Hydrogen And Hybrid Vehicles Latest Better-Mousetrap Efforts

BY BRIAN DEAGON
INVESTOR'S BUSINESS DAILY
Posted 6/9/2006

Six years after it unveiled its EV1 electric vehicle in 1996, General Motors (GM) hauled the cars off to an Arizona desert and pulverized them.

Why did GM crush EV1? The firm said it couldn't make any money on the product.

Critics said GM carmakers didn't want the vehicle to succeed, since a big success could so radically alter the car industry, the car parts industry, the car maintenance industry and the energy industry.

The company said it spent $1 billion on the product. GM built just 1,134 EV1s, which it leased; 4,500 people were on a lease waiting list when GM crashed the project, says Chelsea Sexton, an EV1 sales manager at the time.

The EV1 is a symbol of the obstacles faced when bringing radical inventions to market. Those obstacles are in play today as automakers develop hybrid vehicles that run on gas and electricity, or fuel-cell engines that run on hydrogen.

The internal combustion engine is 220 years old. But rising fuel prices, political uncertainties in oil-producing nations and the belief there is a finite amount of oil make alternative vehicles an important option.

"There's been incremental improvements in alternative vehicles," said Jack Plunkett, chief executive of auto industry tracker Plunkett Research. "But we need better technology."

California sparked interest in electric cars in 1990, when it mandated that 2% of vehicles sold must have zero emissions by 1998 and 10% by 2003. The state has since changed the mandate to include hybrids and alternative-fuel cars. California even installed electric charging stations to move things along.

There are many theories as to why the electric car flopped. A documentary film due out this month, "Who Killed the Electric Car?," blames oil firms, the car industry and others.

Big Oil didn't want to hand over its car-fuel franchise to electric utilities, according to people interviewed in the movie. "When you're driving an electric car, you never go to a gas station," said Richard Titus, an executive producer of the movie, distributed by Sony. (SNE)

The auto industry faced similar issues. The EV1 needed little maintenance and had few of the engine parts that comprise the huge after-market parts and service industry.

Hybrids represent the latest big attempt to produce a new type of car, but they accounted for just 1% of U.S. sales last year, says Plunkett.

"Outside of Toyota (which makes the Prius), car companies are disappointed in the sales of their hybrid efforts," Plunkett said. "And consumers are disappointed in the mileage they get with their hybrids."

Example: The Environmental Protection Agency says the Prius runs 60 miles to the gallon. Many owners say their actual mileage is 35-40.

The Prius is the best-selling hybrid. Toyota (TM) sold 146,560 units in the U.S. last year. This year, however, Prius sales are running about 10% below year-ago sales, though one reason is a low supply of the cars. Buyers remain on waiting lists.

Plunkett contends the Prius has already attracted the early-adopter "easy" sales. Toyota's challenge now is to attract more buyers.

The Prius has a manufacturer's suggested retail price of $22,000. In general, Plunkett says, hybrids cost $2,000 to $4,000 more than their standard counterparts. And with actual mileage not meeting expectations, it would take owners longer to recoup that higher cost by paying less for gas. Plus: The Prius battery system must be improved, some critics say.

Hydrogen fuel-cell cars, meanwhile, remain in test phase. No one can say when they'll go on sale.
Hydrogen is the most abundant element, found in water, fossil fuels, methanol and natural gas. Getting energy out of it requires an electrochemical device — a fuel cell — that produces electricity.

But the technology is proving to be more stubborn than hoped. At issue is how to create, transport and store the hydrogen, says Plunkett.

California is trying to spark progress with programs called Hydrogen Highway and the California Fuel Cell Partnership. Gov. Arnold Schwarzenegger has a plan he calls Vision 2010. Its goal is to have hydrogen fueling stations along state highways by 2010.

The state today operates 134 hydrogen vehicles, mostly in Sacramento and Los Angeles. There are 22 hydrogen fuel stations to service these vehicles. This year, the state has budgeted $6 million for more cars and fueling stations, says Catherine Dunwoody, executive director of the Fuel Cell Partnership.

"The benefit of hydrogen is you can make it from so many different sources," said Dunwoody, "but we still need to improve efficiency."

But building hydrogen cars is costly. And though the venture capital industry has started investing heavily in green technologies such as solar energy, it's largely steered away from the auto market.

"That is a game only for the big boys," said Nicholas Parker, chairman of Cleantech Capital Group, a venture and research firm. "There is a venture play here, but the adoption rate is slow and the barriers to entry are high."

Since 1999, U.S. venture firms have invested $8.8 billion in green technologies, but only 3% of that, or less than $265 million, has gone to transportation fields, Parker says.

"Most who thought the hydrogen car economy was coming are now desperately looking for alternative markets," he said. "It's a big challenge for the auto industry."