Will Fuel Cells Replace Battery-Powered Cars?

Will battery powered cars become mainstream? Not likely. Fuel cells have the potential to replace batteries as the energy source behind electric cars. And fuel cell cars are just one of several vehicle types that could take a share of the green-car market. Internal combustion engine (ICE) cars will continue to be improved and will dominate the market for many years.

The next 20 years will be awash in technology-driven green car ideas. Governments will continue to force automakers (and motivate drivers) to reduce CO2 emissions, increase their average MPG, and reduce their dependence on foreign oil.

The plug-in car is one of the earliest green production cars, but it is a car with some serious consumer acceptance issues including poor range, difficulty of refueling on the road, and high initial cost. In the time it will take to solve these issues many competing technologies will have time to be established.

Certainly enthusiast and hobbyist types will buy a few all electric cars like the Tesla Motors (TSLA) Roadster or the Nissan (OTCPK:NSANY) Leaf. There may even be enough sales to sustain a boutique auto maker like Tesla. However in-spite of their cool factor, it is unlikely that the all-electric market will EVER be a mainstream market. We won’t repeat all the pros and cons of all-electric vehicles here. They have been well discussed elsewhere. We will focus on the alternatives.

There are many ways to get greener besides the plug-in vehicles (or riding you bike). Let’s list out some possible contenders to spoil the party for the big battery vehicles.

• More efficient and cleaner burning gasoline and diesel internal–combustion-engine (ICE) cars
• Smaller and lighter ICE cars
• Hybrid Electric-ICE Cars
• ICE Cars that burn natural gas
• ICE Cars that burn renewable fuels
• Fuel cell cars that run on stored hydrogen
• Fuel cell cars that run on natural gas or renewable fuels (converted to hydrogen on-board)
• ICE Cars that burn hydrogen

Which of these technologies will become mainstream?

Smaller and lighter ICE cars and greener ICE engines are a given. These are business as usual evolutions for the automakers, and there is still low hanging fruit to exploit (such as lighter weight materials, and adding start/stop functionality) to evolve the ICE based car.

Keep in mind that every kg of C02 saved, and every improvement in MPG by ICE based cars reduces the motivation for people to buy more electrified vehicles. If I can get 50 MPG, 600 miles range, decent performance, and a low price on an ICE vehicle, I have less motivation to buy an expensive hybrid or plug-in or other vehicle.

Lots of people have already bought full hybrid Prius-like cars. Perhaps it is the good karma they experience, eco bragging rights, perceived (but usually misguided) financial benefit, or cool factor. They can be refueled at any gas station and don’t have the range issues of all-battery. However, because of the high initial cost factor, we just don’t see them capturing more than a single digit percentage of the market in this decade. And they still don’t get us out of oil dependence.

Plug-in hybrid cars will cannibalize hybrid sales. The same cool factor and desire to be green are the primary drivers for purchase. Like the hybrid, the perceived financial benefit is mostly misguided. And they still don’t get us off of oil (or nuclear or coal). Because of the high initial cost, we don’t expect the total market for gasoline hybrid plug-ins to ever exceed the single digits.

Next down the “easy to do” list are ICE cars that use natural gas, propane and renewable fuels. These have the advantage of reducing the dependence on foreign oil, cheaper up front cost, and cleaner burning. Domestic natural gas is relatively plentiful. Since they use a variation of proven internal combustion engines, these cars do not require a huge jump forward in technology to be built by the millions.

We can’t overlook the big hurdle required to get economical fuels distributed to your neighborhood filling station. This will take many years to overcome, and there is no sign that the political will exists to materially speed it up. However these options could get us off foreign oils, and help with greenhouse gas.

The future supply of natural gas is debatable. With current usage, natural gas is in plentiful supply, but if car owners switched en masse, it isn’t so clear that there would be enough. Natural gas seems like a decent interim solution. Companies like Westport (WPRT) and Clean Energy Fuels (CLNE) are jockeying to provide technologies and a distribution system for natural gas based vehicles.

