September 23, 2014

Framing the Debate: Refueling Fuel cells vs Recharging Battery Electric Vehicles

I had a brief Twitter stream exchange with Christoper Mims, Chris Nelder, and John Licata (all brilliant people; respect!) where I threw out some alternative assumptions on two future directions of electric vehicles via plug-in battery versus hydrogen fuel cells.  Friends and colleagues have asked why I am so skeptical of battery-powered EVs.  So here is a more organized post on alternative assumptions that might reveal a more viable path towards scaling out electric vehicles.

Summary: Supporting H2 Fuel cells is not a Crazy Dream but a Rational Market-focused Growth Strategy

Electrification of the world’s vehicle fleet is a marathon not a sprint.  The ability to scale out electric vehicles will not be feasible until around 2025.  The most viable (emph on profitable + scalable) path is an EV platform that integrates hydrogen fuel cells (primary) and battery storage (secondary) systems.

We should avoid framing the conversation in 2014 terms or look at early adopter opinions of what is best for the future. Neither plug-ins or fuel cells are viable global scale options today.  They are not likely to be ready as a global solution for at least another ten years.

Telsa is an innovator but incumbents still dominate the manufacturing supply chain and fueling infrastructure backbone. Publicly stated market signals from automakers such as Toyota, Honda, Daimler, Hyundai, Ford and Nissan show a clear preference for the long game of fuel conversion via fuel cells.

Molecule fueling stations (e.g. Hydrogen or H2 rich fuels) offer a way for infrastructure companies to make a continual operating profit and recover capital investments as it scales out slowly. Recharging stations would remain cost centers and require massive (and continual) subsidies, be disruptive to the utility grid and never be able to satisfy consumers who require quick (<5 min) refueling experiences. Simply put? I can make money by refueling while recharging will always need subsidies.

But what about climate change?  If one’s concern is immediate reduction for GHGs then your focus should be on hybrids and light-weighting vehicles. There is no short-term climate change fix via electric transportation.

How long will it take?  This is a multi-decade long industrial transition.  The short-term growth favors plug-ins but the long game (beyond 2025) is a fuel-based EV future.

Our investments should reflect a desire to win the marathon, not the sprint.

Why do I think this way?

A Realistic Time Horizon on Vehicle Electrification: Marathon not Sprint

Electric vehicles (EVs) refer to the substitute of electric motors for mechanical heat engines.  These electric motors can receive power from batteries (electricity storage) or molecule fuels (fuel conversion) or the integration of both storage and fuel conversion!

The electrication of the world’s vehicle fleet is a multi-decade long transition.  Rough estimates are 1 billion vehicles in the world today.  60 million sold annually.  Estimates on average turnover of a mature economy fleet like the US is over 15 years.  It is going to take a few decades to make a signicant transition.

Our investment strategy should anticipate technology platform cost curves of 2025 and sustainabile (refueling) business models that support a global auto industry when it is better positioned retool how it builds vehicles. We should also avoid extending assumptions about what consumers want and are willing to do using passionate early adopters of today’s EVs.

The EV momentum has started in places like California but it ends in places like Kansas City, Beijing, New Dehli and Lagos.  We need to invest in solutions that fit broad global markets.

Three reasons why we should bet on fuel-based EVs:

#1 Signal from Automakers: Fuel-based EVs are our preferred path

Automotive companies from the world’s most engineering oriented economies of the world – Germany (Daimler), Japan (Toyota; Honda) and Korea (Hyuandai) have made very clear signals via public roadmap statement that their long game for electric vehicles will be based on fuel-conversion. Even Ford and Nissan, who dismissed fuel cells only a few years ago, are now part of the parade.

We should plan for delays and missed expectations. The actual start dates on producing volumes will always shift and never satisfy FCEV enthusiasts, but the reasons for supporting fuel-based EVs are clear:

  • Costs: Fuel cells offer lower ratio of cost-to-mass (key for production and supply chain cost controls).  We are now in fourth generation fuel cells and approaching the 50kWh threshold where it becomes competitive with combustion engines.
  • Performance: By converting the energy of molecule fuels in fuel cell stacks, automakers have a more comprable power source for real-world driving.  Batteries require sophisticated engineering to manage peak demands during acceleration.  Push batteries to hard and you deal with costs of structural degradation.
  • Design: The integration of fuel storage (even compressed hydrogen) and conversion device will take up less vehicle chassis space.
  • Leveraging Innovations Ahead – Batteries will continue to see incremental innovations.  Fuel cells have greater potential for upside including MEAs, non-precious metal catalysts, improved catalysts for oxygen reduction side of fuel cell energy conversion.

Fuel cell vehicles are NOT ready for large volume production in 2014.  Toyota and Honda are out of the gate but this is a platform which we cannot expect to scale out until beyond 2020 or 2025.  Our focus should be on the momentum within cost curves and the solid assumptions of performance support over batteries make it a more preferrable path to automakers. Fuel cells can scale because of their MEA-based engineering.  Keep the fuel out of the process and you have a non-mechanical conversion devices for electric motors.

#2 Challenges of Scaling Out a Plug-in Network  
Advocates of plug-in battery EVs are quick to say ‘we have an existing grid system’ and ‘recharge stations are readily available today.  They argue that scaling out hydrogen refueling stations will cost more and take more time.  I would argue the complete opposite.

We have an aging national electricity grid, but there is no cohesive, consumer-ready plug-in vehicle recharge network in the United States.

