Autos

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Is Toyota Motor Corp. betting on the Betamax of cars?

The videotape recorder that lost out to VHS in the format wars of the 1980s remains a reminder to all executives about the perils of holding tight to one technology when the rest of your industry is pursuing another.

Toyota insists on throwing money at cars powered by hydrogen tanks and fuel-cell technology, which it began developing in the early 1990s. The Japanese carmaker is looking more isolated as others gravitate toward plug-in electric vehicles to fulfill a vision of zero-emission cars, according to a Bloomberg News report on Tuesday.

Putting an even finer point on that isolation was Tuesday's decision by Mazda Motor Corp., a longtime Toyota partner, to issue its first 10-year bond in three decades in order to raise money for areas such as electric-car investments.

A big reason Toyota's probably holding on to fuel cells is out of loyalty to Japan, which in 2014 set goals to accelerate the development and deployment of hydrogen and fuel-cell technology to meet the country's long-term energy needs. Since then, the government has spent more than $1.2 billion developing the technology, according to Bloomberg New Energy Finance. 

Big Spender
Japan's government has been investing heavily to develop hydrogen and fuel-cell technology
Source: Bloomberg New Energy Finance based on annual Japan Ministry of Economy Trade and Industry (METI) budget allocation

Japan underpinned its economic rise by building industries including shipbuilding, electric power, steel and technology using plans like the one it's proposed for hydrogen. The government's so-called Hydrogen Society Roadmap, which was updated in March 2016, pledged to deploy 800,000 fuel-cell vehicles and construct 900 charging stations by 2030. But progress has been slow: Only 2,300 fuel-cell vehicles and 91 stations are on Japan's roads today, BNEF estimates.

Running on Empty
Despite billions of dollars of investment in hydrogen technology, few fuel cell vehicles are on Japan's roads today
Source: Bloomberg New Energy Finance

And although Toyota remains loyal to the Ministry of Economy, Trade and Industry's program, other Japanese carmakers such as Honda Motor Co. have acknowledged that EVs will proliferate faster and are starting to redirect investment.

Hydrogen has a couple of major advantages over battery-electric vehicles. One centers on energy density -- the amount of power generated from a given mass of fuel -- and is one of the reasons battery-electric cars were underestimated for decades. 

While a gas-powered car can generate around 30 megajoules from each kilogram of tank and fuel, batteries barely clear 1MJ per kg, according to a Royal Dutch Shell Plc study. Hydrogen doesn't achieve gasoline-style densities but it does get closer.

That explains why some critics are skeptical of Tesla Inc.'s Semi truck and new Roadster. With lithium-ion batteries already close to their theoretical maximum densities, increasing power output requires loading on more cells with diminishing returns.

Another touted advantage of hydrogen is that vehicles can be refueled from a pump, rather than waiting the many hours it can take to fully recharge a battery-powered car. But since Japan went down the hydrogen path, recharge speeds -- particularly for part-charging at high-kilowatt stations like Tesla Inc.'s Supercharger network -- have been falling fast. As the cost of batteries diminishes and the number of charging stations rises, hydrogen-car believers like Hyundai Motor Co. and Volkswagen AG’s Audi have backed away.

Those wondering where energy companies stand can follow the money: Shell's acquisition of electric charging operator NewMotion last month instantly gave it 30,000 EV charging stations. It only has a handful of hydrogen filling stations in Europe and California, with plans to roll out 400 more in Germany by 2023. 

Toyota says it's pursuing battery-electric and fuel-cell batteries "at the same speed," but directing precious investment dollars into fuel-cell technology while the rest of the industry wades deeper into EVs suggests its decisions are driven more by government decrees than market forces. 

While going against the grain can often work in areas such as stock-picking, it seldom prevails for technology that requires a network effect, or economies of scale, to succeed.

We all know how this videotape ends.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo in Hong Kong at sbanjo@bloomberg.net
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net