What happened

Shares of Plug Power (NASDAQ:PLUG) tumbled on Monday, down 6.6% on the day. And other fuel cell stocks quickly followed. Fuel-cell trucker Nikola (NASDAQ:NKLA), for example, was down 4.9%, and Bloom Energy (NYSE:BE) was off 4.4%.

3 red arrows going down and crashing through the floor

Image source: Getty Images.

So what

Up until recently, things had been pretty clear-cut in the hydrogen fuel-cell industry. There were four major publicly-traded fuel cell companies:

  • Ballard Power Systems (NASDAQ:BLDP), which makes fuel cells primarily to power electric buses in China.
  • Plug Power, which produces fuel cells to power forklifts, and has also begun developing fuel cells to power motor vehicles as well.
  • Bloom Energy and FuelCell Energy (NASDAQ:FCEL), both of which have historically focused on setting up stationary fuel cell systems to provide electric power to offices and industry.

Add to these a handful of automotive start-ups, such as Nikola, working to incorporate fuel cell solutions into long-haul semi trucks.

But now things are changing.

Last week, Plug announced that it will begin building hydrogen-based electric propulsion systems to power electric buses built by British defense contractor BAE Systems (OTC:BAES.Y), a move that appears to tread upon Ballard Power's turf. In response, this morning Ballard announced that it will form an alliance with Canadian industrial company Linamar to develop fuel cell powertrains and components for light-duty class 1 and 2 vehicles, including passenger cars, SUVs, light trucks, and commercial vans.  

That idea appears designed to compete with Plug's business of developing fuel cell products for automobiles, and it may have broader implications across the fuel cell sector.

Now what

Viewed in isolation, Plug's decision to invade Ballard's primary area of business, and now Ballard's decision to retaliate as well, both sound like good, logical business moves. Both companies are looking for new markets to diversify into, to expand the reach of their core products -- a great way to grow the business. But this decision does come with a risk.

The more these companies invade one another's turf, the more they're going to have to compete with one another, including on price. That competition could drive prices down for Plug, Ballard, and Nikola. That might grow the industry over the long term as a result (by making the technology cheaper to use), but will almost certainly squeeze profit margins in the short term. And considering that none of these companies were profitable to begin with, any compression of profit margins would make a bad situation even worse.

I think this is what investors are afraid of today, and it's the reason all of these stocks went down.
