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Inside Toyota And Tesla’s Duel to Fuel the Cars of the Future

The collapse of the automakers’ partnership points to the next crucial car-world debate: batteries vs. hydrogen fuel cells.

Inside Toyota And Tesla’s Duel to Fuel the Cars of the Future
[Photos by Kevin Van Aelst]

It certainly doesn’t look like a million-dollar vehicle. On a broiling day in late May, Keith Wipke meets me just outside of Boulder, Colorado, rolling up in a white Toyota Highlander SUV that, despite its bland appearance, is an ultra-high-tech prototype. “Let’s fill it up,” says Wipke, a program manager at the U.S. Department of Energy’s National Renewable Energy Laboratory. We drive up a hill to a fueling station that his lab has built alongside several towering wind turbines. But the pump doesn’t produce that familiar, sweet-but-toxic gasoline stench. Instead, Wipke fills the tank with pressurized hydrogen gas, a five-minute process that involves connecting a hose to an airtight valve on the side of the car and letting the fuel flow. Returning to the road, the Highlander cruises as smoothly as any other Toyota, and for a car that’s expected to change the world, the air-conditioning works pretty well, too.

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To Toyota, this SUV likely represents the way forward in a postgas world. It’s a major change from the company’s strategy just a few years ago, when the world’s biggest car maker teamed up with Tesla Motors to embrace a different technology: pure electric vehicles, such as Tesla’s Model S, powered by lithium-ion battery packs. The alliance between the two companies seemed proof enough that battery-electric automobiles would become the norm. And yet, in May, Toyota announced it would end the Tesla deal (although it remains a Tesla investor), with the clear implication that it had chosen hydrogen gas over Tesla CEO Elon Musk’s vision.

In truth, Toyota’s split with Tesla had been a long time coming–more than 20 years, in fact. In the early 1990s, Toyota set two teams of engineers upon the task of designing the vehicle of the future. After much experimentation, Team 1 created what would become the hugely successful gas­oline-electric-hybrid Prius. The journey for Team 2 proved more arduous. For years, it struggled to make use of fuel cells–a ­special mix of compounds sandwiched between plates made of carbon or metal, that are arranged in what’s known as a stack. This stack could absorb hydrogen gas stored in a car’s tank, and then, by way of a chem­ical reaction, create an electric current to power the car’s motor. The only exhaust was water vapor. It wasn’t just daunting to build and to make affordable. Who could generate hydrogen for an entire fleet of cars? Where would they be refueled? But Toyota kept pouring millions–perhaps billions–into the idea. “We went through about 12 versions of the fuel cells and three versions of the vehicle,” says Chris Host­etter, Toyota’s head of strategic planning.

The effort, Hostetter believes, has at last paid off. Toyota’s first commercial fuel-cell vehicle (FCV) will go on sale in 2015; it will retail for under $50,000, seat four people, and have a range of about 300 miles. Unsurprisingly, Musk mocks his Toyota frenemies’ hydrogen dreams, even referring to fuel cells–which would compete with Tesla’s own battery technology–as “bullshit.” But Toyota is taking a rare stance against Musk because it believes it has a better understanding of what’s involved on a mass scale. “We’re the largest battery consumer in the world,” says Hostetter. In other words: If Toyota thinks it’s time to place some bets elsewhere, it’s worth listening.

Pump It Up: FCV’s are refueled via the same routine as gas cars–except with hydrogen.Image courtesy of National Renewable Energy Laboratory

While I take the Highlander prototype for a 30-minute test-drive on the high-ways west of Denver, I press Wipke on the virtues of fuel cells over battery electrics. Certainly one of the main advantages is the refueling process. You can fill your tank more quickly with hydrogen than with an electric re­charge (3 to 5 minutes versus at least 20 minutes for a plug-in). But the most crucial factor is distance. Both technologies allow increasingly long-range travel, but hydrogen vehicles do it much more affordably. “I think the car companies see a path with fuel cells that can get to that 300-mile range in a way that’s more economical than with batteries,” explains Wipke, who works closely with a number of manufacturers, including Toyota. Hostetter agrees, suggesting that without a significant breakthrough in battery technology over the next few years, fuel cells will be a quicker route into the mainstream market.

