Musk Scorns Hydrogen Vehicles Seen as Tesla Credit Threat

Elon Musk, the outspoken co-founder of electric-car maker Tesla Motors Inc. (TSLA), is turning his sharp tongue toward a new target: hydrogen fuel-cell vehicles.

He argues that such cars are currently rare and expensive, with few locations to refuel. And while the vehicles, such as those being developed by Toyota Motor Corp. and Hyundai Motor Co. (005380), emit only water vapor, the hydrogen fuel can be expensive and dirty to produce.

“There’s no way for it to be a workable technology,” Tesla’s chief executive officer said this week in Munich.

Behind Musk’s protestations is the fact that his Tesla competes for resources with hydrogen cars, in the form of government subsidies for rebates, fueling infrastructure and lucrative green-car credits that have made the company profitable this year. He’s badmouthing the rival technology especially loudly now, as California considers paring his ability to generate credits in the future.

State officials today said they’ll decide within a year whether Tesla’s battery swapping option satisfies a “fast refuel” requirement under California’s clean vehicle program.

The regulatory review and a wave of hydrogen-fueled models anticipated by 2015 are reigniting a decade-long rivalry in California between battery-car backers and hydrogen fuel-cell vehicle partisans.

Photographer: Simon Dawson/Bloomberg

Tesla Motors Inc. Co-Founder Elon Musk poses for a photograph inside the Tesla store at Westfield Stratford City retail complex in London. Close

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Tesla Motors Inc. Co-Founder Elon Musk poses for a photograph inside the Tesla store at Westfield Stratford City retail complex in London.

Automakers including Toyota and General Motors Co. (GM) have long held out hydrogen fuel cells as the ultimate way to drive: pollution-free, powerful and able to go for hundreds of miles.

‘Very Compelling’

“On the vehicle side, these are very compelling,” said John German, program director with the International Council on Clean Transportation environmental policy group, and a former Honda Motor Co. (7267) engineer. “They have the range and refuel time of regular vehicles, and the quick acceleration of electric-drive systems that people like,” he said.

While clean production and adequate distribution of hydrogen may take decades to develop, California regulators view both plug-in electric and fuel-cell vehicles as solutions to persistent air-quality problems.

“The EV activists have been quieter in recent years,” said Dan Sperling, director of the Institute of Transportation Studies at the University of California at Davis and a member of the state’s Air Resources Board. “I hope they have come to appreciate that this is not a winner-take-all competition, and that we require a portfolio of solutions.”

Photographer: Lam Yik Fei/Bloomberg

Tesla, the electric-car maker led by Musk, had its first quarterly profits this year with a boost from selling California pollution credits. Close

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Photographer: Lam Yik Fei/Bloomberg

Tesla, the electric-car maker led by Musk, had its first quarterly profits this year with a boost from selling California pollution credits.

California Rules

The board, which since the 1970s has prodded automakers to sell cleaner cars and trucks, today reviewed changes to its Zero-Emission Vehicle, or ZEV, mandate. It held off on a decision to eliminate battery-pack swapping as a way to meet the fast refueling requirement that lets Tesla’s premium sedan rack up as many as seven credits for each 85-kilowatt-hour battery version of the car sold in California.

Board technical staff members are to develop a system to determine whether battery swapping is efficient and being used by many drivers before a final decision, said Stanley Young, a spokesman for the agency.

Automakers can trade credits among themselves; they don’t disclose the prices paid or received.

Tesla, the electric-car maker led by Musk, had its first quarterly profits this year with a boost from selling California pollution credits. State officials are weighing revisions that cut maximum credits Tesla gets for its Model S by 43 percent while lifting them for hydrogen cars.

‘Technology Neutral’

“If the mandate is truly technology neutral, they will not differentiate between hydrogen fuel cell and battery swap to meet fast refueling,” Diarmuid O’Connell, vice president of business development for Tesla, said in a phone interview. “We don’t want to see the board reverse course, and weaken or soften requirements and the goals of the mandate.”

Tesla rose 5.3 percent to $173.15 at the close in New York. The shares have risen more than fivefold this year, topping a 24 percent gain for the Russell 1000 Index.

