DaimlerChrysler will have to settle for third place in the race to bring fuel-cell cars to market. Beating the U.S. carmaker to the finish line, Japan automakers Honda Motor Co. and Toyota Motor Corp. unveiled the world's first commercially available fuel-cell cars on Dec. 2, 2002, in Tokyo.

But being the first to market came at a price—$1 million to be exact. Each of the new cars—Honda's FCX and Toyota's FCHV—were built at that exorbitant cost. And the two companies are still having a hard time signing up their first dozen lease customers, even though Honda is offering a great deal for its fuel-cell cars in the U.S., leasing them for only $500 a month.

What's more, the manufacturers concede that a mass market is unlikely in this decade. "My goal is to build one a month over the next two or three years," says Hiroyuki Yoshino, Honda's president and chief executive.

So is there a roadmap behind the companies' seemingly risky maneuvers? All signs point to yes. First, they aim to harness the technology's astounding potential and environmental appeal. Cars running on hydrogen fuel cells don't need gasoline at all. Instead, the fuel cells chemically combine hydrogen and oxygen from the air to generate electricity, which powers the electric motor, emitting only water vapor.

Second, Honda and Toyota seem to be traveling the same road they took with hybrids—fuel-efficient cars that are powered by electric motors at low speeds and use a gasoline engine at higher speeds to recharge the electric battery.

In the 1990s, the automakers were the first to market with these environmentally friendly cars, which were initially seen as a mere publicity stunt. Since 1997, however, Toyota has sold about 120,000 hybrids, and the business is expected to become profitable this year. By 2005, Toyota says it will make 300,000 of them a year.

"Toyota is setting up a de facto global standard for hybrids, and the same thing can happen with fuel cells," says Koji Endo, an analyst at Credit Suisse First Boston in Tokyo. For example, a Toyota affiliate is making the hybrid motor for a Ford Motor Co. 2004 model SUV.

Also, Toyota's fuel-cell cars sport the same basic hybrid architecture. "There's a lot of spin-off," says Kiyotaka Hamajima, chief technician for the FCHV.

Many Americans are buying hybrid cars to help protect the environment and to ease the country's dependence on imported oil. Sales of fuel-cell cars will likely be spurred by similar intentions and could potentially outpace those of hybrids. Also, fuel-cell cars could lead to well-to-tank energy savings of 50% compared to traditional diesel- and gasoline-powered vehicles, says Johannes Thijssen, director of TIAX, a fuel cell research and development firm.

There are roadblocks, of course. One of them is the prohibitive cost and limited availability of platinum, the catalyst that initiates the chemical reaction in the fuel cell. Another is the need for an infrastructure of hydrogen refueling stations so pure hydrogen can be as readily available as gasoline.

In addition to higher production costs, fuel-cell cars carry higher ownership costs—about $1,000-2,000 higher per year than that of both basic and advanced diesel and gasoline cars, says Thijssen.

Even Honda's head engineer of fuel cells, Yozo Kami, says that it will take at least a decade to drive down sticker prices to $100,000—the heftiest price tag for gasoline cars.

But such hurdles are not slowing down Honda and Toyota, which are using their first-to-the-finish-line position to snap up the few buyers who are willing to try out these fuel-cell cars. Signing deals with early customers could help them as they step up production and bring costs down.

Fortunately, Detroit, with help from Washington, is not too far behind. Ford says it will release a fuel-cell compact in 2004 and General Motors Corp. is showcasing three different fuel-cell prototypes on the road-show circuit. GM's models won't be commercially available until 2010 but that's part of its strategy.

Honda and Toyota's game plan, in comparison, is to take the losses up front in order to jump in front of the fuel cell race. And such risky steering may just be what fuel-cell cars need to become contenders in the motor vehicle competition.

Sources: Fuel Cell Industry Needs Government Backing
Sean Kilcarr
Fleet Owner, Dec. 2, 2002
http://fleetowner.com/ar/fleet_fuel_cell_industry/index.htm

Commentary: Fuel Cells: Japan's Carmakers Are Flooring It
Chester Dawson
Business Week, Dec. 23, 2002
http://www.businessweek.com