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Hydrogen vehicle is not a scam
In my recent post on Apple, I wrote about Apple’s obsession with control. A piece of feedback from a friend is that “control -> monopoly = success, there is nothing new about it”, and he is right in theory. All businesses want to be monopolies because this guarantees profits, but when they become one, they do not like to admit it because FTC of the U.S. or the equivalent agencies in the respective country will come knocking.
However, this hardly happens in the real world. Will the U.S. government punish U.S. companies such as Boeing for having too much power over the aviation industry? The answer is no. Not only that, the CIA is infamous for helping Boeing to compete with Airbus by spying on Airbus internal discussions with the Saudis1. So, what is going on here? The key term is raison d'état or national interest. The government of a particular country will help domestic industries and companies with the country’s resources to get ahead, regardless if it becomes a monopoly. This in essence is the story of Japan, South Korea, the U.S., and in recent years, China.
Essentially, monopoly is about power. When you are the only provider of an essential product, you get to dictate your profit. If you read business news, you may know that right now in China, the public sentiment against Alibaba’s “monopoly” is high, culminated in the “missing Jack Ma” extravaganza last year. And recently, a Sexual-Assault Allegation at Alibaba Triggered Outrage on the Chinese Internet, pushing Chinese public sentiment further against the monopolistic power of Alibaba. This has prompted the Chinese state press (an affiliate of People’s Daily) to write a critical piece (link in Chinese) on the situation demanding Alibaba’s leadership to reflect on this incident and check its internal institutions for protecting women’s rights. I like especially one quote from that article,
不仅要把权力关进笼子里,更要把资本关进笼子里。不要妄想大而不倒,自然规律告诉我们,一鲸落,万物生。更不要妄想像韩国财阀一样操控一切,这里是中国。
Here is my translation to the quote, “not only must power be kept in a cage, so does capital. Don't think that you’re too big to fail, the law of nature tells us that when a whale falls, an ecosystem of small creatures is born2.” This, of course, aims at warning Alibaba to not be complacent, that China does not need a monopolistic Alibaba, and it is replaceable. If it falls, the business vacuum will create an even better ecosystem of smaller companies.
Why am I talking about monopoly and Alibaba in a post on hydrogen energy?
Because the story of hydrogen energy is an epic story that explores the extent to which monopoly is conducive for the long-term growth of an industry and the government’s role in building domestic champions. It is precisely the monopolistic nature of the industry that has held back hydrogen energy over the past decades.
(This is a long essay, if you want my conclusion to hydrogen energy, you can jump to the last section, else let’s dive into the details)
The grand narrative
I spent the whole weekend sieving through reports and thinking about how I should approach this topic because it is a huge undertaking with many technological concepts that must be explained to understand the complexity of the hydrogen energy industry.
The natural starting point, I thought, would be to place the hydrogen energy industry into the grand narrative of our world today, which explains why hydrogen energy is needed in the first place, and I’d also like to provide a reference point on where hydrogen energy is strategically among its various competitors.
We’ll start with the why.
The global warming narrative is one of the key narratives of the 21st century, the science behind it is solid and despite the money interest behind the resistance, most governments in the world are now convinced of the narrative. They have adopted a timeline for getting to net-zero carbon emission as shown below.
Most developed countries are now committed to reaching carbon neutrality by 2050 and China has its own plan for carbon peak in 2030 and carbon neutrality by 2060. It is important to note that carbon neutrality is not zero-carbon, neutrality means reducing carbon emissions and capturing carbon emissions to reach net-zero carbon goals. This is essentially a countdown timer for the internal combustion engine (ICE) cars, and fossil fuels industry
It is this grand narrative of environmental protection that enabled the clean and green industries, two competing but complementing industries were birthed. The electric revolution that powers companies like Tesla, and the hydrogen revolution that is the main topic of today.
Now it’s time for us to talk about where.
We know that hydrogen energy is positioned as an alternative to electric, but where do they compete, where do they complement?
Hydrogen energy has been widely used since the 1960s. For those of you who were born in the 60s and 70s, you may know about the Apollo missions of the U.S., and if you are reading my newsletter, the chances are, you know that hydrogen is the main source of energy for the Saturn V rocket that landed humans on the Moon. The reason for usage is simple, liquid hydrogen is a lighter material than its fossil fuel alternative which means spare capability for astronauts. So when you were in awe about the majestic launch of the Space Shuttle, now you know that its propellants were LH2 (liquid hydrogen) and LOX (liquid oxygen).
So, first of all, we need to understand that hydrogen energy is not primary energy that directly competes with solar or wind. It is a carrier of energy, hydrogen must be produced, stored, and transported before it can be converted back into electric energy for consumption. (In the graph below, I categorized fossil fuels as an energy carrier, which is what it is. But we should note that fossil fuels are primary energy practically because the process of conversion is done by mother Earth over the millions of years of its formation, that’s why it is still the dominant energy source today.)
