Tesla's Next Big Battle: Electric Cars vs. Hydrogen Cars

Tesla and Toyota take opposing sides in the battle between electric cars and hydrogen-powered ones. Which company is right?

Apr 16, 2014 at 8:36AM

When most people think of green cars, two companies immediately come to mind -- Tesla Motors (NASDAQ:TSLA) and Toyota (NYSE:TM). Tesla's sleek electric vehicles fueled the stock's meteoric 340% rally over the past 12 months, while Toyota's Prius remains the best-selling hybrid vehicle on the market. However, Tesla and Toyota are also the top names to watch in a critical new battle over the future of green vehicles -- electric-powered vs. hydrogen-powered cars.

In the past, Tesla CEO Elon Musk has dismissed the idea of hydrogen power for vehicles. During a speech in Munich last October, Musk stated there was "no way" for hydrogen cells to be a "workable technology," and that it was "suitable for the upper stage of rockets, but not for cars." When Musk -- also the CEO of SpaceX -- talks about rockets, people listen.


Tesla's Model S. Source: Wikimedia Commons.

Yet major automakers like Toyota, Honda (NYSE:HMC), and Hyundai have recently invested heavily in hydrogen fuel cell vehicles (FCVs) instead of electric ones. Last November, Toyota showcased its stunning concept FCV at the Toyota Motor Show in Tokyo and again at CES 2014 in Las Vegas in January. Two other FCVs -- Hyundai's Tucson SUV and Honda's FCX Clarity sedan -- are also scheduled to arrive soon.

Regardless of which technology represents the future, the battle for the future of green vehicles will start in Tesla's home state of California. California now requires at least 15% of all new vehicles sold in the state to produce zero emissions by 2025.


Toyota's FCV-R. Source: Wikimedia Commons.

So who's right -- Tesla or some of the biggest automakers in the world? Let's take a closer look at three key problems facing the adoption of both electric and hydrogen vehicles today.

Problem #1: The cost
The biggest hurdle in making green vehicles mainstream is the price. The average purchase price for light vehicles in America is currently a little less than $30,000, according to Cars.com. A new Toyota Prius currently costs $24,000 to $30,000.

The cheapest Tesla vehicle, the Model S, costs $85,000. A cheaper vehicle, codenamed BlueStar, could cost $40,000 when it arrives in 2016 or 2017. Customers can claim a maximum tax credit of $7,500 for each electric vehicle purchased. President Obama recently proposed boosting that limit to $10,000.

Toyota expects its hydrogen-powered FCV-R to cost a little less than $100,000 when it arrives in 2015. Although that's still a hefty price tag, it represents a huge discount from earlier fuel cell prototypes, which reportedly cost nearly $1 million to develop. Hydrogen-powered vehicles are eligible for federal tax credits up to $4,000 as "qualified light-duty fuel cell vehicles," but that limit could be lifted to the same level as electric cars as more hydrogen cars reach the market.

Problem #2: The infrastructure
The second main question on consumers' minds is the distance that these vehicles can travel on a single charge. The lack of a national infrastructure for electric charging and hydrogen fueling stations makes these vehicles impractical for long road trips outside certain regions.

There are currently 121,000 gas stations across America. Electric charging stations are quickly catching up with over 22,000 locations, a number that's growing rapidly because it's simple to set up these stations on top of existing power grids.

One of the broadest efforts was NRG Energy's (NYSE:NRG) eVgo, a $39 per month unlimited electric charging service, which was established via partnerships with gas stations, restaurants, and convenience stores. Each electric charging station is estimated to cost between $100,000 and $250,000 to install.


Hydrogen fueling (L) vs. electric charging (R). Source: Flickr, Wikimedia Commons.

Hydrogen fuel cells, however, are a different story. Since there's no pre-existing hydrogen cell infrastructure for most commercial or residential buildings, charging stations have to be built from the ground up at a whopping cost of approximately $2 million each. That's why there are only 55 hydrogen fueling stations in the U.S. -- most of them in Southern California -- even though the technology has been around since the dawn of the millenium.

Problem #3: Fuel efficiency
Infrastructure growth seems to definitely favor electric vehicles at the moment, but what about fueling costs compared to regular gasoline and hybrid vehicles? Electric charging services like eVgo charge monthly subscriptions for unlimited charging, so they might be the cheapest option if the owner travels a lot during the month.

But to get a better idea of where hydrogen cars stand, let's compare the cost efficiency of three vehicles -- an average, gas-powered 25 MPG vehicle, Toyota's Prius, and the hydrogen-powered Honda FCX Clarity, which can travel 67 miles per kilogram of hydrogen. Let's assume that water -- a radical new process -- was used to create the hydrogen at a discounted cost of $1.00 to $1.80 per kilogram.


Avg. car (25 MPG highway)

Toyota Prius (51 MPG highway)

Honda FCX Clarity (67 MPK highway)

Cost per 20 miles




Cost per 40 miles




Cost per 60 miles




Source: RTA fuel cost calculator, average fuel cost of $3.65, hydrogen price of $1.80.

Based on those numbers, it's easy to see why companies continue backing hydrogen as an alternative fuel source. More importantly, it shows that a $39 per month fee for unlimited electric charging might not be worth it after all -- by comparison, $39 in hydrogen could possibly fuel the Clarity for 1,400 to 1,500 miles. However, the cost of hydrogen production still varies widely -- using natural gas to produce hydrogen, for example, costs $3 to $4 per kilogram, nullifying the Clarity's advantage.

Regardless of the cost, hydrogen cars have one key advantage -- the fact that they can be refueled in three minutes, compared to an hour for Tesla's vehicles.

The tip of the green iceberg
In conclusion, I've only touched the tip of the iceberg in regards to green vehicles, but those three key problems -- cost, infrastructure, and fuel efficiency -- will remain the epicenter of the electric vs. hydrogen debate for years to come. What's your take, dear readers? Will hydrogen cars triumph over electric cars, or will neither one ever gain traction across the American auto market? Share your thoughts in the comments section below!

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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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