Easy street: why investors are hungry for hydrogen-fuelled driving

What was your worst investment decision? For Toyota, buying 2m Tesla shares at around $20 a share in 2010, then selling them again at $200 must be high on its list. Until a stock split that is happening on Monday, Tesla shares were this month changing hands for more than $2,000 each. One of the reasons Toyota sold up four years ago was a growing divergence of views between the two carmakers on the future of transport — including the importance of hydrogen fuel cell technology.In 2014, Toyota unveiled its prototype hydrogen-powered car, Mirai, the Japanese word for future. Tesla boss Elon Musk is not a believer. He has called fuel cells “fool cells” and insists battery-powered electric vehicles are the best alternative to the internal combustion engine. Tesla was the world's best-selling electric car last year. Toyota, though, has not given up hope.It is not the only one, if a 300 per cent rise in the value of shares in start-up truckmaker Nikola is anything to go by. Nikola has a plan to produce electric and hydrogen-powered trucks. It has not made or sold a single one yet but investors have already pushed its market capitalisation to almost $15bn between April and now. Recommended Sceptics, weary of hype about a technology with more than a decade of false starts, may be tempted to ignore the sector. But Nikola deserves credit for its bet on hydrogen-fuelled vehicles. It may drive innovation and investment elsewhere and its proposed business model of leased vehicles should make them more affordable and accessible. Fuel cell cars offer a vision of a much easier future for drivers. They refuel in under five minutes, have double the range of battery-powered cars and are emissions-free. The motor is fuelled by hydrogen and oxygen, with a byproduct of nothing more than water vapour. Yet 28 years after Toyota started its development of the technology, only a couple of thousand of its hydrogen-fuelled cars are sold a year. South Korea’s Hyundai Motors, the market leader, sold just 4,800 of its Nexo passenger car last year. One problem is price — of both the car and the hydrogen. A hydrogen car is made with many more parts than a petrol or battery-powered one. The key component is the fuel cell stack, where hydrogen is converted to energy. This alone accounts for more than half the cost. The Nexo and the Mirai both sell for around $60,000, at least two-thirds more than the Tesla Model 3.As for fuel, hydrogen costs about $14 per kilogramme, which works out about three times the price of petrol for the equivalent mileage. Around $70bn in investment would be needed for prices to become competitive, says the Hydrogen Council. Recommended Refuelling stations need to be built too. At the moment, it costs more than $2m to build just one of the specialised stations that can turn hydrogen into a usable form for vehicles. Creating the infrastructure will take time.Despite the challenges, carmakers have shown that the technology is feasible. Hyundai has established a complete supply chain for mass production of both passenger cars and heavy trucks. At the current rate, analysts expect production costs to halve within five years, lowering prices.The pandemic has lent an unexpected hand. The surge in online shopping has accelerated logistics investment and added urgency to self-driving truck research. Longer ranges and programmed autonomous driving routes would mean fewer fuelling stations will be required.Mr Musk must know that battery technology has limitations. Rising environmental standards mean heavy trucks — 98 per cent of which currently run on diesel — need an alternative. At the moment, it would take a very large, heavy battery to drive a big truck for a long distance. Fuel cells may be the better choice.Asia's hydrogen vehicle and car-part makers have not yet felt the benefit of the investor enthusiasm that has powered Nikola’s steep rise. But one day, perhaps, Toyota and Hyundai’s current below-book valuations may look as cheap as Tesla's $20 shares. Video: How far will electric transport take us? Twice weekly newsletter Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.