tax credit should do what it -- what it's intended to do, which is to drive earlier adoption and people don't have to wait on cost curve -- cost work that they know the industry will achieve over time. I also like the refundability, right? The tax equity world right now for monetizing some of these tax benefits has gotten too small and having more players being able to monetize these regardless of their tax base, creates a lot more utility, brings a lot more players in this space. So we're really excited about that. I'm also really excited about the 45Q credit. I think really one of the things that we need to talk more about with the Bloom fuel cell is that it operates -- it does a couple of things really well. One is it's highly efficient in converting natural gas to electricity, one is it's highly efficient in crea2ting CO2, right? If you look at us versus on a wet basis, where 57% of our exhaust is CO2 on a dry basis, 95% of our exhaust is CO2. We don't need all that complicated technology, that other technologies need in order to capture the CO2 out of a back of a combustion engine. I need 2 flanges and a 2 inch piece of pipe, and I can deliver to you 95% pure CO2. And the other thing is, we, today, when we reform the natural gas, we create a stream of hydrogen. Today, we repurpose that back through to improve our efficiencies. We could just as [ easy ] let that flow out with the CO2. And I think there's a case there that says we could actually create a model, where we are selling electricity and offsetting the cost of that electricity with the 45Q credits and maybe even a stream of blue hydrogen through that -- through that carbon capture. And we think that makes us incredibly competitive and you end up with something in the mid-single digits for base load, 0 carbon electricity. That's what we think. We're out trying to justify this and look for partners to go do it. But I think that bill here would help -- would help bring that along. So I would tell you, from my financial projections, I don't have any of this priced in right now to how I think about where -- as good as we could be on that growth rate of our fuel cell business, 25% to 30%. But as we get these types of things built into the model, we think that they will create a substantial amount of upside for us, especially as it gives incentives to our customers, to do different things.

And just to make sure I've got this right here, and we don't know, what you're saying. I don't think you can stack 45Q and PTC together, right, you can't take both.

You can't.

And what you're saying is...

You can't. You can't.

You can.

You cannot.

You're correct. You cannot. Yes, yes. But what you're saying to be clear is fuel cell 45Q electrolyzer hydrogen growth, right? I think that you bifurcate their product -- no, go for it.

No, no, I'm saying my -- listen, I think the electrolyzer is the PTC. The ITC and 45Q could be off the fuel cell. So I could get the ITC credit in the 45Q off the fuel cell and the PTC goes off there. I can't stack. If I create -- if I let that stream of blue hydrogen come out of the machine, then, great, but that is not going to be qualified for PTC if it's got ITC and 45Q.

But tell me this, I mean, I know we talked about this [indiscernible], how important is this direct pay? And again, maybe does not -- how important, but maybe the better way to bring that is how much of the sale opportunities does that enable, right, like.

I think on the direct pay -- the direct pay does 2 things, one is it provide -- I think the ITC does a couple of things in Direct pay, in particular. We all did hand flips last year when we got a 2-year extension on ITC because we've been living in a year extension done at the end of the year and that created a ton of uncertainty in the industry. And when you've got a 12-month sales cycle and you know, you're up against making the sale and maybe losing ITC, which then -- which then you had to go repurpose all the economics, knowing we have 5 years and what the rules are is very important. Having refundability, listen, the banks have a corner on the tax capacity, the tax equity in most of the markets. And I love you guys, but I'm an ex banker, I know when you do the CCARs, you have a different view on what profitability is going to be based on the risk forecast that you're doing. So we've had situations with other banks where they've said, Greg, I'm good. I'll finance you next year. We'll [ run the ] tax equity, he will be your sponsor equity. We love the project, you're approved. They go through their year profitability process and say, geez, based on COVID, this was early in the pandemic, we're not so sure we're going to have profits. So therefore, we are withdrawing from the space. And sorry, I know we just signed a bigger deal, but we can't do it. Now we talked a lot about it in the second quarter. I had to pull debt left me scrambling, and it took me -- the quarter -- better part of 2 quarters to put it together. Now our team is outstanding. We have a ton of support from a number of folks. We got it all the work. It didn't cause us a hiccup. But the amount of energy spent on something that should be a net benefit to the company that you were defending yourself from it becoming a negative was too great. So having other players allowed to come into the market gives us greater certainty that we can get it monetized, and I think drives down the cost of capital because you bring more players into the space. And at the end of the day, cost of capital is one of the input cost into the cost of electricity. So ultimately, it makes us more competitive to the customer to use this versus -- versus then you buying electricity from the grid.

