In 2009, President Obama set a goal of having 1 million electric cars on the road by 2015. Further, according to Auto News, the government gave $5 billion in U.S. loans, grants, and tax breaks to increase EV development, while cutting funding for fuel cells. This decision was spurred in part by then-Energy Secretary Steven Chu's skepticism regarding fuel cell vehicles. Now however, that's changed, and the government is backing hydrogen fuel cell development. Here's what this could mean for auto manufacturers such as Toyota Motors (NYSE:TM) and Tesla Motors (NASDAQ:TSLA).
Chu reverses course
Chu, a renowned physicist who won the Nobel Prize for physics in 1997, and who was charged with finding viable, clean energy alternatives, has been critical of fuel cells. But thanks to technological advances, Chu said this at the 2013 Washington D.C. Auto Show:
[The Department of Energy] will continue to support the fuel cell program. I think in the last year or two, I have been saying this is an important technology and we want to continue to support the research. Fuel cells can be incredibly reliable. There are many fuel cells in buses that have been running in buses for 10 years, rock solid. But our target is a $20,000 personal vehicle that can compete with a 45- or even 50-mile-per-gallon internal combustion car.
That's great news for auto manufacturers that have fuel cell vehicles, or FCVs, in the pipeline. But there's even more good news for FCVs.
The government changes tactics
It's no secret that government loans have helped push battery electric vehicles, or BEVs, forward. Unfortunately for BEVs, sales are projected to fall far short of the 2015 goal, and now the government is taking action by halting loans for their development. Further, in 2012, administration officials started praising fuel cells and announced $4 million in awards that will benefit FCVs.
Moreover, California, one of the states at the forefront of alternative-vehicle development, is looking at changing its formula for emissions credits so that FCVs receive more benefits than BEVs. Further, Auto News stated, "California's proposed revisions would cut the Zero-Emission Vehicle, or ZEV, credits Tesla gets for its electric Model S sedan by as much as 40 percent from 2015."
Why the change?
As I've written before, FCVs have a number of significant advantages over BEVs. For consumers, the key benefits of FCVs are the ability to refuel in minutes, and a range that's similar to an internal combustion engine, or ICE, vehicle -- both major deterrents to widespread BEV adoption.
From an environmental standpoint, FCVs meet the requirements for reducing greenhouse gas, or GHG, emissions, and reduce our dependency on foreign oil. And thanks to recent advances in hydrogen production technology, the efficiency by which hydrogen can be obtained has progressed significantly. In fact, the National Science Foundation stated, "A University of Colorado Boulder (CU) team has developed a radically new technique that uses the power of sunlight to efficiently split water into its components of hydrogen and oxygen, paving the way for the broad use of hydrogen as a clean, green fuel." According to the DOE, this method doesn't produce GHG emissions and is low-cost.
Car manufactures also bet on hydrogen
The government isn't alone in its push for hydrogen fuel cells. At this year's Tokyo Motor Show, Toyota unveiled its concept FCV and promised a mass-produced FCV that'll go on sale in Japan in 2015, and the U.S. in 2016. Hyundai Motors (NASDAQOTH:HYMTF) stated that it plans to start selling a mass-produced fuel cell SUV in the U.S. next year, and Honda Motors (NYSE:HMC) is slated to unveil its next-generation FCV at the Los Angeles Auto Show.
Plus, while there is currently a limited hydrogen-fueling infrastructure in the U.S., the DOE launched H2USA, a "public-private partnership with fuel cell electric vehicle original equipment manufacturers focused on advancing hydrogen infrastructure to support more transportation energy options for U.S. consumers."
Further, on Nov. 1, California's governor signed Assembly Bill 8 into law, which will create more than 100 new hydrogen fueling stations in California. Meanwhile, Europe has committed to building a hydrogen infrastructure, with EU leaders saying, "The cost of the necessary Europeanwide hydrogen fueling infrastructure could be five times lower than the cost of the charging network required for battery and plug-in hybrid vehicles." The Japanese government also said it'll do what;s necessary to support the development of a hydrogen infrastructure.
What to watch
FCVs are coming. Cost projections by the National Academy of Sciences have FCVs costing less than BEVs in 2035. In the EU's words: "Costs continue to fall on average, by 25% per annum over the last 10 years. The costs of fuel cell systems for vehicles are expected to further decrease by 90% by 2020." Plus, while there's not a widely available hydrogen infrastructure, it's also being developed.
For FCV manufacturers, this is fantastic news. For car manufactures that are betting on batteries, it's less than ideal. Consequently, if you're looking for your next great auto stock, I'd bet on any of the ones I've discussed that are betting on hydrogen.
Fool contributor Katie Spence has no position in any stocks mentioned. Follow her on Twitter: @TMFKSpence. The Motley Fool recommends BMW, Nike, and Tesla Motors and owns shares of Nike and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. 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.