Europe's Green Cars May Be Humming Sooner Than Expected

A boost from Uncle Sam should rev up the market

At Mercedes-Benz's Mannheim factory, technicians are applying the finishing touches to the Zero Bus, a modest moniker for an ambitious prototype. The Zero looks like a regular Mercedes Citaro bus except for the nine hydrogen tanks laid discreetly across its roof. That's the telltale sign that the Zero--named thus because it is first in a series--is in fact different: Tucked inside the rear of the vehicle are hydrogen-powered fuel cells feeding an electric motor. When it runs, the bus emits just a wisp of water vapor.

Commuters in 10 European cities will be able to hop one of DaimlerChrysler's ecologically friendly buses to work starting in December. The company already has 30 orders for the buses, each of which costs $218,000--double the price of an ordinary bus. The Stuttgart auto maker also plans to roll out a commercial fuel-cell car by 2004.

The question is, will anybody buy it? DaimlerChrysler (DCX ) and its German compatriots BMW and Volkswagen (VLKAY ) have been experimenting with hydrogen and other nonpolluting, renewable fuels since the 1970s. But the technological and logistical hurdles are daunting, and experts don't see a big market for fuel-cell cars emerging for at least a decade. "We won't bring out too many cars at first because we have to subsidize them," says Ferdinand Panik, head of DaimlerChrysler's $1 billion fuel-cell project.

But the German effort got a surprising boost last month from an unlikely source: the gas-guzzling U.S. On Jan. 9, Energy Secretary Spencer Abraham announced that the government would subsidize the development of fuel-cell vehicles, which work by converting hydrogen or other fuels into electricity to power a car. The subsidies will probably not amount to much: about $130 million annually. Plus, the policy shift is viewed by some as a way to avoid tightening emission standards. Still, by throwing its weight behind fuel cells, Washington could spur development of this technology as well as the costly overhaul of fueling stations.

Until now, most carmakers have been proceeding slowly. After all, some past so-called breakthroughs, such as battery-operated electric cars, have fallen by the wayside. But the U.S. decision to put fuel cells on the agenda is bound to reinvigorate efforts. "Our program was already under way, but this encourages us to pursue it," says Jacques Lacambre, head of advanced vehicle engineering and research at Renault. Toyota Motor Corp. (TM ) aims to start selling fuel-cell cars in Japan as early as next year. Ford Motor Co. (F ), which teamed up with Daimler-Benz in 1997 to develop the technology, plans to roll out its own vehicle in 2004. And at the Detroit car show in January, General Motors Corp. (GM ) unveiled a prototype for a fuel-cell chassis.

Other green technologies are trying to establish themselves, especially hybrid cars from Japan. Powered by both gasoline and electric motors, they are much cleaner than today's cars but are considered a transitional technology. The Europeans are betting more on the promise of fuel cells. With some help from Uncle Sam, their wager may yet pay off.

By Christine Tierney, with Andrea Zammert, in Frankfurt

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