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There’s a lot at stake. Though most drivers tend to care less about technological details than reliability and price, next-gen ideas like fuel cells could have an immense environmental impact. The problem is how to persuade consumers to pay attention. Global shifts in car technologies will never occur with the speed of an iPhone iteration, but if the FCV follows the Prius playbook–evolving over the coming decades from an oddity to a curiosity to a success–you can actually catch a glimpse of a cleaner, greener world. Like the Prius, the FCV’s progress will presumably be helped along by generous incentives from states and by recent federal regulations that set ambitious targets for car efficiency. California’s goal for 2050, for instance, is to have 87% of all cars sold in the state be zero-emission–in other words, electric cars. According to one plan, the majority of those vehicles would be fueled by hydrogen rather than batteries.

Of course, achieving such goals depends on what kind of clean-car technology will scale up fastest, which seemed to be the original promise of the now-defunct Tesla-Toyota alliance: The world’s most sophisticated electric-car company was joining ranks with the richest car manufacturer. Following the break-up, each company retains its own strengths. And while the smart money might now be on Toyota’s strategy, there are enormous hurdles facing fuel-cell cars that Tesla doesn’t have to contend with. Namely: getting a critical mass of cars and refueling stations online at the same time. In the U.S., only California has
any semblance of a hydrogen infrastructure.


“Here’s the question,” says John O’Dell, an analyst for the automotive site Edmunds. “Can you persuade the fueling industry to put in a national network of stations that will service these vehicles to make them more universally usable?” California, with more drivers on the road (and more aggressive environmental policies) than any other state, has allocated about $200 million over the next 10 years for the construction of 100 hydrogen stations, placed strategically to enable long-distance travel. Joel Ewanick, CEO of FirstElement Fuel, which was awarded funds from the state (and loans from Toyota) to build hydrogen stations, says he’ll have 19 stations open by the end of 2015. “But this is a 10-year business model,” warns Ewanick. “In the first five years we’re going to be struggling to break even.”

Clearly, it’s a long-term play, with enormous risks of failure. Toyota, with its huge global resources and cash reserves, tends to stick with an idea for decades hoping it pays off. But this could be a case in which a new technology is too disruptive for its own success. It’s also possible that before hydrogen cars make real inroads into the market, they’ll be eclipsed by an unforeseen economic innovation in batteries. Musk, who recently announced plans to build a $5 billion battery factory for Tesla, and who in June made Tesla’s patents freely available to boost the adoption of his battery technology, is also banking on the force of logic–the argument that battery-electric cars are “greener” than FCVs. He has a point: While both technologies out­perform gas cars in efficiency, a wealth of research indicates the environmental advantages of gen­erating electricity from a ­carbon-free source (like sunlight, as with Tesla’s solar-powered charging stations) and feeding it into batteries, over manufacturing hydrogen.

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If the eventual cost difference between batteries and fuel cells is nominal, could the technologies coexist? “I could see where a family would have a fuel-cell vehicle for longer trips and a battery electric for short, local commutes,” says Edmunds’s O’Dell. Consumers could thereby access the virtues of each technology–a future that Toyota, which already owns a 60% share of the U.S. gas-electric hybrid market, would no doubt be optimistic about. The company constantly stresses, despite appearances to the contrary, that it is not “anti-battery,” but instead wants to create a future portfolio of efficient cars–just without the help of Tesla. This suggests a happy, environmentally friendly ending to the story of Toyota’s two engineering teams, and anyone would be encouraged by that. Anyone, perhaps, except Elon Musk.

When Toyota Met Tesla: A Timeline

The public love affair between the automakers ultimately crashed and burned. Were the signs always there?

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