Why Is Toyota Doubling Down on Hydrogen Fuel Cells?

Toyota (NYSE: TM) said that it will show off two new electric vehicles powered by hydrogen fuel cells at the Tokyo Motor Show this month. Both are "concepts," or show vehicles, but at least one will go into limited production.

It's a sign that Toyota is still committed to the idea of hydrogen fuel cells despite tiny sales of its current fuel-cell-powered Mirai sedan, a lack of refueling infrastructure, and a growing consensus that battery electrics will be the dominant automotive drivetrain in the future. What's the auto giant thinking?

A city bus and a new type of vehicle, powered by hydrogen

Toyota's two fuel-cell concept vehicles are both roomy, but they're quite different. One is a quirky cross between an SUV and a minvan, while the other is much more practical: It's a city bus.

Toyota calls the SUV-minivan mashup the "Fine-Comfort Ride," and it might be best thought of as a living room -- or maybe a conference room -- on wheels. The vehicle's design was optimized to provide a roomy, quiet interior, taking advantage of the layout possibilities offered by its fuel-cell electric drivetrain. In-wheel motors allowed Toyota designers to put the wheels at the very far corners of the vehicle, maximizing the amount of space available in the interior.

While the Fine-Comfort Ride has show-car futuristic takes on the usual driving controls like a steering wheel and pedals, the idea is that it might be self-driving. The seating can be arranged in several different ways to allow for individual isolation, or something more like a rolling meeting room, with touchscreen displays positioned for easy access.

What's the point? Toyota said that it's exploring ways in which a vehicle can provide comfort and value to its passengers beyond being "just a ride." But the fact that Toyota gave it a fuel cell rather than a battery pack is significant. Two advantages that Toyota played up: The concept has a range of 621 miles, much longer than the range of any current battery-electric vehicle, and it can be "recharged" in just a few minutes.

Also significant: Toyota's other fuel-cell show vehicle is a city bus that the company plans to produce, at least in a small way: 100 will be built and put into service during the 2020 Summer Olympics in Tokyo.

The bus is called the Sora, an acronym from the words sky, ocean, river, and air. It's an allusion to the Earth's water cycle, and a reminder that a fuel cell's only "emission" is water vapor.

The Sora has two fuel-cell "stacks," or power units, developed from the stack used in Toyota's Mirai sedan. It has some high-tech show-vehicle touches, like cameras that automatically detect pedestrians, but it's basically a city bus.

Why electric-vehicle advocates are skeptical of fuel cells

Most of the rest of the auto industry seems to have come to the conclusion that fuel cells, devices that chemically convert the energy in hydrogen gas to electricity, are likely to be a niche product, at best. The extreme view is represented by Tesla CEO Elon Musk, who has derided the technology as "fool cells" and argued that research resources would be better spent on batteries.

Musk is famous for his snark, but he has a point. The objections to fuel cells go beyond the expense of the technology itself -- which is huge. There's essentially no infrastructure today for refueling vehicles that run on hydrogen gas, and there are concerns about the efficiency and environmental friendliness of existing processes to make hydrogen gas.

But some companies, like General Motors (NYSE: GM), still see a role for the technology. GM has said that fuel cells make more sense than batteries in electric vehicles intended for military use and first responders, where low refueling/recharging times are critical, and in larger vehicles like trucks and buses that would require particularly large and expensive battery packs. In those cases, a fleet operator could provide the needed refueling infrastructure as part of its investment in the vehicles.

Toyota's Sora bus fits right in with that line of thinking. But the Fine-Comfort Ride -- or more to the point, the signal that it gives that Toyota is still thinking about fuel-cell passenger vehicles -- is more puzzling. Toyota's sole fuel-cell car to date, the Mirai, is a well-regarded product, but it's hardly setting the sales charts on fire: Toyota has sold just 1,044 Mirais in the U.S. this year through September.

What Toyota is probably thinking

Toyota executives say that putting fuel-cell vehicles on the market is one way to spur development of refueling infrastructure, by creating demand. The company is also responding to a push from the Japanese government, which wants to see 40,000 hydrogen fuel-cell vehicles on Japan's roads by 2020, and 800,000 by 2030. Those are big numbers, but not huge ones: Things like buses and ambulances might get Japan most of the way there.

Toyota will almost certainly be a significant player in that effort. But it's also signaling that it's not done tinkering with ideas that might help fuel cells catch on more widely. The chances seem long from today's vantage point, but Toyota is a serious and smart company, and its efforts shouldn't be dismissed: In time, it could turn out that Toyota was onto something.

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John Rosevear owns shares of General Motors. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.