Fuel Cell vs. Battery: Who WIll Win?

More than a decade ago, former president George W. Bush made a profound claim in his State of the Union address:

“The first car driven by a child born today could be powered by hydrogen…pollution-free.”

It seems difficult to believe now, but when kids born in 2003 turn sixteen, Bush’s statement will undoubtedly have come true.

In 2015, there will be three different hydrogen fuel cell cars on the market, and several hundred hydrogen fuel stations in the fueling infrastructure. By 2020, there will be even more.

Contrary to Bush’s hopes, however, they probably won’t be American cars.

South Korean car company Hyundai released its fuel cell-powered Tucson sport utility vehicle in the spring, and Japanese automaker Toyota (NYSE: TM) is slated to release its Fuel Cell Vehicle (FCV) in the United States next summer. These two Asian companies follow Honda, who blazed the trail with its FCX Clarity back in 2007.

When Bush made his prediction back in 2003, he was offering $1.2 billion in research funding he said would enable the United States to “lead the world in developing clean, hydrogen-powered automobiles.”

In 2009, the government cut back its funding of fuel cell research. US Secretary of Energy Dr. Steven Chu said that fuel cell technology had four major hurdles to overcome before it could be economically viable: hydrogen needed to be cheaper, it needed a new high density storage mechanism, more fuel cells needed to be made and sold, and refueling infrastructure needed to be built.

Chu said the technology still had up to 20 years before it would be practical, and that “the government preferred to focus on projects that would bear fruit more quickly.”

The technology that would bear fruit more quickly was battery power, so the Dept. of Energy upped its funding for Electric Vehicles.

But the shale gas boom changed Chu’s tune.

Hydrogen is extracted from natural gas; so with cheap natural gas, there’s cheap hydrogen. This knocked down one of the four hurdles. In 2012, the Department of Energy announced a two-year program to monitor and evaluate the hydrogen infrastructure within the United States. That would be the second hurdle.

While the Department of Energy has given fuel cells an improved outlook, others haven’t lightened their skepticism.

The war against fossil fuel-burning cars is still being fought by separate factions.

Tesla (NASDAQ: TSLA) Scoffs at Fuel Cells

On numerous occasions, Tesla CEO Elon Musk has mocked fuel cell-based electric cars.

In public appearances over the last three years, he has variously called them “fool cells,” and “a load of rubbish.”

There are only a thousand fuel cell vehicles on the road today, and Hybrid and Battery-powered electric cars are undoubtedly more popular; But the advantages and disadvantages of fuel cell electric cars are extremely similar to those belonging to Tesla’s battery-operated cars.

For one thing, they’re both expensive. Toyota’s FCV is expected to cost upwards of $70,000, while Tesla’s Model S has a suggested retail price of just a hundred dollars less. Neither one of these cars is going to receive mass market adoption, but instead they are going to dwell in the highly competitive luxury vehicle niche.

Secondly, they both lack a cohesive refueling infrastructure when compared to petroleum. According to Toyota, there are only 40-50 Hydrogen refueling stations across the country, and these are comprised of several different types of station. According to Fuel Cell Today’s 2013 synopsis, there were only 208 Hydrogen fueling stations in the whole world.

Though charging stations have a jump on hydrogen refueling stations in terms of volume, there is still a battle of charging standards in progress. Tesla has open sourced its quickcharge patents for free use, but a broader coalition of car companies has gotten behind the CHAdeMO DC quick charge standard.

Thirdly, both are heavily affected by government subsidies, and their adoption could be shaped equally by the tax credits available to consumers.

The Conflict

The fact of the matter is that Tesla wants to sell batteries, period.

It plans to build its “gigafactory” and improve the economics of scale for the whole electric vehicle industry. Then, when major car companies pick up the pace with their own electric car development, Tesla’s position as a component supplier will be set in stone.

If fuel cells take off, Tesla loses.

But the outcome in America is entirely contingent upon the Hydrogen refueling infrastructure, which is miles behind the EV charging infrastructure, even with its conflicting standards.

With so few fueling stations, the demand for fuel cell cars is choked, and with no demand for cars, there’s no need for fueling stations. Hyundai called this a “chicken or egg” problem when it released its Tucson fuel cell SUV this year.

By introducing the vehicle first, Hyundai was trying to break this cycle. It’s undoubtedly cheaper than building out the whole fueling infrastructure first.

With battery-powered cars this problem doesn’t exist, all they require is an appropriate charger to tap into the grid. There is no equivalent for hydrogen.

Is this sole reason enough to put all your money behind electric cars? Of course not, but it’s enough of a reason to give companies like Tesla a head start in the market.

Fuel Cell vs. Battery: Who WIll Win? originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the first advisory to focus exclusively on investments in alternative and renewable energies.