On March 22, a trio of Chinese electric vehicle (EV) companies – Nio, Xpeng, Li Auto, all New York listed – announced that they were hiring investment advisers to assist them with secondary listings in Hong Kong.
Credit Suisse and Morgan Stanley have been appointed as Nio is looking to sell a 5% stake, valued at approximately $3.5 billion. Somewhat lower but still comparable valuations for the other two would bring a total of $7.5 billion to Hong Kong.
CNBC stock market guru Jim Cramer, usually unflappable, did a double take on air, also on March 22, commenting on Ark Investment fund manager Cathie Wood’s call of $3,000 per share for Tesla,
“I don’t think there is a fund manager in this country that could get away with this kind of thing other than Cathie Wood.
“But Cathie Wood actually is so good that you start thinking, ok, what is Elon Musk going to do? Maybe he’s got a lot on his mind that she has thought about and …”
And so it went for several more minutes.
The electric vehicle space is jumping and, of course, Musk almost certainly has a lot in mind that will make it even more attractive to investors.
What he’s most likely not thinking about is the large-scale application of hydrogen for EVs. He once called fuel cells “fool cells.”
But while hydrogen fuel cells are just beginning to provide serious competition to battery powered vehicles in personal transportation, they are making a large impact in the heavier vehicle commercial transportation space where large loads have to be carried over long distances.
That’s where hydrogen has the advantage.
And that’s where China, just getting to be competitive with the likes of Tesla in snazzy passenger cars, is poised to seize the lead with hydrogen-powered trucks.
The hydrogen fuel cell is a rare example of a long-established technology turning into a game-changing disrupter. It has powered spacecraft and submarines for decades but made little headway in ground transportation because governments balked at the cost of building fueling infrastructure, and because the cost of producing the raw materials was prohibitive.
That’s changing in a big way, mainly because China has made hydrogen-powered ground transport one of the top priorities of its $560 billion a year technology investment budget.
Europe and Japan – Germany has declared 2021 the year of hydrogen technology – are running only slightly behind China. For the next decade or so, battery-powered passenger vehicles will dominate the market for low-carbon substitutes for the internal combustion engine. But batteries can’t power long-range freight transportation by truck and rail, and China is making a decisive commitment to hydrogen.
China’s commitment to hydrogen has drawn the attention of global investors.
In a March 2021 report entitled “China’s gateway to a hydrogen future,” J.P. Morgan research analysts Han Fu and Stephen Tsui write, “Green hydrogen, a clean form of energy, clearly holds potential to play a critical role in China’s 2060 carbon neutrality ambitions.
“Fuel Cell EVs appear to be emerging as an early use case. This is an opportunity for the China hydrogen ecosystem to develop approaches to overcome technical and economic challenges, necessary for more widespread future applications. Hydrogen plays have been in market focus, and valuations are lofty.”
“The global automotive fuel cell market size was USD1.07 billion in 2020…this market exhibited a stellar growth of 44% in 2020,” according to a Fortune Business Insights study, and “is projected to grow from USD $1.73 billion in 2021 to UD $34.63 billion in 2028 at a stellar compound adjusted growth rate of 53.5% in the 2021-2028 period.”
The Fortune report adds that fuel cell electric vehicles are “the leading alternatives to the widely used internal combustion engine automobiles.” The lion’s share of the growth, Fortune adds, will be in the Asia-Pacific region.
Already the largest market for Plug-in Energy Vehicles (PEV’s) with 3 million on the road, China projects a fleet of 50,000 fuel-cell vehicles (FCV’s) by 2025 and 1 million by 2030, from only 6,000 on the road in 2019.
Beijing listed hydrogen as an energy source in a public law for the first time in its 2020 Energy Law of the People’s Republic of China, and established subsidies for FCV’s through four government departments, with an emphasis on freight and urban mass transit.
China is ready to finance the refueling infrastructure required to make hydrogen-based transport economically viable. And it has a large supply of hydrogen, now produced as a waste byproduct by its chemical industry.
