Do Hydrogen Vehicles Have a Future?

Alternative-energy vehicles are have become an attractive growth market, now that Tesla Motors (TSLA -1.11%) has proven that people will buy them. But not everyone is sold on the electric car as the alternative power source of choice.

Toyota (TM 0.60%), Honda (HMC 0.59%), and Hyundai are all preparing to introduce hydrogen vehicles in the next few years, which appears to be setting the stage for an electric vs. hydrogen battle. Will hydrogen vehicles win, or are EVs the future? Let's explore the future of both.

Electric versus hydrogen
If hydrogen vehicles are ever going to catch on, they'll at least have to be better than more well-established electric vehicles. What may hold them back is that hydrogen vehicles essentially have all the same parts as an electric vehicle, plus an additional hydrogen storage tank and a fuel cell.  

But there are some advantages for hydrogen vehicles. It would be faster to fill your tank with hydrogen than charge a battery, and we could build the infrastructure to move hydrogen around the country, just like we do with oil. Below is a table I've made comparing hydrogen and electric vehicles.

There's no great separation between hydrogen and electric vehicles right now. In fact, technology is the biggest obstacle for both right now. For hydrogen, making clean power readily available may be what tips the scale in its favor.

Hydrogen's killer app
Every method of transportation has a tipping point that drives adoption to the next level. For hydrogen, it's all about refueling time. If drivers can go to a hydrogen station to fuel up in a few minutes, rather than waiting hours for their cars to charge, it will be much easier to make the switch to hydrogen.

Hydrogen makes a particularly attractive fuel source because it can be created in the most efficient and economical locations possible, then moved to the demand source. When I think about hydrogen as a source of energy, I think of building massive solar fields in the deserts of the Southwestern U.S. and turning that power into hydrogen, which can be moved around the country. This would be extremely clean and cost-efficient in the long-term.

But we're not at the point where solar power can easily be turned into hydrogen, whether through electrolysis or another method. In fact, most ways of creating hydrogen start with natural gas, including Honda's home energy station. This kills the idea of hydrogen as a clean energy source.

Right now, the process of getting power to your wheels is both dirty and inefficient:  

Natural gas > Hydrogen > Electricity > Battery > Horsepower

In an electric vehicle, creating electricity from natural gas in a large power plant is much more efficient, and you could even substitute solar power for the grid if you choose. Plus, there's a full step taken out of the process, which makes energy that much more efficient.  

Natural gas/solar/coal/nuclear/hydro > Battery > Horsepower

For hydrogen to win, the convenience of filling up must take priority to the efficiency of turning energy from its original form to horsepower for your car. That's a big hurdle to overcome.

Will hydrogen win long-term?
Toyota, Honda, and Hyundai are certainly betting big on hydrogen, but when you consider the amount of overlap between hydrogen and electric vehicles, the only way I see hydrogen vehicles winning long-term is if battery technology doesn't improve significantly.

If EVs can't reduce charging times and extend their range to more than 500 miles, then hydrogen will win. But if you can go 500 miles on an electric charge, why go to the hassle of adding a hydrogen tank and fuel cell to the drive train? The hydrogen component makes the process less efficient and dirtier.

That's why Tesla CEO Elon Musk recently called hydrogen-powered cars ... well, he used a term that's a little more forceful than I can repeat here.

Foolish bottom line
As an investor, I'll almost always bet on technology advancing faster than we can imagine. In this case, I'd err on that side. I think it's far more likely that an electric vehicle will get a 1,000-mile range in the next 10 years than the likelihood that hydrogen infrastructure and technology will be improved to make the vehicles attractive to the masses.

I like hydrogen as a big energy storage medium, it just doesn't make a lot of sense for storing energy on a small scale -- like a car's fuel tank. I just don't see how hydrogen vehicles can win long-term with the hurdles they need to overcome. On that front, I have to agree with Elon Musk.