Biofuels, so far, are a disaster. The energy cost to create them is far too high. Food supplies needed for people to eat are being used to create subsidized inefficient fuel. Makes you want to cry. However it is quite possible that a better bio fuel creation process could be invented (such as fuel from seaweed).

Long term, we see alternatives developing that are even cooler than all battery. What about a fuel cell vehicle powered by renewable fuel or by hydrogen? Fuel cells for cars have been the dream of companies like Ballard Power (BLDP) and Plug Power (PLUG) for many years.

A hydrogen power fuel cell has some potentially serious Eco-Cool factors:

• No noise, no pollution
• The fuel cell and fuel tank is lighter than a big pack of batteries
• Long range
• Refuels in two minutes
• Hydrogen could be made from renewable sources like wind or solar voltaic power
• Some fuel cells could be powered by renewable fuels
• Fuel cells don’t lose power as the fuel is used up. You get 100% output all the time. Battery packs will output less power as the batteries lose juice.
• The fuels are not dependent on foreign oil

Sadly, fuel cell powered cars are not practical today (and won’t be for years) for some basic reasons.

• Fuel cells are still expensive, but the cost is coming down as fuel cells get used in other small applications like powering fork lift trucks and providing backup power to cell phone towers. Plug Power is selling small fuel cell modules for lift trucks for about $11,000 today. That’s not bad compared to a big battery pack.
• Hydrogen fuel is still expensive – currently subsidized at about $5 per kg, but the cost has been working its way down. Who knows what will happen to oil prices over the next 10 years? Will governments favorably tax hydrogen compared to oil based fuels? These moves could change the economics favoring gasoline and diesel oil.
• Hydrogen distribution and storage is sparse and expensive today. There are only a few filling stations. Distribution will become more common and affordable as other fuel cells apps (like fork lifts and buses) justify more fuel trucks on the road.
• Fuel cells have to be adequately proven over several years of use on the road and in high volume production. However car companies have concept projects underway, and are talking about 2015 production dates. Fuel cell buses, although mostly government funded, are growing in use.

Some people see the hydrogen economy as decades away. This is because the production of hydrogen is not efficient today. Hydrogen from solar is not particularly efficient. Solar converted to electricity then through electrolysis takes too many steps to be mainstream. It's more efficient to feed the solar generated electricity directly into the grid rather than convert it to hydrogen. The option to make hydrogen from fossil fuels inspires the question, why not burn just the fossil fuels directly?

Research is underway to find more efficient ways to manufacture hydrogen. Research is also being done into a streamlined form of photosynthesis that breaks water into oxygen and hydrogen. This process is called photoelectrolysis. However no magic bullet is likely to go into widespread production in the next 10 years. This is too far away to have much investment impact.

Another future possibility is to use natural gas with a fuel cell car. We are not sure about the technical challenges to make this a mainstream process.

Governments and corporations can force weird and unusual economic realities through incentives and taxes. Some small fuel cell makers could benefit as early as 2015 as major automakers and governments like Germany push to be leaders in the hydrogen economy. Shorter or longer timeframes depend on how much a government gets behind the concept. Punitive European style gasoline taxes combined with hydrogen incentives could change the picture in hydrogen’s favor.

The public companies making fuel cell products no longer talk so loudly about fuel cells for cars. They’ve learned the hard way that fuel cell cars are still too far away, and they must focus on shorter term opportunities such as powering lift trucks, powering buses, backup power, and distributed power for buildings. However these shorter term applications will help improve and drive the cost down on fuel cells, and improve hydrogen generation, distribution and storage.

Summarizing – we are not believers in the plug-in car. We believe plug-ins will provide an interesting but unimportant role in greening the planet. Variations on the internal combustion engine / hybrids will dominate for the next 10 or 20 years. Natural gas, renewable fuels and fuel cells all have potential, but many years of work remains to be done.

Disclosure: I am long PLUG.