According to government directives issued in September 2020, central government subsidies for FCV’s could reach RMB 17 billion, depending on how quickly Chinese cities meet their targets for FCV deployment. Local governments are likely to match the central government support, bringing the total government spend to RMB 34 billion, supporting between 40,000 and 60,000 new vehicles between 2020 and 2023.
China’s commitment to fuel-cell vehicles prompted a scramble by Europe and Japan to put forward their own programs.
Established Chinese automakers as entrepreneurs are launching new ventures to meet the enormous demand for FCV’s projected by the government. SAIC, a state-owned automaker, plans to produce 10,000 FCV’s a year by 2025. More ambitious is the alliance between startup Ares Motors and two established Chinese vehicle manufacturers, Fujian-based Wisdom Motors and Chery Holdings of Anhui Province.
Ares expects to produce 4,000 PEV’s and FCV’s in 2021 at Wisdom’s Fujian facility, and cross the 10,000- vehicle mark within several years.
Large international automakers are gearing up for the Chinese market, both as OEM’s and as components manufacturers. Toyota set up a joint venture with FAW group in 2019 which will begin to deliver fuel-cell systems for trucks and buses in China in 2022.
China had only 80 hydrogen refueling stations in 2020, a fraction of what it will need to reach its near- and medium-term goals.
The supply chain for FCV components, moreover, is in an early stage of development. The September government directives focused on building infrastructure (mainly refueling stations) as well as developing a robust supply chain.
This includes more efficient capture of waste hydrogen from China’s chemical industry, additional hydrogen production facilities, and manufacturing of fuel stacks (the hydrogen storage module for vehicles) as well as engines.
J.P. Morgan analysts explained in their March 2021 report, “With the carbon-neutrality target now in place, we are optimistic that hydrogen can replicate the success of wind/solar power. The H2 addressable market could grow >30x by 2050, to Rmb12tn, and we estimate green hydrogen’s being commercially competitive by 2030.
This expectation is backed by multiple catalysts to spawn H2 development in China, including top-down policy support, technological improvements and economies of scale.”
Hydrogen, to be sure, remains controversial.
In Europe, Volkswagen-owned Scania, one of Europe’s largest truck producers, declared last year that fuel-cell trucks will be too inefficient and costly to compete with the battery-powered alternative. Scania is betting that improvements in battery technology will allow battery-powered trucks to carry a standard 40-ton load for 4.5 hours — far more than today’s batteries can manage.
To travel several hundred miles today, an eighteen-wheeler would have to carry nothing but batteries to power the engine.
In contrast to Scania’s skepticism, Volvo and Daimler have joined forces with Shell to make hydrogen the future commercial standard for trucking in Europe.
Dubbed “H2Accelerate,” the Shell-led program envisions a public-private partnership to create economies of scale for freight FCV’s, with a network of hydrogen fueling stations built out across Europe by the second half of the 2020s. A trade association, Hydrogen Europe, predicted that Europe would have 10,000 hydrogen trucks in operation by 2025 and 100,000 by 2030.
The United States is far behind Asia and Europe. Its highest profile hydrogen cell startup, Nikola Motors, plunged from $75 a share last September to just $17 on March 12 after short-seller Hindenburg Research claimed that it made exaggerated claims about its technology and padded its order book.
Nikola’s technology and distribution problems, though, are only half the story. The startup, sponsored by General Motors, has the misfortune to be in the wrong place, namely the United States, where there is little backing for hydrogen infrastructure.
A former top General Motors engineer, Ian Hanna, believes in pursuing hydrogen and battery technology in tandem. A former head of GM’s systems safety operations in China, Hanna now heads Ares Motors, an ambitious OEM startup.
What distinguishes Ares is a combination of intellectual property for vehicle fuel cells and partnerships with major Chinese manufacturers that allow it to scale up vehicle production very quickly.
“We’ve got prototypes running on the road with demonstration vehicles that are to be ready by the end of the year, we are actually going after significant volume for this year in the thousands of vehicles,” Hanna told Asia Times.
