Toyota Set To Take On Tesla With Its Own Electric Car

Japanese auto giant Toyota Motor Corp (NYSE:TM) announced last week that it plans to introduce its all-new hydrogen car in the U.S. sometime next year. ^[1] The car, which will be called Mirai, is an electric vehicle that uses a fuel cell instead of an electric battery for power. The fuel cell extracts energy chemically from a hydrogen gas and turns it into electricity, releasing water vapor as exhaust. The company is banking on hydrogen fuel cell technology to take on companies like Tesla Motors, Honda, and Hyundai in this space. However, the technology will face two significant challenges before it can become commercially successful. In our article below, we take a closer look at both these challenges and analyze Toyota’s readiness for them.

We have a $168 price estimate for Toyota, which is about 40% higher than the current market price.

Fueling Infrastructure

The first impediment to commercial viability fuel-cell technology faces is the lack of a refueling infrastructure for the cars. Even if consumers enjoy the driving experience offered by these cars, if they know that refueling the car will be a huge hassle, they are unlikely to purchase the car. However, this poses a strange problem for the company: consumers are unlikely to buy the car if they do not have the required fueling infrastructure to go with it and a company is unlikely to take up the expenditures involved in the construction of said infrastructure if consumers aren’t buying the cars.  Going ahead with the construction of the infrastructure is a huge risk when the projects aren’t backed by solid sales numbers.

Tesla Motors faced a similar problem. It solved the problem in the following two ways. First, the company’s Model S has a much higher range than other battery-electric cars — the car’s battery lasts for 275 miles at an average speed of 65 miles per hour. Fortunately for Toyota, its Mirai will have a similar capacity (rumoured to be 300 miles). ((Toyota Unveils Mirai Fuel Cell Vehicle With 300-Mile Range; Can it Kick-Start a Hydrogen Revolution?, Inhabitat, November 2014))  Secondly, the company has undertaken the construction of a network of “Superchargers,” a network of charging stations for the cars in strategic locations. These charging stations are free for owners of Tesla cars. However, the usual time required for charging a battery to half its capacity is twenty minutes, which is a lot higher than the average amount of time a car spends at a gas station. This is one area where Toyota’s fuel-cell vehicle will have an edge. According to company management, the car can be refueled in less than five minutes, a considerably smaller time than that required at a Tesla charging station.

Toyota has also stated that the company is considering a collaboration with French industrial-gases giant Air Liquide to build 12 hydrogen stations across the North-East U.S. ^[2] Earlier in May, the company announced a $7.3 million loan to FirstElementFuel to help the start-up’s efforts to build and operate 19 hydrogen fueling stations in California. ^[3] If successful, these stations will join a small network of hydrogen fueling stations built by Hyundai in south California to support the fuel-cell powered SUV it plans to bring to the market some time next year. ^[4]

Average Unit Price

Toyota said that when the car becomes available for purchase it will be priced at around $57,500. The company will also offer a lease deal on the Mirai: $499 a month for 36 months, with a down payment of $3,649 up front. The company also stated that as a result of federal and state green-car tax breaks the effective cost of purchase might come down to $45,000. That price is a lot lower than a Tesla Model S, which starts at around $70,000 and even after tax breaks costs above $60,000; but the price is almost twice as large as the price at which an average car is sold in the U.S., thereby severing limiting its reach in the short term.

However, question marks still remain about the viability of fuel-cell technology. For one, there are environmental concerns. Although the cars themselves are emission free, the hydrogen manufacturing process requires natural gas, and releases carbon dioxide in the process. Secondly, hydrogen is a highly flammable gas and without real-world data it is hard to know how a fuel-cell car will behave in the case of a crash. However, a number of car companies are also coming out with cars that will run on the same technology. Apart from Hyundai, Honda is also coming out with its own fuel-cell powered car. General Motors, Nissan, Ford, and Daimler have all invested in fuel-cell development. If a large number of companies start producing vehicles that run on this technology, it might give consumers the much needed push to put their skepticism for the technology behind and purchase the vehicles.

See our complete analysis for Toyota Motors here

1. Can Toyota’s Hydrogen-Powered Vehicle Go the Distance?, Bloomberg, November 2014 [↩]
2. Air Liquide plans network of new hydrogen filling stations in the United States, airliquide.com, November 2014 [↩]
3. Toyota Joins California Hydrogen Push in Station Funding, Bloomberg, May 2014 [↩]
4. Hyundai Tuscon Fuel Cell hits Californian roads with free hydrogen, Gizmag, June 2014 [↩]