This week, Ford (NYSE:F), Daimler (NASDAQOTH:DDAIF), and Nissan (NASDAQOTH:NSANY) announced their three-way agreement to jointly develop a common fuel cell system. The companies' collaboration is designed to accelerate the market availability of zero-emission technology while significantly reducing investment costs. The move, which comes amid growing pressure to reduce carbon emissions, is likely to benefit not only the manufacturers themselves, but also component suppliers and infrastructure players.
All hail the electric car
The newly formed partnership aims to launch the "world's first affordable, mass-market, fuel-cell electric vehicles as early as 2017." In the context of increasing global concern about climate change, and the role the internal combustion engine plays in that process through significant carbon dioxide emissions, this news constitutes a welcome step forward in providing consumers with an affordable alternative. Fuel cell electric vehicles (FCEVs) run on electricity generated from hydrogen and oxygen, and emit only water.
This month, Pike Research released a new market study that estimates annual global sales of 3.8 million electric or plug-in hybrid cars by 2020. The study estimates 40% annual sales growth for electric cars, while forecasting general car sales growth at only 2% over the same period.
Matthias Brock, a spokesman for Daimler, said the coalition intends to "go directly toward large-scale production. All partners together plan to bring a five-digit number of fuel-cell electric vehicles on the market."
Automakers have long been tinkering with hydrogen fuel cell vehicles, but haven't been able to bring costs down enough for mass-market commercialization. This coalition may change that. "Working together will significantly help speed this technology to market at a more affordable cost to our customers," said Raj Nair, Ford's group vice president for global product development. "We will all benefit from this relationship, as the resulting solution will be better than any one company working alone."
This is not the only such partnership in the auto industry. BMW and Toyota announced a similar partnership just last week. Their targeted product release date was 2020, although the subsequent announcement from their competitors may pressure them to move more quickly. It seems the race is on to be the first out of the gate in the FCEV market.
Supply chain implications
The Ford-Daimler-Nissan partnership comprises three major companies across three continents, and will explicitly seek to define global specifications and component standards. The plan is to develop a common fuel cell stack and fuel cell system that each company can use to launch their own differentiated, independently branded FCEVs.
This move should strongly benefit component manufacturers by reducing the burden of ever-shifting specifications. Small players such as Ballard Power Systems, Plug Power, and UQM Technologies could see the greatest upside if they succeed in winning supply contracts with the new automaker coalitions. Ballard is already a strategic partner of an earlier alliance between Ford and Daimler for fuel cell development.
H is for hydrogen, H is for hurdle
FCEVs require fuel to run, just like conventional vehicles. Hydrogen is an FCEV's sustenance of choice, and the network of hydrogen refueling stations across the U.S. is currently extremely limited. In the announcement of their collaboration, the three automakers said that their endeavor "sends a clear signal to suppliers, policy makers and the industry to encourage further development of hydrogen refueling stations and other infrastructure necessary to allow the vehicles to be mass-marketed."
The move stands to benefit hydrogen-manufacturing and hydrogen-distribution companies. Not quite one year ago, Air Products and Chemicals (NYSE:APD) and FuelCell Energy (NASDAQ:FCEL) that they would be working together to make hydrogen fueling stations a reality. FuelCell Energy makes stationary Direct Fuel Cell power plants, which convert natural gas or renewable biogas into hydrogen, electricity, and heat. The hydrogen then goes to a fueling station that Air Products and Chemicals operates.
Air Products and Chemicals and FuelCell Energy are currently working on a three-year production project in California, slated for completion in 2014. I think the odds are good that the aggressive posture the car manufacturers have taken in support of hydrogen infrastructure development will play quite favorably for these two companies.
I find this development so encouraging because it constitutes companies' acknowledgement of and responsiveness to the changing pressures of our planet and their operating environment. It is simply inevitable that the energy mix of the future will be fundamentally different from the one we use now, and companies that can prepare for and capitalize on that shift will surely come out ahead in the long run.
While I believe the auto manufacturers' move here is a positive one that will ultimately prove profitable, I think the real winners are the components manufacturers and hydrogen producers. Investors should consider that these companies may be in for some serious tailwinds in 2013.