The recharge network is a patchwork of 5,000+ plug-in stations that sit alongside shopping malls, corporate parks, and residential apartment buildings.  Most of these stations sit idle, under capacity and were built using investment dollars without any real model for return on capital.  It is cosmetic and utterly ineffective as a scalable long term solution when compared to portable fuels.

Advocates will argue that recharging your EV is cheap.  Pennies on the dollar compared to oil or hydrogen which will always be more expensive.  All True.  Electricity will always be cheaper than hydrogen.  And this is a problem for any vision that requires a global scale out.

Who will pay for tens of millions of recharge stations?  Who will recuperate the money when electrons deliver pennies to the infrastructure owner?

What is the business model of ‘free’ recharging?

Costs are likely to be much more than advocates believe.  Recharge stations are not as simple an extension of the grid as advocates argue.  Extending the grid to recharging networks is not cheap and in a scaled up future scenario would require significant site storage batteries to help utilities balance demand as vehicles draw down from the grid.

Do not conflate our grid for an EV network. They need to be connected and integrated.

The experience of recharging varies from several hours to twenty minutes via fast charging stations. Parking a vehicle at a slow charge station for several hours is an expensive proposition for station owners who cannot bring new customers into the fold while cars sit charging.

Twenty minutes of wait time to recharge a Tesla is better but try selling twenty minutes to average consumers who are used to several minutes of ‘pumping’ molecule fuels today.

What does a fast recharge station look like when there are 10x or 100x the number of cars waiting 20 minutes during rush hour on the way home from work?

What happens to the batteries in a supercharge mode? Structural degredation accelerates.  Electrons are tricky business. Molecules are more stable.

Scaling up plug-in charging stations for tens of millions and hundreds of millions of vehicles would be a massive (costly) endeavour.

Tesla has a solid vision of its Supercharger stations and has opened up its technology to encourage other providers to build out the network.  Musk is a genius but I cannot imagine the cost associated with developing a global network of recharge stations that make virtually NO PROFIT on the service.  The real-world usage is puzzling.  Imagine 6pm rush hour with Teslas pulling up to a station only to wait twenty minutes for a spot to open up.

Home-charging stations work well for early adopters with suburban garages but again fails to scale in a world where urbanization is the development model.

We should not conflate having an electricity grid or a patch work network of recharge stations with a scalable solution.  There is no recharge network today. It would have to be built.  It will be costly and deliver electrons that have no profit margin.

Now imagine a world of 100 million or a billion plug in vehicles constantly on the move and needing a grid connection to keep going?!  Daunting…


#3 Molecule fuel based infastructure: Not Perfect, but Profitable 
Hydrogen will never be cheaper than electricity – but it will be more profitable.  You install a fueling station and make a profit on the fuel sold to consumers.  Customers will make smarter choices about how much they drive because the fuel has a cost.  Infrastructure providers will see a clear path to scaling outthe network because there is a margin on the molecules.

How many stations will we need? 
California’s fuel cell effort has shown the total costs to be much lower than skeptics make it.  The rollout is gradual and geographically specific to market adoption.  There is no reason to believe that we need to ‘replace’ our gasoline pumps with hydrogen anytime soon.   But these stations will make a profit.  They will have a customer experience that is more familiar to today’s portable fuel model.

Where do we get the hydrogen?
Natural gas and renewables.  Pay close attention to engineering for both systems and you can be cleared eyed on challenges and still optimistic.

(Again, do not look for a climate solution in electric vehicles.  Do not believe that the subtle ‘wheels to well’ GHG benefits of batteries is a game-changer.  Light-weighting is a more effective way to reduce GHGs in transportation sector. Focus on that if you want near term impact)

How much will it cost?  How ‘green’ will it be?  
That answer requires you to state assumptions of materials costs related to catalysts, storage tanks, pipelines or trucks, pump stations, safety systems, compliance costs, et al.

The short answer is we can see clear developmental progress on cost curves for hydrogen production and storage.  There will be costs but molecules (fuels) beat electrons as a more manageable and profitable product.


Where do we go from here? Explaining EV Choices
There is complete confusion over terms ‘electric’ vehicle and our long term options.  The majority of people associate ‘electric’ with battery.  What gets lost in the framing is that fuel cell powered vehicles are electric – they simple use hydrogen fuel into electricity to power the electric motor.  There is no distinction between ‘electric’ or ‘hydrogen’ vehicles. The public and policy makers should be educated on our investment choices.

Fuel cell advocates are attacked and portrayed as starry-eyed weirdos while smug battery-powered advocates seem overly confident in their game-changing choices.

Time will tell which evangelists are more right…

When will electric cars become mainstream?

When might EVs become a majority of new vehicle sales?

Nobody knows.

What we do know is that the EV market today remains less than 1% of global auto sales.

Today is ‘build mode’.  We are in a market phase of the transition that requires ‘early adopters’ and ‘evangelists’.  This is the era of plug-in battery cars.   But let’s not confuse this phase for the end game.

Musk is a Brilliant Leader, but Batteries are for the Early Adopter Phase

This decision to invest in a ‘plug-in’ battery roadmap of EVs could be damaging to the longer term potential of electrifying the world’s vehicle fleet.

A smarter, more strategic investment would be investing in molecule fuel-based EVs powered by the integration of fuel cells and batteries.  Send clear signals to all stakeholders that we need a platform that makes sense for manufacturers, infrastructure owners and consumers.

We must assess our invesments based on the logic of business model design, return on investments, innovations that drive cost curves and a realistic sense of market readiness and demand that will not begin until 2025 or beyond.

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