Yeah. I -- I hear you. I mean, let me just put it this way. When you look at your forecast here and trying to like well, sensitize here, I mean how much -- this is not going to really impact '22 per se, right? Like, i.e, you've got your backlog, you've got your orders. This is a '23, '24 [indiscernible] right?

Yes. I mean, if I don't have an order on the books over the course of the next -- next 2 weeks, it's not going to be something that's going to impact my '22. But knowing that -- knowing that as I go into next year, assuming they either pass it, hopefully, they pass it, hopefully, they pass it and if not this month and next month and knowing that there's 400 basis points more ITC with a higher probability of getting it monetized, it frees up amount of capital and allows me to be more competitive versus other alternatives on creating -- on creating electricity. So I think it's a great opportunity. I think over the long term, a lot of these things are going to do nothing, but spur investment. I think the PTC at $3, if we get that done for hydrogen, green hydrogen, like I said, I think it accelerates what would take -- what would take us 7 years as an industry to drive down costs and improve efficiencies in order to make it commercially viable to go do. I mean the longest -- the longest pole in the tent of commercializing green hydrogen is going to be, when is it commercially viable to do so. And that's going to be really on -- it's not only the input cost, but it's all the other costs associated with it, and there is a huge need. So in some ways, all of us are going to be selling electrolyzers into the space. None of us are going to be able to meet the need, once we get it commercially viable to go do. And we think this accelerates that a number of years.

Got it. Excellent. I mean, what about -- just curious on this real quick maybe. How is -- how are customers using -- thinking about hydrogen for fuel cells. One of the things that stand out to me of late is not what you guys are saying, but what Plug is saying about demand for hydrogen in fuel cell applications, I mean, with data center off-takes, like admittedly that's not something that's been a, shall we say, like a front and center thought process for -- to see hydrogen in that context? I'm going to thought that, that was just, again, like you guys do, you do good natural gas deals, you do natural gas, the system is more reliable, but...

Yes. I'd just -- I tell you that customer -- yes, the customer interactions we're having on a day-to-day basis, right? I would say that sustainability, resiliency and predictability are all becoming more and more relevant, right? Just saving the customer money versus the grid is so far down the value prop now. We are selling things on our ability to decarbonize today, whether it's using natural gas, whether it's using biogas, whether it's using a hydrogen or hydrogen blend. Those things are resonating with the customers and engaging us in the conversation. Predictability, time to power right now, the amount of need for megawatts of power for some of the industrial players in the space. There is a bit of a resurgence of the U.S. manufacturing going on, especially broadly in the chip industry, you hear it from the chip providers, but think about their supply chains, a lot of them are U.S.-based, and they're looking at their need for power and their utility, local utility is not able to scale up or scale with them. And they're coming to us saying, I need 10 megawatts by June and I need 10 megawatts every June for the next 5 years, 6 years, Bloom, this looks like it's core to your value prop, and it is, right? We don't have to build one large substation. We can build it as they need it and modularize it and move it on. The -- it inevitably goes to, can I go to hydrogen, as a discussion, whether it's a data center customer, a hospital, an industrial customer, it inevitably moves there. And you're just -- you do the math on the cost per kilowatt of electricity, base load electricity using hydrogen, green hydrogen. And the math just doesn't work yet, right? It just doesn't work. And if you got a business that is cost-sensitive to the price of electricity, which most businesses are, especially data centers, $0.005 means a lot to them on a kilowatt per hour basis. So the sale we make is, we are here to help you decarbonize today. We don't have to wait on hydrogen being commercially viable. If you look at the Bar 20 announcement we did with CalBio, we can operate on biogas, right? Everybody can operate on a direct to biogas. We can put our unit onsite if need be. And it's one of the ways that we're helping a biofuels company actually decarbonize and improve their economics for their LCFS credit because they're going to buy our servers and create a low -- and a better CI point and improve their economics. But ultimately ends up with a customer, which says, I will write-down today, I can help you decarbonize without hydrogen. If in the future, you want to go to hydrogen, when and if it's commercially viable, we have logical upgrade points for you. 6 years in, 12 years in, when [ we got ] to replace those stacks as part of our service contract, you have equity in the deal, and you can, at that point, choose to buy an upgrade, and we'll sell you that. Or the other thing we go to the customer and they say, listen, I'm not -- I don't want to come into a substantial long-term stranded asset issue, that's fine. We can tell you a 6 year financing product, where you only own the asset for 6 years and you walk away from it after that. If you're worried about a stranded asset, we can do that for you. There's a cost associated to that, given the shorter life, but that's something you can do. I think for us, right, when we look at it, you often get stuck in these -- where you don't want to get stuck in a customer discussion is in all or nothing and perfection being the enemy of progress. So if I can help you decarbonize today and reduce your emissions 30%, your CO2 emissions 30% and get rid of SOx and get rid of NOx and get rid of particulates, that's a good trade to make today. If that's not good enough, and you want to be a lower footprint, let's find opportunities for you to use biogas. It's going to increase your cost, but you can get to a -- you can get to a 0 carbon-based asset today. If -- and if you want to use hydrogen, you don't have to wait till it's a 100% hydrogen use our machine. The most interesting thing, I'll tell you about that SoCalGas announcement is our machines can operate on a 50-50 blend without changing -- without bringing a screwdriver out, just change the fuel going into the machine, we can modify it off from here in order to make sure that, that machine maintains its efficiencies. We can help you to decarbonize over time in a commercially responsible way. And I think that's the beauty of the Bloom fuel cell that's often lost. I don't have to wait until the hydrogen adoption curve happens. I can help customers decarbonize immediately, and then as the world evolves, I can evolve with them.

