As the whole auto industry is shifting to EVs, Toyota beliefs in hydrogen.
In a previous piece, I’ve written about how Volkswagen was pushed into the EV market through its corrupt ways. Companies like Tesla have sparked a revolution with many more companies jumping on making their own EVs, but one company is also betting on an alternative, Toyota, which released an updated version of the Toyota Mirai in 2021. What motivates Toyota to keep manufacturing hydrogen cars and not follow the pack?
To new readers, I’ll have to make the proper introduction to why were are discussing hydrogen and Toyota in the first place. The answer is quite simple, at least how I view marketing within the organizational hierarchy. I have a strong belief that marketing is at the forefront of what is playing in the market and what customers are experiencing. That is not to say that an R&D department is not attuned to market circumstances, but marketing is often in the frontlines, directly engaging with customers. This centers marketing departments in a unique position to be aware of what is moving within their industries, therefore it is valuable to explore how companies are adjusting their strategies to the world of tomorrow. So you can too.
The world of hydrogen
There’s been a lot of development and interest in hydrogen fuel cells, but as with many technologies that are being implemented today, they can be traced back much earlier. The first fuel cell was invented by welsh physicist Sir William Robert Grove in 1839. His technology mixed hydrogen and oxygen to produce electricity and as a byproduct, water. But his solution’s output was still too low for any practical use. Sixty years later, in 1889, the name fuel cell was introduced by Charles Langer and Ludwig Mond. They themselves were working on fuel cell technology.
In Germany, Rudolf Erren started to convert internal combustion engines into fuel cells during the 1920s. It would be a decade later in 1932 when engineer Francis Bacon would begin his research into fuel cells. He began using platinum electrodes, which have been used in modern-day vehicles as well, a very expensive competent that drives up the cost of fuel cells. After decades of work, Bacon presented a five-kilowatt fuel cell in 1959, which was able to power a welding machine. In the same year, engineer Harry Karl Ihrig manufactured a 20-horsepower tractor that was power by a fuel cell. This would become the first vehicle using fuel cell technology. During the Apollo program in the 60s, NASA began to equip its spacecraft with fuel cells manufactured by General Electric, which was a safer alternative to the nuclear reactors and a more lightweight solution than batteries or solar power, which were far less advanced than the ones we have today.
Deloitte identifies several applications of hydrogen fuel cells, namely, transportation (e.g. passenger vehicles, buses, aviation, and marine), stationary power, and portable power and UAVs.
The state of California plans to roll out 1,000 hydrogen fueling stations by 2030, for the 1 million fuel cell vehicles driving around by the time.
Across the world, countries have different strategies to promote hydrogen development and integration. The United States has been promoting further development of hydrogen starting in 1990 through different legislation, under the Hydrogen Research, Development and Demonstration Act. The state of California plans to roll out 1,000 hydrogen fueling stations by 2030, for the 1 million fuel cell vehicles driving around by the time. China, one of the leading countries in terms of EV adoption, does not have dedicated policies in place to promote the adoption of hydrogen. Europe launched the European Research Area in 2003, a joint effort of 25 EU countries to create a research platform to further increase the development of fuel cells. Europe is putting a strong focus on using hydrogen as part of the transition of clean energy production.
From this small summary of countries, it seems that California is making real steps to make hydrogen refueling stations part of the everyday infrastructure. Nonetheless, there’s a long way to go before it will become as important in transportation as electric vehicles will be in years to come. But, there is one country, who pushes the hydrogen envelope, Japan.
Japan’s bet on hydrogen
To understand why Toyota is pushing for hydrogen cars, we need to place the company in the bigger picture, namely how its domestic market tackling the energy transition towards a durable future. In 2017, the Japanese government set out the Basic Hydrogen Strategy to become ‘a world-leading hydrogen-based society’. The strategy stretches to 2050 with an action plan in 2030. Japan aims to further develop hydrogen technology to reduce its costs and replace current energy resources.
In 2014 the first fuel cell vehicle was launched in Japan, which gave it a head start compared to other countries around the world. In December 2020, Japan had 137 hydrogen charging stations, the costs of operation and maintenance are still high and will need to be reduced. Akana Okutsu and Nana Shibata from Nikkei Asia zoomed on Japan’s progress with hydrogen in December 2020. They observed that whilst Japan has the largest network of refueling stations in the world, it’s still far from successful, even though heavily subsidized by the government.
According to Nikkei Asia, the oil crisis of the 1970s has left its mark in Japan, sparking the need to diversify the energy needs of the country. A New York Times article from Richard Halloran from 1973, described the issues Japan was facing at the time. Halloran from the NY Times said, in a rather unglamorous analogy, that ‘Japan’s economy drinks oil like an alcoholic going through a quart of Scotch.’ At the time Japan was the third most productive economy, importing up to 1.6 billion barrels of oil in 1972. As they were importing 45% of their oil from the Middle East, the oil embargo would hit the Japanese economy hard. Not only this, fears for political unrest were brewing as the promise was economic prosperity which was threatened by a potential decrease of around 30 percent in oil deliveries in the months ahead. At the time it was also unclear how long the embargo would last, amplifying the sentiment of uncertainty. As Halloran put it, ‘For the man in the street, the prospects are relatively bleak. For years, he has counted on life as better this year than it was last year. A recent trend in Japan is to acquire air‐conditioners, cars and color television. But next year the Japanese are not likely to have enough electricity for the air conditioner or TV, nor enough gasoline to take the car anywhere.’
