Electric vehicles have been around for a very long time, but they were not popular because of various shortcomings like limited range and low speed. Tesla Motors (NASDAQ:TSLA) was the first company to change all that, and as a result, it gained a lot of media attention and saw a massive jump in its share price in 2013.
However, many big and established automakers like Toyota Motor (TM) and Hyundai are looking for the next big technology to power tomorrow's cars and have bet on hydrogen fuel cells. Toyota is so confident that fuel cell electric vehicles, or FCEVs, will dominate the automobile market in the years to come and has even projected to sell 5,000-10,000 vehicles per year. Furthermore, Air Liquide SA is planning to expand its business by constructing filling stations for FCEVs as it foresees growing demand for such vehicles.
Tesla's CEO, Elon Musk, thinks that the technology is a dead end, but you'd expect him to talk down the competition as he is betting big bucks on EVs. The success of FCEVs will be bad for Tesla and its investors, and given the various advantages that FCEVs have over EVs, it may overshadow EVs and dominate the auto market in the long run. Let's take a quick look at these advantages.
- Warning! GuruFocus has detected 5 Warning Signs with TSLA. Click here to check it out.
- TSLA 15-Year Financial Data
- The intrinsic value of TSLA
- Peter Lynch Chart of TSLA
Tesla's Model S has a reputation for being eco-friendly because it does not emit harmful gases into the environment. However, manufacturing one battery for an EV releases between 10,000 and 40,000 pounds of carbon dioxide into the atmosphere. Furthermore, the lithium required for the production of these lithium-ion batteries is mostly extracted through solar brines. And that's not all; the European Commission on Science for Environmental Policy claimed that the extraction of lithium from these brines causes a significant environmental, health, and social impact to the places where li-ion is located.
In addition to all that, batteries lose charge overtime and sooner or later it becomes useless. Thus, EV drivers will have to replace the battery or buy a new car. Therefore, driving Tesla cars may be eco-friendly, but overall, it isn't as green as it appears.
In comparison, hydrogen-powered cars are more environment friendly as they use a mix of hydrogen and oxygen to create electricity. That results in zero emissions, and the car runs completely cleanly.
It is a well-known fact that hydrogen is widely available, therefore there wouldn't be any kind of fuel shortage if FCEVs become highly popular in the future and automakers will not have to worry about depletion. On the contrary, Tesla has struggled to boost its sales due to battery shortage, and it doesn't look like that the situation is going to change any time soon. Not to forget that Tesla only sells around 22,000 cars annually, which means that it will really struggle to keep up with the rising demand and expand globally.
Tesla cars are expensive because of the installed batteries, and it will be very difficult to bring down prices without compromising on quality or performance. Thus, it's evident that consumers will have to pay over the odds for buying a Tesla car. EV owners don't have to pay for refueling, so it does compensate for the high cost to an extent, but given that batteries lose charge overtime, replacing them further adds to the cost.
Fuel cells' drawbacks
For anyone wanting to accelerate quickly, FCEVs won't be satisfactory. Moreover, the range of a hydrogen car fuel vehicle is limited (around 250 miles). That makes it impossible to use for long trips until there's a network of hydrogen fuel stations. And setting up a network of fuel stations will require huge investment and the success of FCEVs largely depends on the solution of this problem.
The scale of production that Toyota and Hyundai have is a big threat for Tesla. They can easily ramp up production and bring down costs if FCEVs click in the mass market. In addition, they won't be constrained by things such as battery production. So, Tesla investors should definitely keep an eye on these developments in fuel cells as they are quite capable of hurting sales in the long run.