Avoid Tesla Because Hydrogen Is The New Electric

Summary

EV business model may not overcome competitive FCV threat.

Major automotive manufacturers are adopting and advancing FCV technology.

Avoid Tesla stock due to lack of product diversity and competitive forces.

by Joseph Ghanem of www.seekingalpha.com

FCVs (Fuel Cell Vehicles) started out over a decade ago as technology that was in its infancy stage, and clearly not ready for prime time. A decade later, and it appears the time has come for fuel cell vehicles to reclaim the mantle as the most energy efficient, practical and realistic choice for the zero-emission car-buying consumer.

Arguably, the most challenging issue facing Tesla (NASDAQ:TSLA) is the further development and prevalence of FCVs in the global automotive industry. Fuel cell vehicles are gaining traction. And with major auto makers, such as Toyota (NYSE:TM), Hyundai and Honda (NYSE:HMC) starting to invest, it is only a matter of time before the technology becomes mainstream. The existential threat that could derail Tesla is not just smoke and water. The eventual shift from EVs (Electric Vehicles) to hydrogen-powered FCVs is real, and Tesla may be in serious trouble.

Fuel Cells

There are many different types of fuel cells available. For vehicle purposes, the most common is the Polymer Electrolyte Membrane (PEM) fuel cell.

Source: Office of Energy Efficiency & Renewable Energy

The process works by taking fuel (hydrogen) and oxygen molecules into the fuel cell. Hydrogen is channeled to the anode, and oxygen to the cathode. They are split through the use of a catalyst, which in most cases is platinum. The hydrogen splits off into positive hydrogen ions (protons), and negatively charged electrons. The PEM cannot let the electrons into the membrane or else it would short circuit the fuel cell. Once the hydrogen is split, the positive ions flow through the membrane to the cathode. The electrons that were broken off from the hydrogen also travel along an external circuit to the cathode, which in turn creates an electrical current. At the cathode, the electrons and the positive Hydrogen ions meet with oxygen to form water (H20), which exits the fuel cell.

There are a few trade-offs with this system. The first is the use of platinum as a catalyst for the breakdown of the molecules. Platinum is an expensive material, and without a replacement catalyst or a reduction in price fuel cells will always be expensive to produce. Secondly, separating oxygen significantly reduces electricity that can be generated due to the difficult nature of splitting oxygen molecules, which makes the process of producing electricity from the circuit less efficient.

Fuel cells are also extremely sensitive to any permutation in the system. Electrons need to flow through the proper channels; they cannot leak into the membrane where the positive hydrogen ions pass through to meet oxygen. Furthermore, hydrogen is volatile to store. In order to safely house hydrogen, fuel tanks in cars need to maintain pressure in a PSI range of 5000-10,000.

Infrastructure

While fuel cell technology has advanced in recent years, the infrastructure for hydrogen refueling stations is currently not where it needs to be for fuel cell vehicles to become mass-market. This issue seems to be the Achilles heel of fuel cell vehicles, as a lack of refueling stations would lead to marginal sales volume. However, major investment into hydrogen fueling networks have begun in California and the Northeastern states. With time and capital, the network of hydrogen refueling stations will continue to grow as fuel cells gain efficiency and popularity.

California has been the leader in support of zero-emission vehicles; offering rebates in the range of $3000-$5000. In 2014, the California Energy Commission announced it would invest $46.6 million to speed the development of hydrogen fueling stations, with the hope of reaching the goal of 100 refueling stations that would allow for the commercialization of FCVs in California. The state is planning to double the number of hydrogen refueling stations that are currently available this year. According to the California Fuel Cell Partnership, there are twelve available hydrogen refueling stations in California. The map also shows about another 30 retail locations that are in development. In an interview, Hyundai Motor America CEO David Zuchowski anticipates 40 refueling stations to be open before the year's end of 2016.

Though California is the testing ground for new technology, Toyota sees promise in the Northeast. Toyota is helping to develop and supply, with the help of France's Air Liquide, twelve hydrogen refueling stations in Connecticut, Massachusetts, New Jersey, New York, and Rhode Island. The plan for Northeastern hydrogen refueling stations is part of a broader coalition called The Northeast Electrochemical Energy Storage Cluster (NEESC). NEESC has outlined hydrogen and fuel cell development plans for eight states located in the Northeast, with the goal to "increase awareness and facilitate the deployment of hydrogen and fuel cell technology." Further advancing infrastructure, eight Northeastern states have signed a memorandum of understanding that would require manufacturers to sell 3.3 million zero emission vehicles in the geographic area. This figure includes both FCVs and EVs. The NEESC has a goal of 110 hydrogen refueling stations by the end of 2018 in the Northeast.

Another alternative is the installation of hydrogen refueling stations at already established gasoline stations. The move would make sense, as a shift to EVs in the United States and in Europe would affect the revenues of oil companies. However, providing hydrogen alongside traditional gasoline at these stations would create the opportunity for an additional revenue stream, while maintaining the core business. Shell has been adopting hydrogen fueling stations to select locations in California, with plans to add more in the future.

Through the use of existing stations, building the infrastructure needed for mass-market hydrogen consumption is the most realistic. The problems that are associated with hydrogen, such as transportation and storage, would be alleviated by direct lines to the pump at the gas station. As well, many states derive tax revenue for the building and fixing of roads, bridges, and highways from gasoline taxes. With a gradual shift from gasoline to hydrogen, oil companies can maintain relevance, while the state can still collect taxes on the fuel coming out of the pump.

The current amount of capital needed to add-on or build a hydrogen refueling station totals $1 million, yet, the actual cost comes closer to $1.5 million, according to Hyundai Motor America CEO David Zuchowski. While electric charging stations typically require an average of $250,000 to install, hydrogen refueling stations require more intensive construction and maintenance. Despite needing the additional capital to fund the infrastructure, the business perspective paints a clearer picture.