“And it’s with our dual approach. We’re not only a hydrogen fuel cell company. We’re also a battery electric vehicle [BEV} company. That dual propulsion strategy allows us to meet customer needs this year.
“The 2021 volumes will primarily be through the BEV’s. The infrastructure is well established and the technologies of course are mature, so the customer’s comfortable with it. And then long-term we’ll be able to offer our customers both the hydrogen fuel cell vehicles and our BEV vehicles, depending upon whatever is the best fit for their use.”
Ares’ flagship product is a heavy truck with a choice of electric battery power or hydrogen fuel cells. The hydrogen model offers a 1,000-kilometer cruising range with a standard 43-ton load, compared with 400 kilometers for the battery-electric vehicle version.
“For a lot of the longer-range customers,” Hanna added, “the BEV truck may not make sense, so we’ll be able to offer them both of those solutions. I think our timing will be right; we will have the customer relationships, as well as the technology to differentiate our company.
“We have our own proprietary fuel cell engines and other technology that we can build and integrate into our trucks – whereas, by contrast, our competitors are doing that through non-binding partnerships. We’ve developed a lot of that technology, and our partners are part of the Ares family. A lot of our technology comes from established OEMs.
“There’s no reason for Ares to go and reinvent an electronic power system. We have great partners that already know how to do that really well right now. We will be able to hit the ground with significant volume in a very short time.”
A key partnership is with Sunrise Power, China’s premier manufacturer of fuel cells, with whom Ares has a joint-venture laboratory. Ares is working with Sunrise and other partners to build hydrogen refueling stations in Europe and North America as well as China.
According to a company release, “The new Ares energy stations will ensure the infrastructure is in place to support both our BEV and FCEV vehicles. The energy station will include facilities for charging BEV vehicles, Hydrogen fueling pumps, traditional gas and diesel pumps, and battery swap capability.”
The combination of strong government support and a robust supply chain for FCV technology as well as hydrogen fuel makes it possible for a startup like Ares to scale up production rapidly.
As the Fortune Business Insights study notes, “Asia Pacific is projected to hold a major market share due to the encouraging FCEV deployment targets of governments, coupled with increasing investments in hydrogen fueling infrastructure. Additionally, high fuel stacks manufacturing capacities in the region, owing to the presence of large-scale FC passenger car manufacturers, will also add to the regional landscape.
Ares Motor, a Canadian company with principal operations in China, is seeking a Nasdaq listing in the course of the first half of this year, also builds city and highway buses, as well as logistic vehicles and autonomous tractors for use in port and dock areas.
Perhaps Ares’ most important advantage is to be located in China. Cost efficiency is the key to the future of hydrogen-powered transport, and the cost of hydrogen itself is the most important variable.
China now produces a third of the world’s hydrogen, or 20 million metric tons a year, or enough to cover a tenth of the country’s total energy needs. At an estimated fuel consumption of 7.5 kilograms of hydrogen for every 100 miles of road haulage, according to Fuelcelslworks.com, China’s present output potentially could power a truck fleet over 267 billion miles a year of transport – more than enough to meet the country’s present annual 6 billion ton-miles of road transportation.
The cost of hydrogen production is falling, from $6 per kilogram in 2015 to $2 per kilogram in 2025, according to a US Department of Energy study.
China led the world in deployment of cost-efficient solar energy, and many analysts expect China to do the same with hydrogen. A study by Chinese scientists argues that a $2/kg hydrogen price can be achieved quickly through electrolysis of water, which produces the purest hydrogen with the lowest overall environmental impact.
According to the Hydrogen Council, freight and bus transportation with FCVs becomes economically viable at a hydrogen price of $3/kg, and passenger car FCVs become viable at $2/kg.
Apart from China’s comparatively low production costs for hydrogen, a shift to this fuel source contributes to China’s energy security. As of the first half of 2020 China imported 73% of its oil consumption and substituting home-produced hydrogen for imported oil is a national security measure as well as an economic and environmental consideration.