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Friday, January 6, 2017

Chasing Unicorns: The Last Exhale of Hydrogen Fuel Cell Vehicles

tl;dr: The ebb and flow of hydrogen fuel cells support by the US government, the auto industry, oil companies, consumers, and energy start-ups.  A narrative of fuel cells from their modern birth in the 1960s til today and how battery electric car technology is accelerating and closing the market window for fuel cell passenger vehicle deployment. 

After writing a story about Centaur Driving, it seems appropriate to follow up with one about Chasing Unicorns.

The case that fuel cell vehicles (FCVs) are a non-starter for passenger cars, goes something like this: the fuel is expensive, the infrastructure is very expensive, the vehicles are expensive, and there is no significant market interest. This list of seemingly insurmountable obstacles has led many to refer to FCVs as "Unicorns"; you can spend a lifetime pursuing them and have just as many as you started with, zero.

FCVs are, of course, not mythical unicorns; they do exist. To overcome these challenges it takes time, money, and engineering breakthroughs. This is the chase. The question is: is it worth it?

Unicorn Golf Chase by RobtheDoodler
Unicorn tries to outrun the fossil

Toyota has recently announced that they were appointing their president to lead their newly formed electric car division. They were one of the final holdouts for fuel cell vehicles. Government and industry support for FCVs has ebbed and flowed. Toyota is a major force in the alt-fuel vehicle market, this announcement could be the final harbinger signaling the sunset for the promise of a hydrogen future.

Toyota turning away from fuel cell vehicles could be the swan song of the technology.

There was a time when it was unclear if batteries or FCVs would be the right path forward for fuel-dot-next.

Fuel Cell Vehicles Seemed Like A Good Idea Once Upon A Time

In his book, Car Wars: The Rise, the Fall, and the Resurgence of the Electric Car author, John J. Fialka, makes a good case for fuel cell vehicles to be seriously considered in the 1960s. The performance of batteries at that time was far worse than it is today. Batteries were heavy and expensive. This meant that battery-powered vehicles in the 1960s were expensive and had a short range. This left automakers looking for another zero emission solution.

The Space Race of the '60s was driving the development of fuel cell technology. Project Gemini and the Apollo Program both used fuel cells. In part, based on these advancements, in 1966, General Motors developed the first fuel cell road vehicle, the Chevrolet Electrovan.

The path seemed clear, batteries were bulky, expensive, and slow to recharge; whereas, fuel cells allowed for fast refuel and the technology (although currently very expensive) was advancing quickly based on the space program's investments. Following GM's lead, other major automakers started fuel cell vehicle development programs.

When fuel cell vehicle programs were started in the 1960s, they seemed like a good idea.

The Birth Of The Zero Emission Mandate

Fast forward 30 years. In 1990, concerns about air quality and greenhouse gasses spurred California to initiate the Zero Emission Vehicle (ZEV) mandate. The mandate required 2% of all vehicles that would be sold in 1998 in California to be zero emission vehicles. The program was scheduled to expand to 5% of vehicles sales ZEV in 2001 and a required 10% ZEV in 2003.

While emissions regulations and concerns had increased significantly during these 30 years, fuel cell technologies, on the other hand, had advanced at a glacial pace. The mandate forced the automakers to produce zero emission vehicles. Since fuel cells were not yet viable, this left no option for the automakers other than battery electric vehicles.

General Motors again led the pack. They introduced the EV1. At its launch in 1996, it was the most advanced electric car in the world. The EV1 was a sleek two-seat coupe with very low drag and (according to its devoted drivers) had great power and acceleration. The original EV1 had 18.7 kWh of Lead-acid batteries with a 70 miles range. The later version of the car upgraded to (then cutting edge) Nickel-metal-hydride batteries with 26.7 kWh pack and 100 miles of range.

This could have been the start of the electric car revolution, but that is not how things turned out. Instead, the electric car was killed.

Who Killed The Electric Car?

Who Killed The Electric Car? is a whodunit style murder-mystery documentary. It lists all the suspects and their means, motive, and opportunity in the death of the GM EV1 and its generation of 4-wheeled electric brethren. I won't give away the surprise, but that generation of EVs met their end.

