Toyota Accelerates Toward ‘Hydrogen Society’

By José Del Solar

The new Toyota Mirai has attracted more interest than Toyota originally anticipated — surprising considering the car’s hefty price tag of $57,000. The release of the first finalized cars last month came at a good time. The Volkswagen diesel scandal drew fresh attention to the automotive industry’s cleaner alternatives, giving Toyota an opportunity to further cement its role as a leader in producing environmentally responsible automobiles.

The Mirai’s production volume will be limited, however. It will be launched “cautiously by thoroughly manufacturing each and every car to ensure a high level of quality” because of the vehicle’s many new technologies, said Toyota. Production is far from easy. Powering the car involves a complex process of removing the electrons from the hydrogen atom (H2) and using them to generate electricity for the motor. The electrons then react with the now positively charged hydrogen atoms, which in turn react with oxygen in the air intake, forming H2O as exhaust. Refueling, which needs to be done every 312 miles or so, simply requires the hydrogen tank to be replenished.

Because Toyota has yet to reap economies of scale from this relatively new technology, it expects to lose anywhere from $62,000 to $124,000 per car — albeit demand far exceeded expectations. It hopes to minimize losses through government support and subsidies, which includes taking advantage of the $385 million Japan has committed to promoting hydrogen as an alternative fuel in its push for a ‘hydrogen society’. But what is really important for Toyota is to gain market share. It has by far the most aggressive plans to penetrate the hydrogen-powered vehicle industry, saying it expects to build nearly exclusively hybrids and fuel cell cars by 2050.

While Toyota indeed hopes to gain market share, its approach to entering this new industry is similar to Tesla’s. Toyota, like Tesla, is granting access to its intellectual property, which includes more than 5,600 patents that were involved in making the Mirai. A small number of patents regarding installation and operation of hydrogen fueling stations will be offered indefinitely, but most patents will be offered free of charge only until 2020. This is hardly a selfless move; the company hopes to generate competition as quickly as possible to create an infrastructure that allows fueling stations to be more readily available. Furthermore, Toyota hopes to “speed the development of new technologies and move into the future of mobility more quickly, effectively, and economically” said Bob Carter, one of Toyota’s senior vice presidents.

Critics of the Mirai should remember when Toyota debuted the Prius in 1997. People wondered whether the Prius, or other hybrids, would have any real lasting impact. They questioned its battery life and the cost to replace its battery, as well as the car’s overall high price tag. But it has since become one of the company’s most successful cars. Furthermore, hydrogen cars bring about new advantages: hybrids like the Prius require gasoline, but fully electric cars require hours to charge and use electricity, which usually has its own footprint.

That being said, alternative fuel vehicles have been struggling lately. Extremely low oil prices mean that these clean options are less competitive, shrinking the target demographic to those who choose alternative options principally for environmental reasons. But Craig Scott, one of the executives leading the development of the Mirai, says that launching a fuel-efficient car during a period of low energy prices is nothing new.

There is more bad news than just low oil prices. Critics argue that fuel-cell vehicles are driven by government policy rather than consumer demand. Not only is the vehicle expensive, but you can only recharge the car at hydrogen stations. Fueling station infrastructure, however, will likely be slow to develop, too, as each station requires between close to $4 million upfront, compared to about $800 thousand for normal gas stations. Because of this, analysts at Goldman Sachs estimate that fuelcell vehicles will not gain significant traction until 2025, when they will still only account for roughly 0.5 per cent of global sales.

Indeed, Toyota faces many financial obstacles with the Mirai. But it echoes Toyota’s bold and successful bet on hybrids in the 90s. For a company still recovering from a massive recall scandal five years ago, this marks an important moment. The ‘hydrogen society’ Japan hopes for is still a long way off, but the Mirai is a big step in the right direction.

Sources: The Wall Street Journal, The Economist, Financial Times, Green Car Reports, Goldman Sachs, and CNBC