Therefore, hydrogen in this process is equivalent to batteries in the electric energy market, or fossil fuels in the traditional energy market, it can either be used through internal combustion or a fuel cell.
But since these are three different energy carriers, the technology stack required to support the hydrogen energy value chain is different comparing to the electric battery market and the fossil fuels market, this includes different technologies in the process of energy conversion from source energy to energy carrier, and from energy carrier to end-users. This means the competition between fossil fuels, hydrogen and batteries is a competition of supply chain, which we will discuss further later.
Hydrogen energy basics
Hydrogen is the most abundant chemical substance in the universe, constituting roughly 75% of all normal matter. Stars such as the Sun are mainly composed of hydrogen in the plasma state. At standard conditions, hydrogen is a gas of diatomic molecules having the formula H2. Here is the problem, since hydrogen exists in the gas state and is the lightest element, we can’t simply dig into the ground and find hydrogen reserves like how we find fossil fuels. Hydrogen needs to be extracted from water.
And based on the level of “greenness”, the amount of carbon emitted through the hydrogen production process, hydrogen is further categorized into grey hydrogen, blue hydrogen, and green hydrogen.
Grey hydrogen is the “dirtiest” hydrogen production method where methane and water are run through a steam reformer to produce hydrogen and carbon dioxide, this is currently the most popular method of hydrogen production with over 90% market share.
Blue hydrogen goes through the same process as grey hydrogen, but in the end, 80-90% of carbon dioxide is captured and stored.
Green hydrogen is the most optimal way of hydrogen production because it produces no greenhouse gases (GHG), water is run through an electrolyzer to extract H2 and oxygen, this process of 100% renewable, but it needs an extensive network of solar energy infrastructure. Less than 1% of the hydrogen produced today is green.
So, here comes the two key challenges of the hydrogen industry, building a technology stack that produces green hydrogen, and building the infrastructure and applications of hydrogen to promote consumer needs. These are the mountains of the industry that are likely to take another 3 decades to climb. Hydrogen energy vertical is now comparable to the 70s semiconductor industry, the technology itself needs to reduce cost and commercialize, and the consumers must be galvanized.
Hydrogen energy is losing the mobility game
I did not want to start this section on a negative note, but sadly, it is true. In the mobility vertical, hydrogen cars are losing.
But first, we need to talk about hydrogen fuel cells, which is a key piece of technology for fuel cell electric vehicles (FCEV). Just like any car, hydrogen cars are also energy conversion machines. For an EV, electric energy stored in the battery is used directly to power an electric motor which converts electric energy to kinetic energy and moves the car. In a hydrogen vehicle, hydrogen is the energy carrier that is converted to electricity which drives an electric motor and moves the car. As we can see below, the power control unit and the electric motors are similar components that could be used both in battery EV and FCEV. A fuel cell stack is what converts hydrogen into electricity and drives the car.
However, as of 2020, the world’s total car sales are 52.6 million with China contributing 20 million, but EV sales are only at 3 million worldwide.
EVs are just a fraction of the total vehicles sold, but how many hydrogen cars are sold in 2019? Take a guess?
7500 cars, and I am not missing zeros. Only seven thousand five hundred cars. I double-checked the number with Statista, the numbers are comparable. Digging into an old article in 2010, it was projected then that hydrogen car sales would reach 2.8 million in 2020, and of course, this ambitious projection did not work out. Why? I will leave this question to the last section.
These sales numbers indicate plainly that the push for hydrogen cars has failed disastrously, consumers have bought into the battery EV market and are not yet educated on the hydrogen cars market.
What’s more dire is the situation for support infrastructures. ICE cars need gas stations to refuel, EV’s need electric charging stations to recharge and likewise, hydrogen cars also need hydrogen fueling stations. As of December 2020, the U.S. has close to 100,000 electric charging ports in over 30k locations, there are around 150,000 gas stations as well.
The number of hydrogen refueling stations in the U.S. is 43(I mean, what!!!). It is safe to say that if you’re an ordinary American looking to buy a car, you can cross hydrogen cars off of your list.
However, this is not to say that hydrogen technology is a failed project. In fact, hydrogen still holds the key to many answers to our environmental problem, it’s just no longer a strong contender in the consumer vehicles’ market.
Landscape of hydrogen energy, where is it competitive?
Now, we need to broaden our views of hydrogen energy in this section. The discussion so far has been limited to the consumer vertical of the mobility sector. Hydrogen energy is about a lot more.
There are 5 broad categories of applications for hydrogen energy, power generation, transport (mobility), industrial energy, building heat and power as well as industry feedstock. It is also indicated in this analysis by Bain & Co, that hydrogen energy will be competitive in all areas by 2040.
