Betting on Hydrogen: Can Hyundai Make Fuel Cell EVs Happen?

With rising lithium-ion battery prices, advocates of hydrogen-powered cars may see an opportunity. The Hyundai Motor Group is one of them, having long been bullish on hydrogen fuel cell electric vehicles (FCEVs).

Yet not everyone agrees. It is perhaps no surprise that Volkswagen and Tesla, for example, stand out as vocal detractors of hydrogen fuel cells, arguing that the technology is inefficient and has little commercial viability.

Even as the bulk of auto manufacturers seem to believe the future of transport lies with batteries, that hasn’t prevented Hyundai from pursuing hydrogen technology—one that requires fewer metals, produces better range, and has shorter charging times than a battery electric vehicle (BEV).

In Part 2 of the case study on Hyundai, we examine how it approached and developed its fuel cell technology and how it intends to carve out a market for FCEVs.

Fuel Cells More Expensive than Batteries, But Offer Some Advantages

Unlike BEVs, FCEVs convert hydrogen gas into electricity via fuel cells to power EV motors. So far, FCEVs occupy a niche market compared to BEVs, with its future prospect dependent on overcoming several challenges (see Figure 1).

Figure 1. BEVs Far Outnumber FCEVs Across Auto Segments (2020)
Source: International Energy Agency (IEA).

Chief among the challenges is the manufacturing and operational cost. FCEVs have yet to achieve the economies of scale to bend the cost curve and thus require higher subsidies (see Figure 2). Moreover, ~80% of global hydrogen production currently requires fossil fuels, which means the cost of hydrogen correlates with fossil fuel prices.

For instance, soaring natural gas prices at the moment further undermines the economics of FCEVs. While it is possible to produce “green” hydrogen using renewable energy, it is much more expensive and accounts for just 0.1% of global production.

Figure 2. FCEVs Are More Expensive To Manufacture and To Operate than BEVs
Source: Deloitte.

When it comes to distribution, hydrogen gas requires very high pressure (5,000-10,000 psi) or extremely low temperatures (−423.17 °F) to transport, which means it can’t be distributed through existing natural gas pipelines. Building a hydrogen gas station also isn’t cheap, with an average sticker price of $2 million in the United States.

All of these factors drive up the cost of distribution but also make hydrogen more vulnerable to any supply shock because the scale of production is still so small.

Finally, there is concern over the safety of hydrogen. Although hydrogen is not necessarily more dangerous than other flammable gases as it is very light and rapidly disperses in the air, it has to overcome a bad reputation (exhibit A: the Hindenburg). This safety perception could hamper the potential uptake of FCEVs, especially if an accident were to occur.

Despite these challenges, proponents of hydrogen tout the fact that FCEVs are capable of longer ranges without adding as much weight to the vehicle as BEVs. That’s mainly because hydrogen stores higher energy per unit mass than lithium batteries.

In addition, hydrogen cars take less time than BEVs to refuel because it is just pumping in gas instead of recharging a battery. For instance, Hyundai’s NEXO fuel cell EV has a range of 380 miles and can be refueled in five minutes whereas its IONIQ 5 (BEV) has a range of 303 miles and requires >20 minutes for a full charge.

Finally, although hydrogen’s distribution cost is high, an FCEV can save on raw material costs because its power train requires a much smaller battery, which significantly cuts down on lithium, nickel, and cobalt demand. For example, Hyundai’s NEXO is equipped with a 1.56kWh battery compared to the gigantic 77.4kWh battery for the IONIQ 5.

Aligning Corporate Strategy with Industrial Policy

The cost and the lack of market uptake of FCEVs appear sufficient to overwhelm any of the advantages that come with the technology. Yet even as Hyundai has gone “all-in” on BEVs, it isn’t likely to quit hydrogen any time soon.

The Korean company believes that it has already demonstrated some market potential for FCEVs, and seems to believe that it has a shot of cornering the commercial trucking market. Indeed, as the “first mover” in FCEVs, Hyundai mass produced passenger models in 2013 and heavy-duty hydrogen trucks in 2020 and has sold the most FCEVs in recent years (see Figure 3).

Figure 3. Hyundai Leads in Sales of FCEVs
Source: SNE Research.