Yes. I hear you. Let me ask you. I mean, one point you just made, I think it's very interesting, and I want to really harp on it. What portion of your new customers is part of the new [ load ], right? Like a lot of what we've talked about in the past has been big box stores wanting a C&I product that's behind-the-meter and improves reliability. How many are data center expansions, if you will?

Yes. Listen, we still like our big box retailers. It's harder and harder every day. We've done things with skids, mounts and drop-offs and other things to make them work. But it's grocery stores, big box retailers, they're interesting. They -- if you team with the right retailer, you can get it in scale, but the applications tend to be on the smaller scale side. I'd love to find a partner, who love that business because I think you could service it, but each one of those deals, doing a 6 system deal is as hard as doing a 60 system deal, which is hard as doing a 600 system deal. So we have focused our sales force more around some of the bigger opportunities. Now there's still hospitals out there, but they tend to be the larger ones. The data centers are still very valuable part, they tend to be the larger ones. If you look at core manufacturing, we are in states that we've never been in before. The whole concept of -- you remember where this company was 3 years, 4 years ago, the sale was, I can save you money on your electrical bill. It wasn't a bad thing to sell. We just didn't really -- we had a microgrid solution. It was bespoke for every application, it wasn't expensive. So we would tend to sell grid parallel electricity. And if the grid were down, we didn't have a way to stop exporting. So for safety reasons, we had to turn our machines off. Now that sale is distant history. What we really sell now is most of what we sell is microgrid applications, meaning people are getting the resiliency out of our machine. We can operate and power through if they need it. We can carry more and more of their load. Early days, where you had microgrid, but we only had 10%, you only had 50% load, we can now cover almost 100% of the load. We have customers now that look at it and say, real life examples, you'll feel -- hear about these as they get to -- through contracting, but they're perfectly comfortable as an industrial customer to go off the grid. Why pay standby charges? Why do all that other stuff? We are perfectly comfortable with Bloom Energy servers as our base load and backup, and we'll buy that power from Bloom, and it's very cost-effective at that point. So we think those. We're seeing large industrial applications in states we've not been in before, not at this scale. And most of the deals that we're talking about are in the tens of megawatts, and they scale to something moving above 50 megawatts to 60 megawatts. That's not where this company has been traditionally. We've rebuilt as -- and I would say it's happening for 2 reasons, one is we continue to drive the cost of our product down because I don't have a gross margin problem. I don't think I do anyways. I'm in the low 20s today. I'm happy with my gross margins. My product margins are in the 35% to 40%. I'm not mixing off. I don't need to take cost on my product to make my current sales make sense. I can cover off my cost of goods sold on my products at really good margins. Now is 22% high enough? No, we want to get to 30%. That's our target. But I'm not going to do that by raising price or keeping my own cost savings. Every dollar of cost savings I get on the product, I use it to go open up new markets and sell more stuff. How I get from 22% to 30% margins? I stopped losing money in my service business and I get out of the install business. I do those two things, as I mixed up the 30% over -- over the next 5 years and by 2025, I'm at that 30% target. So we're happy about all that stuff. And then as we go work with customers around what it is that they want, we can make money at the prices we're at. So I would say our sales improved as we've been able to talk to customers about $0.08, $0.09 a kilowatt hour, they value resiliency at $0.005 or $0.015, depending upon what their core business is. The product begins to hurdle. The other thing is that we can sell a microgrid solution to them. So we're selling them real resiliency, and they can get rid of those backup diesel generators that, oh, by the way, if they are using for backup power, going to be use more often and when they are used, it's going to be longer, just given where we are with climate change. So we think our value prop gets better and better every day. And then, when you put in the factor of time to power as a key component, we think that those are the things that resonate with our customers.

