In the ICE Vehicle vs. (P)HEV vs. EV vs. Fuel Cell Vehicle (FCV) Showdown, the Biggest Loser is…?

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We’re often asked about the competitive economics and prospects for the various passenger car drive train approaches being pursued by OEMs and hyped by investors and start-ups alike, each with their own favorite based on the skin they already have in the game. To examine this, we ran various cost of ownership scenarios for the various drivetrains associated with operation and ownership, broken out into fuel cost alone; fuel cost plus operation, but excluding purchase or lease; and fuel cost plus operation, and purchase or lease (total ownership cost). When looking at fuel cost only, EVs lead the way thanks to the relatively low price of electricity, followed by various types of hybrids (HEVs and PHEVs). FCVs can match at $3/kg dispensed H2, which is highly unlikely in near-term. With purchase price added in (broken out as a five-year loan at 6% interest plus 10% down-payment), the HEV and ICE drivetrains lead, with EVs and low-cost FCVs behind. The near-term likely case of an FCV costing $50,000 or more is too high, and places FCVs solidly in a laggard position.

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. OEMs will enter markets cautiously, each selling only thousands of FCVs per year this decade, and deploying a total of 700,000 FCVs on the road by 2030, in an effort to meet regulations while minimizing their losses on these initially unprofitable vehicles. Why so pessimistic? Despite attempts to entice initial buyers with free hydrogen and subsidies, the long-term economics do not enable these strategies to scale to mass-market success; subsidies will eventually expire and FCV costs will remain high. This will also require some pretty remarkable infrastructure investment to go along for the ride. We anticipate that between $180 billion to $800 billion will be required by various individual regions to adopt a full-fledged hydrogen economy. In likely absence of such funding, shift to hydrogen will not happen before 2040, if ever.

Interestingly, due to their aggressive cost reduction efforts on fuel cells, automotive OEMs will have an opportunity to enter stationary energy and offer financing. This is a chance that most will overlook, but that a few clever developers will tap to pick up hundreds of millions in revenues. It is the strength of partnerships (and the creativity thereof) between OEMs, infrastructure gas specialists, Tier 1 suppliers, and chemicals and materials leaders that will separate the fuel cell survivors from those that fail.

Source: Lux Research report “Hydrogen Under Pressure: Driving Fuel Cell Adoption Now and In the Future” — client registration required.