Tesla And The Fuel Cell Mirage

| About: Tesla, Inc. (TSLA)
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Summary

Hydrogen fuel cell vehicles are being touted as having an advantage over battery electric vehicles by virtue of quicker refueling.

The capital cost to build a hydrogen refueling station is at least 10 times greater than an equivalent Tesla Supercharger station.

Because of the cost differential, hydrogen refueling is not economically competitive.

Hydrogen fuel cell (HFC) vehicles have regained prominence recently as major automobile companies field limited production vehicles such as the Toyota (NYSE:TM) Mirai, highlighted recently by SA Contributor Anton Wahlman. Fuel cell vehicles appear to offer the environmental and performance benefits of battery electric vehicles such as the Tesla (NASDAQ:TSLA) Model S, while offering greater range and the ability to refuel quickly. But the promise of vehicles such as the Mirai is a mirage, since building the required fueling stations is unlikely to occur.

Stalking Horse

I've been scratching my head at the resurgence of interest in fuel cells by the automotive industry, since they are so impractical in so many ways. For example, let's take vehicle safety.

For a vehicle to carry enough hydrogen to provide reasonable range, the gas must be carried in a specially reinforced tank pressurized to about 350 times atmospheric pressure. The tanks are literally bombs that could explode in the case of a catastrophic rupture due to an accident.

Beyond the safety concern, there is the fact that hydrogen fuel is not really free of carbon emissions. In this country, 90% of hydrogen is produced from fossil fuels such as natural gas. In the process of converting natural gas to hydrogen, exactly the same amount of carbon dioxide (CO2) is released as if the natural gas was simply burned. In effect, hydrogen, as it's currently produced, is just a fossil fuel in disguise.

In the literature on hydrogen production for use in HFC vehicles, there is much talk about the potential for "sequestration" where the CO2 can be captured in some medium rather than being released into the atmosphere. Similar ideas are being promoted for all sorts of "clean" fossil fuel initiatives, and theoretically it's possible. It just isn't being done yet on a commercial scale anywhere in the country.

So all the concerns that have been raised about the supposedly "hidden" carbon footprint of battery electric vehicle (BEV) production apply equally if not more so to hydrogen production. At least with a BEV, you can charge the car with a solar array, and if the Tesla Gigafactory is completed, most of Tesla's battery production will be solar powered as well.

Fuel cell vehicles have become a stalking horse for the automobile industry to demonstrate environmental awareness while throwing a bone to the fossil fuel industry, to which the automobile industry has been wedded since its earliest days.

Cost Comparison

One of the many points I've made in the past about Tesla is that its fuel delivery infrastructure is already mature and almost completely built out. That fuel is electricity and the fuel delivery infrastructure is the national electrical grid. To complete Tesla's fuel delivery infrastructure, all it needs to do is build a sufficient number of Supercharger stations.

For HFC, the infrastructure required is much more challenging. There is no large scale delivery system in place for hydrogen. Various options have been considered, including trucking of liquid hydrogen (a real bomb), piping gaseous hydrogen in a way similar to natural gas and even constructing mini-refineries on site to convert natural gas to hydrogen at the station.

A recent study out of the University of Central Florida looked at various options for HFC fueling stations and concluded that early commercial stations using truck delivery of gaseous hydrogen could be built for about $2.8 million apiece. Such a station would have the ability to refuel about 160 vehicles per day with a total energy delivery capacity of 17,920 KW-hours per day (here I've converted to electrical energy equivalent).

In comparison, a Tesla Supercharger station with 6 stalls could deliver 17,280 KW-hours of energy per day if all the stalls were running continuously for 24 hours a day. Obviously, that high a utilization factor is unlikely, but Tesla could probably install additional charging stalls to take care of peak demand and achieve equivalent energy delivery capacity should the need arise. The cost for a Supercharging station is estimated to be between $100,000 to $175,000. So a Tesla Supercharging station is less than 1/10th of the estimated cost of a hydrogen fueling station of equivalent energy delivery capacity.

The hydrogen fueling stations will never be built because they are not cost competitive with the Supercharger alternative. To put this into perspective, let's ask what the cost would be of replacing most of the current gasoline stations. According to the U.S. government, there are currently 168,000 stations. To replace them with hydrogen fueling stations would cost a staggering $470 billion. To replace them with Supercharger stations would cost a more modest $29 billion.

Order of Magnitude Disruption

Although I'm a huge fan of Tesla, I welcome the skepticism of thinkers such as Mr. Wahlman as a healthy thing. Lately, many Tesla skeptics have been proposing various alternatives to the BEV and proposing that these alternatives constitute threatening competition for Tesla. They may be right, but what I'm finding with Tesla is a property that is common with disruptive technologies or products. I call this the "Order of Magnitude Rule." Disruptive technologies are an order of magnitude (factor of 10) better, faster or cheaper than their competition.

When you identify an order of magnitude advantage, it means that the technology or product is just about guaranteed to win, because the competition isn't even going to be close. Tesla has an order of magnitude advantage in the cost of its "refueling" stations compared to hydrogen.

With the advent of the dual motor Model S, Tesla achieved another order of magnitude advantage. The dual motor Model S can accelerate from 0-60 in 3.2 seconds. This is about the same acceleration as the Ferrari F60 America that sells for $3.2 million. While the dual motor Model S isn't cheap at over $100,000, it achieves an order of magnitude advantage in price compared to exotic supercars.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.