EVs were certainly technically possible at that time and the few people that were able to get behind the wheel of one overwhelmingly fell in love with them. They were, however, not profitable for automakers. The dealerships didn't like them because they didn't have much of a maintenance requirement and the auto manufacturers didn't like them because they had to share too much of the revenue with the battery manufacturers. Automakers wanted batteries to be a commodity item like door handles; they wanted to be able to outsource the production, package them in a car, and sell them with a large markup. That was not the case. From this perspective, batteries were not ready.

When California started the ZEV program, fuel cells were not ready, but neither were batteries.

The major auto companies sued California over the mandate and won. Post-lawsuit, ZEV became a toothless shadow of original bold self. This opened the door for hydrogen to step back into the limelight after the turn of the millennium.

The Rebirth Of Hydrogen

In 2003, President Bush committed $1.7 billion over 5 years to FCV development and infrastructure. The automakers responded to the incentives with a parade of proof-of-concept FCVs trotted out at auto shows for the next few years.

Remember those fuel cells from the 1960s space race? In the 1990s, these designs become public domain. Ballard Power Systems took these designs as a starting point and began improving upon them and made multiple breakthroughs.

The fuel cells of the 1960s required both pure Hydrogen and pure Oxygen. Ballard had figured out how to extract Oxygen from the air. This greatly reduced the fueling cost. This was not the only advancement Ballard made. They were a small company and didn't suffer from the not-invented-here institutional culture. They found new membranes that were developed for nuclear reactors and others developed for submarines. These, combined with their own innovations and dogged trial and error process, resulted in fuel cells that had significantly more power, lower cost, and they needed less Platinum.

In the early 2000s, with government support, industry support, and technological advancement, it again looked like FCVs would again be the path forward.

In the early 2000s, it looked like the Hydrogen road was clear

Bumps In The Road For The Hydrogen Highway

Fuel cells were only one piece of the puzzle needed for a Hydrogen future. Over the next few years, other challenges slowed the rollout of Hydrogen vehicles. The automakers had their proof of concept cars and they had deployment plans, but you cannot sell a car unless there's someplace to fill it up.

You cannot sell a car unless there is someplace to fill it up.

The big oil companies had dipped into the available government hydrogen funds too and built a few hydrogen filling stations. These turned out to be very expensive. Hydrogen is a very difficult to store. This relegated FCVs to auto shows and small pilot projects near these few filling stations (primarily in California).

In 2009, Steven Chu, then the U.S. secretary of energy, told an interviewer that “four miracles” were needed for hydrogen fuel cell transportation to work:
  1. An efficient and low-cost way to produce hydrogen.
  2. A safe, high-density method of storing hydrogen.
  3. A vast infrastructure for distributing hydrogen so that fuel-cell vehicles would have ample refueling options.
  4. Improved capacity of the fuel-cell systems themselves, which were not as durable, powerful, and low-cost as the internal combustion engine.
Chu concluded that achieving all four big breakthroughs would be highly unlikely. “Saints only need three miracles,” he noted.

After this scathing review of the state of hydrogen transportation by the chief of the U.S. Department of Energy, the department dramatically cut Hydrogen fuel cell projects. Funding was cut to nearly one-third of previous levels. For the rest of Chu’s tenure in the DOE, the department awarded very few new grants to develop the technology at universities, national labs, or private companies.

In 2014, Chevron, Exxon, Shell, and BP all backed out of the Fuel Cell Partnership, a joint government-industry group that promotes hydrogen cars.

In 2016, potential parts suppliers Samsung, Delphi, and Johnson Matthey exited FCV technology or severely downgrading their activity citing the tendency of car manufacturers and infrastructure installers to fund only token numbers of hydrogen refueling stations. Spending millions on research and development to then only sell a handful of parts is not good business.  

Sunk Cost Fallacy 

By 2014 the automakers had been working on FCVs since the 1960s in some cases and they had actually made progress. The vehicles had good range and performance, the fuel cells had longer life spans and lower costs (although still not cheap). But the cars were only one piece of the puzzle. Normally, car makers don't have to worry about fuel supplies or refueling infrastructure. No one working at the automakers today ever had to wonder if there were enough gas stations. That problem had been solved by a previous generation.

