Toyota to step up hydrogen fuel cells push outside Japan

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Toyota’s announcement of a breakthrough in solid-state batteries for electric vehicles stole the show last month when its engineers gave a sneak preview of its next-generation technologies.

The news jolted the carmaker’s share price but much less investor attention was paid to a low-key presentation given on the same day on how Toyota planned to build a business by selling its hydrogen technology outside its home market.

With a more than 90 per cent dependence on energy imports, Japan and its biggest carmaker have long placed a huge bet on hydrogen as an alternative to fossil fuels — one they have persisted with despite the rise of battery-powered vehicles. However, sales of hydrogen-powered vehicles have fallen flat. This is largely the result of the high cost of carbon-free hydrogen and the lack of filling stations for the gas, from which a fuel cell makes electricity to power the car. 

Still, Toyota says it sees a much bigger business opportunity by 2030 to sell its fuel cells in Europe, China and North America as the world’s biggest economies compete to decarbonise and win control over energy supply chains. It also views fuel cells, with their higher energy density, as better suited for longer-range, heavy-use vehicles such as delivery trucks.

What the carmaker doesn’t seem to see, at least from its presentation, is a compelling market potential in Japan despite it being the first country to map out a national hydrogen strategy in 2017. Since then the US, Europe and China have come out with far more aggressive targets and investment plans to make use of the gas. In June, Tokyo updated its strategy, setting a new target of increasing annual hydrogen supply to 12mn tons by 2040 using a public-private investment of ¥15tn ($106bn) over the next 15 years. 

The new strategy comes after Japan has largely missed its earlier targets set out in 2017. Having aimed for sales of 40,000 fuel-cell vehicles by 2020, only about 7,700 hydrogen cars have been sold, according to the Japan Automobile Dealers Association. The country has built 164 hydrogen stations but it has not met its target for 100 of them to supply green hydrogen made with renewable sources of energy.

Toyota has also widely missed its own target to sell more than 30,000 fuel-cell vehicles annually worldwide by about 2020. Since the launch of its hydrogen-powered Mirai in 2014, it has only sold fewer than 22,000 fuel-cell vehicles, including 3,924 last year.

Corporate executives in Japan have privately expressed frustration at the absence of a concrete vision of how the government wants to bring down the cost of producing carbon-free hydrogen. With the US offering tax breaks for every section of the green hydrogen supply chain and China also investing heavily, companies such as Toyota and Panasonic are increasingly looking outside Japan to sell their hydrogen technology. 

That makes sense. While Japan has stuck with its goal to increase annual hydrogen supply to about 3mn tons in 2030, China is targeting 40mn tons while both Europe and US are aiming to supply about 25mn tons. 

Mitsumasa Yamagata, head of Toyota’s hydrogen business, said the company had so far received global orders for 100,000 units of Mirai’s hydrogen system by 2030, mostly for commercial vehicles. By partnering with truckmakers in Europe and China and increasing local production, it hopes to double those orders, which would lead to a halving of the unit cost. 

In a follow-up briefing on Tuesday, Toyota executives stressed that Japan remained an important market but cost reduction was still their priority. “We need volume to bring down the costs so we need to roll out enough vehicles in Europe and China. Once the costs are down, we can transfer the positive outcome to Japan,” said Hiroki Nakajima, its chief technology officer.

For Japanese companies, however, executives admit that their hydrogen push into China would pose a tricky dilemma in terms of both energy security and industrial competitiveness. In an interview, Tatsuo Ogawa, Panasonic’s chief technology officer, warned that Japan’s hydrogen technology could face the same fate as liquid crystal displays and silicon solar cells with which the country lost out to lower-cost Chinese rivals.

For Toyota, its decades-old know-how in making fuel cell stacks is a core technology it will need to protect at all costs, but it cannot ignore China’s huge potential for hydrogen-powered transport.

kana.inagaki@ft.com