BMW (OTC:BAMXF) recently announced that it will use Toyota's (NYSE:TM) hydrogen fuel cell technology in its first FCV (fuel cell vehicle) in 2016, as part of a partnership between the two automakers. 

BMW didn't formally state that the vehicle will be an FCV version of its popular i3 BEV (battery electric vehicle), but Toyota USA's advanced vehicle boss Craig Scott suggested that one would be launched during an interview at

If BMW launches an FCV version of the i3, it would join Daimler's Mercedes-Benz, Honda, and Toyota in supporting hydrogen-powered vehicles to counter the rise of battery-powered EVs like Tesla Motors' Model S and Nissan's Leaf.

BMW's i3. Source: BMW.

The i3, which launched in Europe last November and in the U.S. in May, sold 5,396 units in the first half of 2014. By comparison, Tesla sold approximately 7,200 Model S units during that period, while Nissan sold 26,646 Leafs. The i3 doesn't compete directly with either vehicle -- with a starting price of $41,350, it is pricier than the $28,980 Leaf, but cheaper than the Model S, which starts at $69,900.

If BMW is working on a hydrogen powered vehicle, should BEV supporters be worried? Let's take a look back at the battle between electric and hydrogen vehicles to understand where the market is headed.

The benefits and drawbacks of hydrogen power
The debate between hydrogen and electric vehicle supporters boils down to three core arguments -- charging time, range, and infrastructure.

FCVs use stacks of cells that combine hydrogen with oxygen in the air to generate electricity, and the only emission is water vapor. FCVs have an average range of 300 miles -- roughly three to four times the range of most BEVs -- with the exception of Tesla's Model S, which has a range of 265 miles. FCVs can also be refueled in roughly the same time as a gasoline-powered vehicle, while BEVs require 20 to 40 minutes to fully charge at a fast-charging station.

A hydrogen charging station. Source: Wikimedia Commons.

The main problem with FCVs is the infrastructure. Fast charging stations can be built on top of existing electric grids at gas stations, supermarkets, or convenience stores, and EVs can be recharged overnight in the garage. A commercial electric charging station costs $100,000 to $250,000 to install. By comparison, hydrogen fueling stations must be built from scratch, for a cost of roughly $2 million each -- about the same price as a regular gas station. 24/7 Wall Street estimates that hydrogen refueling would cost the equivalent of $3.50 per gallon in gasoline, making it less cost efficient than electricity.

There are only 12 public hydrogen fueling stations in the U.S., compared to 8,573 electric stations and 20,788 available outlets, and over 121,000 gas stations. California -- home to 10 of those hydrogen fueling stations -- has set a long-term goal of eventually building 100 hydrogen stations.

Who are the big players in FCVs?
Toyota, Mercedes, and Honda are currently the top names to watch in FCVs. Toyota recently priced the Mirai (Japanese for "future") FCV at $69,900 for Germany, the U.K., and the U.S. In Japan, the Mirai will launch at $73,100.

Toyota's concept FCV, the basis of Mirai. Source: Wikimedia Commons.

However, the Japanese government also recently announced $20,000 in incentives for hydrogen-based vehicles, which could make the Mirai much cheaper in Japan than Western markets. In the U.S., the price of the Mirai will only be reduced by $4,000, according to current incentives for fuel cell vehicles. Toyota also plans to put at least three FCVs in production within the next decade, and will assist BMW in launching its first.

Mercedes launched the hydrogen-powered F-Cell back in 2010, which has only been leased out to 60 drivers so far. Mercedes is now planning to launch a second generation F-Cell by 2017 for a broader market. That same year, Honda will launch a follow-up to the original FCX Clarity, which it launched in 2008. Even Nissan, which many investors will think is set on supporting EVs, unveiled a hydrogen-powered SUV concept, the TeRRA, at the 2012 Paris Motor Show, and has vowed to help fellow automakers build a sustainable FCV infrastructure in Japan.

Where does that leave BMW?
In conclusion, many Tesla investors saw BMW's i3 as a strong vote of confidence for BEVs.

Yet BMW is still keeping its options open. To remain competitive with regular gasoline powered cars, BMW sells an optional $3,850 range extender that adds 87 additional miles to the i3 while running on gas. Minus the range extender, the i3 has a range of 80 to 100 miles, compared to a range of 84 miles for the Leaf. Launching an FCV version of the i3 with a range of 300 miles, even on a small scale, would be a great way for BMW to cover all of its alternative fuel bases.

The hydrogen fuel cell market is a fledgling one that Tesla CEO Elon Musk has constantly ridiculed. But considering Toyota's commercial launch of the Mirai and its partnership with BMW, the battle between BEVs and FCVs is still far from over.