Many Automakers Kept Chasing the Unicorn Even
When It Became Apparent To Industry Watchers That
Chu's "Miracles" Were Far From Happening

When the obstacle of infrastructure seemed insurmountable (or at least not profitable), the infrastructure providers walked away. Many automakers, however, were unwilling to give up on their FCV programs. 

20 Year After The EV1

The EV1 was introduced in December of 1996. Twenty years later brings us to December of 2016.

During these 20 years, driven by laptop computers, smartphones, and tablets, battery technology had continued to get better and cheaper every year. New chemistries were discovered, nanotechnologies were used, and several causes of battery degradation had been found and eliminated.

The improvement rate of batteries was slow, only 5 to 8 percent each year. But these improvements compounded year over year. Even a small improvement rate, if sustained for decades, results in big improvements. No miracles required.

In the 20 years since the EV1, batteries have gotten significantly better.

The Tesla Effect

I'd be remiss if I told this story without mentioning Tesla. In the mid-1990s, Martin Eberhard and Marc Tarpenning saw that battery technology was evolving quickly and created one of the first e-book readers to utilize this energy storage advancement. They sold this company for $187 million. Springboarding from this success, they starting looking for other things that could utilize these new high-tech batteries. This is what inspired them, with others, to start the electric car company that we know today as Tesla. Under Elon Musk's leadership, the company has been wildly successful at making award-winning high-end all-electric cars.

The major automakers were free (at their peril) to dismiss Tesla as a niche player. That is until the Model 3 unveiling event forced the major automakers to reevaluate Tesla and EVs in general. The Model 3 is Tesla's $35,000 car with 215+ miles of range and it is expected to start delivery in MY 2018. Model 3 launched like it was a new iPhone with frenzied fans. In March of 2016, people were lined up hours before the stores opened put down $1000 to reserve one. In that week of the reveal nearly 400,000 people had written a check to Tesla.

This was the kind of product devotion that companies dream of having. It was a wake-up call to the auto industry.

Toyota's About-face

We started this story by talking about Toyota's about-face on electric vehicles. In 2015 and early 2016 they are trying to launch and sell a FCV, the Toyota Mirai. However, without the support of the oil companies to provide refueling infrastructure, the automaker could not create the market on their own (regardless of how great of a car they created). The Nikkei newspaper reported that "the lack of hydrogen fuelling stations poses a major hurdle for mass [FCV] consumption."

After years of working on fuel cells and claiming that EVs will only be useful for urban runabouts, the evidence had piled up and they changed direction. The saving-face move is that Toyota has claimed to have made a battery breakthrough that will allow for better battery lifespan. I hope they have. To understand how big of a direction change this is for Toyota, see our recent story.

Leaders in one generation of technology are often laggards in the next. Toyota is coming later to the battery electric vehicle game than others, but EVs are still only about 1% of the market. So Toyota will be in the game before the hockey stick makes its sharp rise. Many of the legions of Toyota fans that are driving Priuses (Prii) today will be happy to drive a Toyota EV in 2020.

Fuel Cells Are Not Dead (Yet)

Above, we discussed Who Killed The Electric Car?, this might cause you to ask, "Who killed the FCV?" but they are not dead. The tide has turned and support has ebbed here in the US, but Germany or Japan or another country will continue to support H2 transportation. This will keep the programs funded, if only on life support. Perhaps the incoming US administration will throw another billion or two towards unicorn chasing. While I don't expect to see new FCVs at the 2017 auto shows, they could be back on display in 2020. We shall see.

Always A Day Away

The dream of a Hydrogen Society is still a mirage on the horizon. The "miracles" that Chu mentioned are no closer to reality. Meanwhile, batteries have redoubled their performance several times over and show no signs of slowing this progress. BWM recently predicted that after one more doubling (about 7 years), battery electric cars will be price competitive with gas cars. If BMW is correct, this will put the tipping-point in about 2024. This will be when electric cars are just as profitable (if not more so) as gas cars for the automakers to produce. When this happens, automakers will put the pedal to the metal, or (if I may) automakers will get charged up and finally see the positive end of the battery. This will relegate FCVs to niche markets such as long-haul trucks or buses and even those may not be safe for long.