In the mobility sector specifically, the graph above projected that by 2050, hydrogen cars may take 10% of the industry, and that’s fair. What’s more interesting in the graph above is that hydrogen has better potential in some other transport categories like trucks, medium and large cars, passenger ships as well as forklifts. These vehicles are for business usage and their main consideration is cost, which hydrogen energy could be preferred as it is a lighter energy carrier that becomes more competitive when the vehicle gets heavier.
As seen above, when the range of vehicles goes above 400km, FCEV could be half as light as a normal EV. This is a physical limitation of Battery Electric Vehicle (BEV), I can imagine a situation where for trucks and forklifts, hydrogen is a more cost-effective energy carrier than batteries in 2050, thus taking up more market share. Following this logic, another clear application of hydrogen energy is in consumer aviation, batteries are too heavy to fly, hydrogen holds the key to clean up the aviation industry.
In summary, hydrogen can still be a good contender in most 2B verticals if it’s managed well in the next 30 years, for the consumer vehicle vertical, there is a formidable infrastructure gap for hydrogen cars, its battery-electric competitor is gaining market share quickly and winning.
Thus, we have finished answering the where. Hydrogen is well-positioned as a replacement for fossil fuels, but it will have to compete with batteries for this market. Additionally, hydrogen as an energy carrier is no longer competitive in the consumer vehicle market, it’s crashed by BEVs.
However, hydrogen is still possible to catch up in the long-range heavier vehicle category such as truck, and forklift as it is a denser energy carrier. In the aviation market, hydrogen seems to be the only scalable clean contender as well. Lastly, hydrogen is well-positioned in the industrial, building heat and power, and industry feedstock vertical.
Japan’s big, lonely bet on Hydrogen
In this letter, I started with a policy overview of different countries, dived into the mobility market, and I zoom out to focus on a broader range of hydrogen applications. I answered the two key questions on why hydrogen energy is needed & where hydrogen energy is positioned within the industry.
But in the last section, I want to zoom back into the mobility market and answer the question of how hydrogen cars were outcompeted by electric cars? Previously, I brushed over this question with statistics, laying out the fact that one, hydrogen cars are in low demand (7,500 sold in 2020), and two, hydrogen infrastructure is poor (43 refueling stations in the US in 2020).
But why? The Japanese started to work on hydrogen energy in the 70s and the U.S. has not lagged behind either, how did both of them give up the huge consumer vehicle market (">1 trillion USD in revenue) so readily in the past decade to its battery-electric contenders?
Well, first of all, hydrogen is less energy efficient in the production process, its well-to-wheel ratio is 38%, the same metric for electric cars is 80%. This means, to quote BMW: “The overall efficiency in the power-to-vehicle-drive energy chain is therefore only half the level of [an electric vehicle].” Safety is another concern, for example, a hydrogen liquid tank must be pressurized and when it is hit and punctured, hydrogen becomes gaseous and escape, but what if this happens in a tunnel where the hydrogen gas is trapped? This paper shows you that it is dangerous.
However, this line of reasoning is not good enough. Theoretically, solar energy is limitless, according to MIT physics professor Washington Taylor, a total of 173,000 terawatts (trillions of watts) of solar energy strikes the Earth continuously. That's more than 10,000 times the world's total energy use. Since hydrogen is also the most abundant element in the universe and it could be converted from water, it is limitless in theory (assuming we can lower the cost of desalination).
So why are hydrogen FCEVs losing? I needed an entry point for analysis and I found one.
As of 2020, three car companies have commercial FCEVs, Honda, Toyota, and Hyundai. Among the three, Honda has suspended its FCEV offering and Hyundai is also favoring battery electric vehicles (BEV) over FCEV, leaving Toyota to support the entire hydrogen car market alone. This reflected the title of this section, Japan’s big, lonely bet on hydrogen. Hydrogen energy is lost because the rest of the world is not playing along with Japan.
If you think about the BEV supply chain, China is dominant in the value chain starting with sourcing raw materials to battery production, battery pack production, EV production, and finally, China is the biggest consumer market for EVs. Why would China help Japan’s hydrogen cars compete with its domestic industries? It won’t.
The same reasoning goes to the EU, and the U.S. Here is a list of electric cars, if you rank the cars by performance, do you notice something? Electric cars are adopted by companies in the U.S., China, and EU whereas for hydrogen cars, Japan. It is Japan’s failure to work with other countries on the hydrogen supply chain that resulted in today’s hydrogen mobility market landscape.
Shown below is the top 10 companies’ fuel cell patent count in 2019. Needless to say, the Japanese companies dominate. If you are not sure which ones are Japanese, they are Toyota, Honda, Nissan, Panasonic & Denso. The only American company on the list is GM.
