Fuel Cell Vehicles Aren't DOA!

Pessimism, Optimism, or just not enough data?

Written by Brian Hicks
Posted December 3, 2014

hydrogennMarket research company Lux Research has made some claims against hydrogen fuel cells over the last few years, and its newest research further slams the alternative fuel.

The thrust of its “state of the market” report is that fuel cell vehicles need to be extremely cheap when they come to market, and that hydrogen fuel also has to be dirt cheap for a “full fledged hydrogen economy” to take root by 2040.

Specifically, the company says if Hydrogen FCV's don't “reach prices of about $30,000 and hydrogen is $3/kg, the total cost of ownership advantage will remain with conventional engines and hybrids.”

Now, let's get a few things straight first.

Point One:

I don't know if you've looked at a calendar lately, but 2040 is a little more than 25 years away. Forecasting that far into the future gets into extremely speculative territory, and that's something that no amount of research can compensate for. You simply cannot account for anomalies.

I mean, look at Lux's own top tech stock recommendation in 2012.

The company rated Australian company Phosphagenics as a “strong positive” emerging tech company. Yet in 2014, the company's CEO Esra Ogru was sentenced to four years in prison for embezzling $4 million from the company.

Since Lux's strong positive rating of Phosphagenics in 2012, the stock has only moved downward on the ASX and is now trading at $0.07 per share.

But that's not Lux's fault, is it? How could it have known the company's CEO had been falsifying receipts and running up hundreds of thousands of dollars of credit debt under the company's name

That's the thing, there's no way it could have known. The salient point is that it came to a head just two years after the company's research. This fuel cell prediction is fleshed out more than twelve times farther into the future. The company's assessment of the fuel cell market last year looked just fifteen years into the future, and already that one's shaping up to be proven wrong.

I'm not attempting to attack Lux's credibility, I'm just saying it's literally impossible to predict the future, and you have to be prepared to abandon expectations with the evolution of a market.

Point Two:

There are no consumer fuel cell cars on the market. The only ones that have existed up to this point are prototypes and experiments.

Still, Lux projects that the yearly cost of ownership of fuel cell vehicle will be significantly higher than internal combustion, hybrid, battery electric, and plug-in hybrids at most levels.

The company's research took three major factors into account: fuel cost, cost of operation excluding purchase or lease, and cost of operation including purchase or lease.

Let's reiterate the numbers. To compete with all the other fuels, FCV's have to cost $30,000 and have hydrogen fuel cost $3/kg.

But if you look at the most recent fuel cell concept –the Audi A7 Sportback H-Tron Quattro-- it starts to become clearer just how plausible these numbers actually are.

For one thing, Audi says the H-Tron Quattro can get 310 miles per tank. In the fuel cell mode, the A7 needs only one kilogram (2.2 lb) of hydrogen to cover 100 kilometers (62.1 mi). According to Audi's literature:

“Its energy content is equivalent to that of 3.7 liters (1.0 US gal) of gasoline. The tank capacity means it is capable of a range of more than 500 kilometers (310.7 mi).”

So, yeah. Let's break out that math real quick.

If 1kg of hydrogen = 100 km,

And the tank is capable of 500 km,

then the tank has a 5kg capacity.

At $3 per kg, that's a $15 “tank of gas.”

I don't know about your hometown, but here in the Mid-Atlantic, we haven't paid that little for fuel since the Clinton administration.

And Lux is saying that's how cheap hydrogen has to be to be competitive. Well guess what? That's not an impossibly low standard, given that the commercial price of hydrogen fuel today is somewhere in the neighborhood of $4 to $5 per gallon.

It must be noted that these are heavily subsidized prices, but the process of producing hydrogen fuel could eventually be quite cheap. According to a study from the National Renewable Energy Laboratory (NREL) in 2013, hydrogen base costs could be as low as $2.76/kg if it is produced using wind power.

In short, the price of hydrogen is very much up in the air (multiple puns unintended).

The more concrete figure is the cost of the vehicle itself.

Although there are currently no fuel cell cars available for commercial sale, over 20 FCEVs prototypes and demonstration cars have been released since 2009 which give us some idea of possible sticker price. By some estimates, the 2016 Toyota Mirai costs around $70,000 before incentives.

That's more than double the target price laid out by Lux.

But here's the thing, according to Car and Driver Magazine, the average new car transaction price in the U.S. is MORE THAN $30,000, about $2,000 more than it was five years ago.

That's right, Lux is saying hydrogen cars have to be cheaper than the average gasoline-powered car.

It's important to recognize that there's never been a FCV production run scaled to market. The run of Toyota Mirais is going to be limited to 3,000. Some cost efficiencies could arise in a larger scale run.

Of course, Lux thinks scaling this market isn't feasible. From the Lux Analyst blog:

“The optimists out there will point to a $30,000 price point and cheap hydrogen as the light at the end of the commercial tunnel. However, this optimistic case requires a major OEM to commit to producing 100,000s of units, independent of proven demand, with an EV-like $5+ billion risk (like Nissan-Renault or Tesla-Panasonic factories) that built huge scale first. There is no guarantee to OEMs that such as risky bet would work out. Even in this scale-up scenario, FCVs still would not quite match ICE cars for value proposition”

So it's set an impossibly low target price for the widespread adoption of FCV's without taking further inflation into account. That's fine, but it presumes cost leadership is the main reason consumers would buy a fuel cell car.

That might be true, especially if the fueling infrastructure is nonexistent. That's a chicken and egg problem, though. Nobody will buy a car if they can't fuel it, and no company wants to build fueling stations if there aren't cars on the road.

One of the main reasons a technology is abandoned is that it lacks a champion, and this double-bind problem is best solved by a champion who's willing to build despite losses. Like Tesla Motors (NASDAQ: TSLA) is doing with its supercharger stations, a single company could spearhead the construction of hydrogen fuel cell fueling stations.

With Toyota, Honda, and Hyundai all debuting FCV's in the next year, none is standing up and leading the charge.

Likewise, there isn't a strong government advocate either. In 2010, the Obama administration axed the $1.2 billion fuel cell initiative laid down by the Bush administration back in 2003.

A champion President could certainly help, and some championing analysis couldn't hurt either.