A typical EV takes around 8-14 hours for level 1 charge (120 volt AC) or 4-9 hours for a level 2 charge (240 volt AC). Tesla's supercharger only recharges around 50% of the battery after 30 minutes. The supercharger is not a public charging station or high voltage outlet, and requires a specially built station to output 120 kW of DC power. Consequently, batteries are not like gasoline or fuel cell vehicles in the way that the car must reduce the current above a certain percentage to top off the battery. With that in mind, it would take Tesla's supercharger nearly 75 minutes to fully charge a 90 kWh Model S.

From the hydrogen perspective, a FCV takes no more than 3-5 minutes to fill up. Given the early stages of hydrogen refueling station technology, that time estimate would likely drop with advancements. To a business, the number of electric charging stations required to satisfy public demand would be at least four to five times the amount comparable to hydrogen stations. That also assumes that EVs can be charged 50% in a decent amount of time, much like the Model S. From that point of view, electric charging stations do not seem to make much sense for any business to own and operate, as home recharging would seem like the only viable solution to consumers.

Models

Development of FCVs have been underway for years. Hyundai released their first FCEV (Fuel Cell Electric Vehicle) in 2001 with the Hyundai Sanata Fe FCEV. Honda's first delivered model of fuel cell cars was the 2002 FCX. Over the past year, there have been numerous car companies expanding their lineup to include new FCVs. As production costs associated with fuel cells declines, more auto manufacturers will begin creating models that can leverage the new technology. A list of recent models produced by different companies is as follows:

• Audi - A7 H-Tron Quattro
• Honda - FCX Clarity
• Hyundai - Tucson Fuel Cell
• Mercedes-Benz B-Class F-Cell
• Toyota - Mirai

Focusing on the Toyota Mirai which was recently released, how does it compare against a similar style EV? The Volkswagen (OTCPK:VLKAY) E-Golf is a sedan EV that is roughly the same in dimensions and weight as the Mirai, making for a good study in the differences between FCVs and EVs. The Volkswagen E-Golf starts at a base MSRP of $29,800, with a 24 kWh battery and an EPA range of 83 miles. The base model does not come equipped with a 7.2 kW onboard charger, and instead has a level 2 charger rated at 3.6 kW. Charging to full takes roughly four hours for the base model. If the 7.2 kW onboard charger is added, the time is reduced to around two hours. The motor outputs 115-hp and 199 lb-ft of torque.

The Toyota Mirai, meaning "future" in Japanese, starts close to $58,500. The Mirai also qualifies for federal tax and state tax credits like EVs do. Toyota offers three years of complimentary hydrogen fuel to all new buyers, which can be seen as a $10,000 value if it is assumed hydrogen fuel prices maintain parity with gasoline. Refueling takes only about 5 minutes, and on a full tank of hydrogen the car gets an estimated 312 mile range. The electric motor powering the Mirari outputs 151-hp and 247 lb-ft of torque.

Even though this is one comparison, the differences are evident. Barring the price difference, the Toyota Mirai beats out the Volkswagen E-Golf in range, fill time, and power. The only major distinguishing factor is the price. Electric vehicles have been in production for a better part of the last decade, and it should come as no surprise that they will be cheaper than new fuel cell powered vehicles. Once cheaper materials and more efficient fuel cell stacks are created, the price of FCVs will come down to match EVs, making FCVs more economically beneficial.

Consumer Perspective

The battle over which zero-emission vehicle is more efficient is meaningless if the consumer perspective is discounted. Consumers have grown accustom to using gas stations as the means to fill their car up. The difference between charging an EV, which might take up to 14 hours depending on the voltage being used, or five minutes that it takes to refill a FCV cannot be understated. In today's fast-paced environment, the need to charge a car every day or two can simply become an inconvenience.

The negatives of EVs do not stop from a time standpoint, but also from an efficiency standpoint. On average, EVs have their range reduced by 57% in cold weather (20 degrees Fahrenheit), and 33% in extreme heat (95 degrees Fahrenheit). Combined with the fact that EVs have less overall range than comparable FCVs, the benefits of a FCV become clear. Group Vice President and General Manager of the Toyota Division, summed up the benefits of FCVs over EVs best in an interview at the 2014 Chicago Auto Show:

It really provides all the benefits of a plug-in EV without the range anxiety and without the time it takes to recharge it.

Takeaway

What the future holds for the next generation of zero emission vehicles is certainly up for debate. Right now, major automotive brands are gearing up, picking a side and fighting for the zero emission vehicle of their choice. Toyota, Hyundai, Honda and a few others have already committed to creating fuel cell vehicles going forward. Stalwart brands, such as Tesla, Nissan (OTCPK:NSANY), and GM (NYSE:GM) have remained steadfast in their commitment to further developing EVs.

The difference comes down to practicality and convenience. In the end, the consumer is what drives the market for any new technology. I fully anticipate that once the infrastructure for hydrogen refueling is sufficient FCVs will catch on with car makers and consumers. The advantages FCVs offer over EVs are numerable, and with each passing day fuel cell technology improves.

To a company like Tesla whose core brand is built around all-electric vehicles, this paradigm shift presents a problem. Every other car company can adapt to changing market conditions by offering products that consumers demand. However, Tesla limits themselves by only offering EVs. Couple the lack of car options with the poor financial health of the company, Tesla seems to be in dire straits. Due to the reasons outlined above, I would recommend staying clear of the stock.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

 

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source;
http://seekingalpha.com/article/3956209-avoid-tesla-hydrogen-new-electric