Japan has started its domestic hydrogen push in the 1970s as a result of rising oil prices during the oil crisis, energy anxiety has pushed Japan to develop domestic fossil fuel alternatives and hydrogen became the natural choice.
Even today, the Japanese government is still the biggest investor of hydrogen among other governments, almost half of the global hydrogen investment comes from Japan, but they have failed to help other countries in the hydrogen market, China has conveniently pushed aside hydrogen as seen below severely underinvested in hydrogen (Less than SK!!).
This is reflective of many Japanese champions and their culture of work, Nintendo, Sony cameras, Playstation are all dominant in their respective field. Here is a list of Japanese companies ranked by market cap, I bet you do not know most of them. Japanese companies thrive in a semi-closed ecosystem working among themselves to build industries. But even for Japan, the auto industry is too big to solo. If they have shared their hydrogen technology earlier with other countries, the EV landscape might be different today.
This shows me the limitation of monopoly at a national level, that you need friends and partners in other countries to navigate the consumer landscape, else, partners become competitors and friends become enemies. When your competitors are China + US + EU, you can be sure that they’re going to favor their domestic champions who provide alternatives.
I’m not trying to downplay the importance of energy efficiency and safety in choosing BEV for the consumer vehicle market, those are important factors no doubt, but to the Japanese conglomerates, it needs to be open-minded in sharing technologies along the value chain to partners in order to create a shared future, a shared sense of destiny.
Conclusion
At the beginning of this issue, I shared with you a story on monopoly & Alibaba.
All countries want their domestic companies to succeed and will do whatever they can to support, but by definition, there will be winners & losers. US dominance over the semiconductor industry, China’s dominance over solar energy & electronics products, and Japan’s power over the hydrogen supply chain.
In the case of the U.S. semiconductors, the U.S. helped built companies in South Korea (Samsung), Japan (ARM), Taiwan (TSMC) & China (Huawei), everyone gets a cut and the U.S. gets the biggest cut(NVidea, Qualcomm, Intel, Apple, the list goes on).
But in the case of hydrogen energy, Japan’s dominance in the industry became its burden, forcing other countries to subsidize and invest in the electric alternative. In just a short span of 15 years, the BEV has won, both in the hearts of consumers and in terms of infrastructure.
In 2010 when Tesla went public, it was a luxury EV maker selling Tesla Roadster to ultra-rich celebrities because it had no choice, battery production cost was too high. 10 years have passed, battery price has dropped 10 folds(!!!) with the help of government support from the US, China, and EU. Hydrogen has lost the mobility game.
If history is a mirror, it shall show us that in the next 30 years, the powerful narrative of environmental protection will bear the fruits of reduced carbon emission plans. Though hydrogen will not take the crown in the consumer mobility vertical, its green potential in 2B transportation with heavier, long-range vehicles, as well as its potential to revolutionize the industrial and building power and heat industry will make it an integral part of our lives.
This is the end of the issue, again I’ve hammered 3,500+ words on this one, but it’s well worth it, hopefully, this is an interesting read for you.
Not enough reading? If you want to understand the hydrogen industry further, I recommend that you read this Mckinsey analysis first, followed by this BCG report, and this Deloitte report.
This is a report by bakermckenzie. This report by IRENA.
This report by hydrogen council & McKinsey.
This is a Deloitte report focused on electrolyzers, and here is a comparison of FCEV vs BEV by energy.gov, If you only care about the hydrogen industry in the U.S. check this out, and as always, the full list of links is in the links graveyard below.
Here we are getting a little technical because Boeing is a monopoly if you follow the textbook definition, which states that “monopoly power exists when a single firm controls 25% or more of a particular market”.
A whale fall occurs when the carcass of a whale has fallen onto the ocean floor at a depth greater than 1,000 m (3,300 ft), in the bathyal or abyssal zones. On the seafloor, these carcasses can create complex localized ecosystems that supply sustenance to deep-sea organisms for decades.
Hey Lei,
i think you mist out the real reason why hydrogen cars are a bad idea.
-The Energy Efficiency is about less than 30% from electricity production to the weels on the street.
-The scalebility is limited. The highest efficiency they have with an 20x20cm membrane.
Yes you can stak them in big clusters but the efficiency is getting even worse with this, cause of the heat production like an engine.
-Fuel cells like constant power output. So you need a batterie between the drive train and the fuel cell. when you drive up a hill you need more, or in the city with constant stop and go.
That makes fuel cell cars more complexe than batterie electric car and not really competitive.
-you named it with green hydrogen. Its less than 1% produced on this sector. And because of the bad scalebility its expensive to plant them near wind oder solar farms in a large quantity.
even the technology is known for over 50 years, the problems havent changed since.
If you have questions, feel free to ask. I´ll try to answer with my english :)
greets Lars ( from germany )