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May 18, 1999

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Subject: Ballard Power
Author: joelinda1

Does my mind wander or what? Yet another topic...

I've been following Ballard Power for a little while now, but I've never owned their stock. I have an assortment of articles on this company that I've accumulated since last year. I'll try summarize some of the important points.

Ballard is a Canadian company in which DaimlerChrysler AG holds 20% and Ford Moter Co. holds 15%. Ballard is considered the leader in producing fuel cells, which, in turn, are viewed as the best hope to replace the internal combustion engine for pollution-free driving.

One benefit of the fuel cell car engine is that it eliminates the recharge problem of battery power. You gegt the low or zero-emission benefits of an electric car, with the range of a standard combustion-powered automobile.

"So cost is a big issue. But General Motors and Ford have both produced studies that conclude that fuel cell engines will compete on price with conventional engines when produced in quantity."

Fuel cells operate by creating electricity produced by the reaction between hydrogen and oxygen. One power source for the fuel cell is methanol, which can be turned into hydrogen aboard the vehicle. Methanol is regarded as a better source of fuel than hydrogen gas itself because methanol can be stored and distributed with only minor modifications to the existing fuel infrastructure system. A hydrogen fuel distribution system would cost billions.

Most recently, Nissan Motor Co. announced that it was using a Ballard fuel cell with a methanol source to power a test vehicle in Japan. It hopes to have a fuel-cell powered vehicle ready for mass production and sale between 2003 and 2005. Nissan said that it had not yet decided if Ballard fuel cells will power the mass production vehicle.

In April, Ballard announced that California was launching a two-year pilot test of Ballard fuel cell technology which would involve ten cars and five buses. California is anxious to test the technology in a bid to try to resolve the state's massive air pollution problem. The main pollutants are hydrocarbons and nitrogen oxide spewed out by internal combustion engines (this gives that "flavour" to the air that you describe, Adam and Eric!) California has decreed that zero emission vehicles must represent 10% of a company's total vehicle sales in the state by 2003.

The Chicago Transit Authority is in the second year of a $9.6 milliion pilot program designed to expose city buses powered by hydrogen fuel cell engines to that city's extreme weather conditions. A major stumbling block appears to be the cost of the buses. These are priced at $1.4 million, which is 3 times more expensive than buses powered by traditional internal combustion engines. The Chicago Transit Authority had to spend about $1 million to build a refuelling station to provide the buses with compressed hydrogen gas.

So cost is a big issue. But General Motors and Ford have both produced studies that conclude that fuel cell engines will compete on price with conventional engines when produced in quantity. Also, using methanol that is reformulated into hydrogen in the engine (as Nissan is doing) is less costly than providing hydrogen gas itself (which is what Chicago is doing). Many auto industry sources believe that methanol will be the preferred fuel source, since the creation of a methanol fuel infrastructure is much less costly than extablishing a network of hydrogen stations. Vehicles using methanol will emit carbon dioxide that does not produce smog.

"Besides the issue of cost, competition is mounting. There are about a dozen companies in North America working on fuel cell technology."

Besides the issue of cost, competition is mounting. There are about a dozen companies in North America working on fuel cell technology. Toyota has produced its own fuel cell engine prototype and International Fuel Cells is working with Ford and the US Department of Energy to develop fuel cell products.

As well, automakers are spending billions to clean up conventional engines to the point that pollutants released are next to nil. Last year Honda Motor Corp. released an ultra-low emission engine with exhaust six times cleaner than the air in Los Angeles on a typical day, according to a report in Road & Track. And Toyota released its new low-emission hybrid car, the Prius, which has a gasoline engine for the open road and an electric motor for city driving.

So Ballard does have long-term potential and someday the technology may become commercially viable. But in my reading, it appears that many analysts do not expect to see large numbers of fuel-cell-powered vehicles in commercial fleets until the middle of the next decade, and in retail sales about 10 years after that.

In many ways, investing in Ballard resembles investing in a biotech!

Linda