This realization of oil dependency began with the Sunshine Project, a program to create a more durable energy scheme. They further noted, ‘Japan sees hydrogen as important not just for reducing carbon emissions, but also in terms of energy security. Japan is heavily dependent on oil shipped from the Middle East and via sea lanes in the South China Sea.’ The oil crisis, the rising tensions between China, and the dependency on foreign oil further create a sense of urgency with the Japanese government to decrease its reliance on imported energy sources.
Toyota Hydrogen Vision
Toyota themselves believe that hydrogen power electric vehicles are the next step for our transportation needs. Toyota points out that there is an infinite supply of hydrogen available, which will result in a reliable source of renewable energy for generations to come. Furthermore, they state that hydrogen can be easily story and transported across large distances. Conventional electricity is difficult to distribute over long distances as it loses its energy during transportation.
Toyota launched the second generation Mirai, where Toyota’s Chairman Takeshi Uchiyamada said that developing the Mirai, was an act of ‘Japan’s commitment to hydrogen.’ In a press release from the European Toyota team about the new Mirai they said, ‘Toyota’s vision for a sustainable hydrogen society recognizes the importance of hydrogen as a viable and plentiful source of carrying and storing energy.’ Further saying, ‘It’s also an efficient means of storing renewable energy and can be transported to where it’s needed.’ Their statement is reinforcing the vision Toyota has for hydrogen technology, although they were also quick to admit that development has been lagging due to external factors. Yoshikazu Tanaka, Chief Engineer at Toyota, said, ‘“However, because of slower than anticipated infrastructure development and resulting limits on the number of vehicles that can be introduced to the market, we are still only halfway to achieving widespread adoption of FCEVs.’
The statement of Toyota is no surprise, and despite their pledge to make hydrogen work by cranking out fuel cell vehicles, won’t persuade consumers to buy into the vision when there is nowhere to refuel your car. It’s easy to look at an obvious competitor, namely Tesla. But Elon Musk quickly saw the pain point and acted on it. Harvard Business Review pointed out this advantage, by saying, ‘The reason why consumers still choose Teslas over products like Audi’s eTron or attractive EVs from GM’s Buick, Cadillac, GMC, and Chevy brands is perhaps surprisingly simple. They can drive their Teslas for long distances in full confidence that they will find convenient locations at which to recharge their vehicle.’
Tesla knew that for EVs to be a viable option, the infrastructure had to be laid down. From a business perspective, this is an enormous gamble, because setting up a dense network of charging stations takes massive investments and when the vehicles don’t sell at the same pace you’re left with unused stalls that don’t generate any cash flow. For Tesla, it has played out well. The customer can rest assured it can charge nearly anywhere in developed areas with strong road infrastructure and Tesla sees revenue come from not only car sales, but also from the drivers using the charging stalls. Toyota on the other hand, Japan’s national pride, is facing the same issue as the other car manufactures. The vehicles can be superior in build quality, more advanced, when there is nowhere to refuel, nobody will purchase them. And that’s not the only problem facing hydrogen adoption.
You recall that the development of hydrogen fuel cells already dates back to the mid 19th century and still we haven’t figured it out. The United States Office of Efficiency and Renewable Energy has listed several drawbacks of the technology. One of the major challenges to incorporate hydrogen fuel cells into vehicles is the weight and volume that they take up in comparison to internal combustion vehicles. The fuel cell will need to make leaps in terms of the components used to reduce its weight and create more efficient vehicles because the weight and volume drag down the performance of hydrogen fuel cell vehicles. This also plays a role when getting energy out from the fuel cells, which require complex processes that decrease efficiency.
Another major hurdle to overcome is the durability of the hydrogen storage systems, which in their current form (e.g. using brittle materials and components) can only handle 1,500 charging cycles. All these materials also way into the costs, just like with batteries today, which due to their mass production are rapidly decreasing in terms of costs.
A risky business
Toyota has a vision. A vision of a cleaner future. Vehicles that drive on renewable energy. This energy is hydrogen. Japan has set a goal to become a leader in hydrogen, propelling the technology forward, paving the road for mass adoption. Although it faces the same struggles as EVs in its early days. The days before Tesla showed how it was supposed to be done. Consumers don’t want fuel cell cars, not because they think the technology is inferior or the vehicles are badly manufactured. No, the biggest drawback is being unable to refuel. Just like EVs from manufacturers that are not Tesla, who are dependent on infrastructure that is not as densely packed or as reliable. So you might wonder why Toyota is still betting on hydrogen if all these challenges still exist?
It seems that Toyota caught itself in a difficult position because as it has been focussing on hybrid technologies, and then making the leap to hydrogen, the company now has a disadvantage in the EV space. It’s also one of Japan’s flagship enterprises, a manufacturing marvel. It would be a betrayal to ignore the government’s future plans and go their own merry way. Toyota delivered the embodiment of Japan’s future, but the world is having other plans.