Separately, New York, Massachusetts, Oregon and four other states join in an effort to get 3.3 million zero-emission vehicles on the road by 2025. This builds on California’s goal of a 1.5-million-car ZEV fleet.

Tesla is the top seller of California ZEV credits, according to an ARB tally released this month. Such sales generated $119 million for the Palo Alto, California-based company in the first half, accounting for 12 percent of total revenue, based on company filings.

Musk’s View

Musk said fuel cells are too complex, too costly and not clean enough, since most hydrogen is generated from natural gas.

Automakers backing hydrogen “don’t really believe this; it’s like a marketing thing,” Musk said this week at a Tesla store event in Munich, Germany.

“If you took the best case in that, it doesn’t even equal the current state of the art in lithium-ion batteries,” Musk said.

His comments were reported earlier by Wired.com.

The lack of fueling stations for hydrogen is also a drawback, he said.

“Putting up a huge hydrogen distribution is also extremely difficult,” Musk said. “Hydrogen is also quite a dangerous gas. It’s also suitable for the upper stage of rockets, but not cars.”

In an era of buttoned-down CEOs, Musk speaks bluntly about threats to Tesla. When the New York Times reported that a Model S left a driver stranded in the cold, he called the story a “fake” in a post on Twitter.

A Model S with Tesla’s largest battery pack able to go at least 300 miles (483 kilometers) qualifies for as many as seven ZEV credits under California rules, because the car has the ability to have its battery pack swapped in less than a minute with a fully charged unit.

‘Not Available’

While Musk demonstrated this in June at Tesla’s design center in Hawthorne, California, the carmaker’s battery swap stations haven’t yet opened so drivers of the Model S, priced from $70,000 to more than $100,000, can’t use this option.

“The issue here is the regulation as we have it, says fast-refueling is a capacity that needs to be available on the car,” said Dave Clegern, a spokesman for the air resources board. “That’s not yet the case with battery swap since it’s not available at this time.”

Should the board decide that battery swapping no longer qualifies as a means of rapidly refueling a Model S, the car would earn for a maximum of four credits starting in the 2015 model year. Fuel cell vehicles will rise to as many as nine credits, from seven credits, starting with 2015 models to encourage manufacturers to get more of those vehicles to market.

Hydrogen Debate

Automakers for years have advocated hydrogen as an ideal long-term alternative to gasoline owing to the abundance of the chemical element and its ability to power mid-size and larger vehicles with range to match petroleum-burning models. Refueling fuel cell autos from a high pressure pump takes three to five minutes, and is comparable to gasoline cars.

Drawbacks include the high cost of fuel-cell stacks, which combine hydrogen gas and oxygen to make electricity for propulsion, and the bulky size and expense of the carbon-fiber fuel tanks they require. While automakers estimate hydrogen fuel cell vehicles cost $1 million or more to build in 2005, companies including Toyota (7203) say they should fall to about $50,000 by 2015.

Toyota this month showed off a prototype of the small hydrogen sedan it will sell in California from 2015, and will unveil the production version next month at the Tokyo Motor Show. Honda, Hyundai and Daimler AG (DAI)’s Mercedes-Benz are also planning to sell their own fuel cell vehicles in the state and in their home markets from 2015.

Solvable Challenges

Fuel-cell cars share many components and technologies with battery-electric vehicles, such as Tesla’s Model S or Nissan Motor Co. (7201)’s Leaf hatchback. The main difference is that in a fuel cell car, hydrogen gas passes through a stack of plastic membranes and metal plates to produce the electricity.

While critics are right about hydrogen’s challenges, they can be overcome, Koei Saga, Toyota’s director and senior managing officer for research and development, told reporters this month.

“There are energy efficiency, CO2 issues that have to be solved if fuel-cell vehicles are to penetrate the mainstream,” Saga told reporters at a briefing in Toyota City. “We are working on them.”

Readying hydrogen vehicles is also a kind of insurance policy for the future, given the volatility of energy supplies globally, said Satoshi Ogiso, Toyota’s engineer leading development of its hydrogen, hybrid and plug-in hybrid autos.

“At this moment, crude oil, gasoline, diesel, the balance of supply and demand is rather stable,” he said. “A next energy crisis may come, so we should have some options and more energy diversity.”

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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