But the small size of the market can’t be sufficient to propel Hyundai’s continued investment and focus on FCEVs. It is evident from Seoul’s recently unveiled Hydrogen Economy Roadmap that FCEVs are an indispensable part of the plan, backed by higher subsidies and government investment in fueling infrastructure.

This strategy, which focuses on further developing and deploying the fuel cell technology, likely also has much to do with competition in East Asia where Japanese and Chinese governments have also announced ambitious targets for hydrogen cars (see Figure 4).

Figure 4. East Asian Countries Have Ambitions for Hydrogen Cars and Infrastructure
Note: HRS = hydrogen refueling station.
Source: CSIS; IEA; South Korea Ministry of Trade, Industry, and Energy.

This alignment between industrial policy and Hyundai’s FCEV vision makes the company an integral player in the national strategy. So even when the commercial case for pursuing hydrogen remains relatively weak, the strong state support for the technology would make it difficult for Hyundai to quit hydrogen even if it wanted to.

Eyeing the Long-haul Truck Market

Many of the advantages of hydrogen fuel cells may be inconsequential for passenger EVs, but they matter more for heavy-duty vehicles like long-haul trucks. A lighter FCEV truck means less compromise on hauling capacity.

In contrast, extending range for a BEV truck means adding more batteries, which also means adding weight. That comes at the expense of a truck’s hauling capacity because more batteries compounds the weight problem of heavier components such as motors and brakes.

Massive batteries also lead to much longer charging times for long haul trucks. The difference is rather stark: 8-20 minutes of charging for an FCEV truck and up to 90 minutes for a BEV truck.

Although Hyundai historically has not been a leading player in the trucking segment, it seems to believe that it could leapfrog other truck manufacturers because it already has proven fuel cell technology (see Figure 5). Indeed, it is the first automaker to mass produce and deliver fuel cell heavy-duty trucks with an operating fleet of 47 hydrogen trucks in Switzerland.

Figure 5. European and Chinese Companies Dominate the Heavy-Duty Truck Segment
Note: This shows worldwide registrations of medium- and heavy-duty trucks (i.e. trucks with a gross vehicle weight of six metric tons or more) in 2017. Those marked in light blue are Chinese manufacturers.
Source: Statista.

At a time when there is still considerable uncertainty over which technology makes the most sense for zero-emissions long-haul trucks, Hyundai appears to want to be ready with a solid hydrogen option before other manufacturers. For instance, even Volkswagen’s commercial vehicle brands, Scania and MAN, are experimenting with FCEVs despite the group chairman’s dismissal of the technology.

Hyundai’s Success in Truck Market Depends on State Support

Detractors of hydrogen aren’t necessarily wrong about the obstacles to meaningfully commercialize the technology for transport. But for Hyundai, which has a monopolistic position in the Korean auto industry and is viewed as integral to industrial policy goals, it has institutional advantages that other automakers may not.

That institutional advantage will be crucial to the viability of hydrogen in the commercial trucking market. While the range, weight, and refueling times of FCEVs are attractive for the long-haul truck market, ultimately it depends on how cheap and accessible FCEVs, and the associated infrastructure, will get with state support. One silver lining is that since the per-unit price of a long-haul truck is about five times that of a passenger FCEV, Hyundai doesn’t need to sell as many trucks to achieve similar revenue (see Figure 6).

Figure 6. Trucks Have Potential to Become Sizable Share of Hyundai Revenue
Note: MDT/HDT = Medium-duty Truck/Heavy-duty Truck; PV/LCV = Passenger Vehicle/Light Commercial Vehicle.
Source: Samsung Securities.

Beyond the domestic impetus in South Korea to pursue hydrogen, external competition among Japanese and Chinese automakers, also aligned with their countries’ industrial policies, may help to catalyze a race to slash the cost of FCEVs. That would likely lead many automakers to take a harder look at the technology’s viability.

Although hydrogen’s liftoff in transport still seems far from reality, Hyundai has placed a hedged bet on the technology and has positioned itself as a potential leader to capture the market dividends should it takeoff.

Hae Jeong Cho is a research associate at MacroPolo. You can find her work on energy, transportation, and other topics here.

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