Yes. I hear you. I mean, let me ask, you said microgrids is a bulk of it. What kind of microgrids [ customers ] here, just to close that out. I mean, what -- who is it that's engaging in there? Principally what geography?

It's everything from just being able to carry their base load on a single force, on a single fuel cell that we've been able to operate with and can use our technology to make it work and carry their load through, maybe it's in a part of their load, and that's a lesser expensive one. So if you think about grocery stores, and I've had this discussion with particular with the CFO of a large grocery store chain, like it's great when we have a weather event that we don't have to throw out the fish sticks anymore, meaning we didn't lose the freezers in the refrigeration. But we need more, and we need more sophisticated microgrids that allow us to take our point-of-sale material and stores and open up and service our communities. Others are looking for an integrated solution with wind, solar, battery, in order to provide a more fulsome microgrid and look to do it at scale around the community. We think those areas are key for growth. But gone are the days of it being just a grid parallel, I could save you money on your electrical bill, we're getting far more sophisticated. The other thing I'll tell you, and we've had discussions about this over the course of the 20 months I've been here, we've completely revamped the front end of this business in US C&I. We brought in new marketing talent. We brought in new product management, brand management, and they are supporting our sales force here that is really doing quite well with Billy Brooks. Bringing Billy over ex GE, ex NextEra, really understands the product. And he is not selling it as a sales as a process, but [ guess ], when we go talk to a customer, we are in front of a customer yesterday, it's obvious he is a domain expert on the power industry, and he's able to -- he started his career as a tech on a gas turbine. So when he's selling the Bloom box, he's selling it with credibility. And I think that's added a ton of credibility to our team and given them a ton of confidence to go sell. Our commercial activity continues to increase. Internationally, the team that we've built that Tim Schweikert running now, we have put some really good people in place. I'm hopeful they're going to win some deals that we can get public on here in the near term. They've got a ton of activity. And across -- and I can give you any of the geographies, a lot of these geographies, a lot of uptake, right, whether it's in Australia, in the resiliency sales, in displacing diesel sales, those types of activities in Europe, in the U.K. are kind of our core US C&I product sales in that space. Germany around biogas, it sells. If you get into the Middle East, it sells and around Korea, around it being a Genco product. The incentives aren't the same as Korea in some of these other countries, but we still think there's an opportunity to make money over the long term. So we're really excited about our opportunity. And we've invested significantly -- we invest -- we invested significantly this year in our research and development and in our sales and marketing teams, and you'll see that kind of investment going as we move into next year as well.

Yes. I got so much more to talk to you about. We're just about out of time. If you were to say one message here just focused on here now, what else should we focus on? I hear your sales [ part ]? I really do. What else would you launch?

Yes. Listen so -- yes, so I'll give you the quick mini version. I'm really excited about the front end. It's at an inflection -- it's at an inflection at all those different technologies that we've talked about. What I need to do for the staff job here on a day-to-day basis, I've got to create more capacity. We are limited today on our stack capacity. We have 280 megawatts of capacity at Sunnyvale in a 50,000 square foot facility. We're going to get a gigawatt of capacity in our Fremont facility, the 164,000 state-of-the-art facility. It took us 10 years to fill up the first 50,000 square feet. It's going to take us 3 years to fill up 164,000 square feet. I've got to be thinking about where the next factory is going. Is it in the U.S.? Is it in the California? Is it abroad? And how do I start making the investments for that? We have an incredibly quick turnaround on the return on invested capital and fully utilized, it's less than 12 months. And with the deal that we've done with SK and where we've gotten from our operations that we're not consuming cash, any more burning from cash just to run the company, we have money to invest, and we're incredibly efficient to go [ invest ] for $200 million, I can increase our capacity four fold. In the next time I do it, there'll even be a better -- even be -- be -- even a better algorithm going forward. So we're really excited about it. It's going to be the limiter currently. It's going to be a limiter, as we get into '22. But if we grow volumes 40%, I can support that. But over the long term, I got to create a lot more capacity because I see a lot more upside than a 40% volume growth in the company.

Nice. Excellent. That is great to hear on volume growth. Well, thank you, both, very much for taking the time. Thanks, everyone for your questions today. We'll call it there. But listen, be well, take care of your holidays, and you'll connect here shortly, right?

Great.

Be well guys.

Thank you.