Tramino/iStock Unreleased via Getty Images

Japan is a country where the business community and Government often work in lockstep. Recently I’ve been reading about the substantial size of the workforce in Japan (5.5 million people) which relies on manufacture of the ICE (Internal Combustion Engine). Both Government and major Japanese car manufacturers have indicated that the ICE manufacturing industry is too big to fail. This is just about the only reason I can think of for Toyota ( NYSE:TM ) to focus on making a hydrogen powered ICE vehicle. Toyota entered a hydrogen powered Toyota Corolla ICE vehicle in a 24-hour race in June, which I thought to be eccentric, but recently Akio Toyoda, Toyota President, drove the car with fanfare stating that the company is interested in manufacturing an ICE vehicle powered by hydrogen. He indicated this could save millions of auto industry jobs. It seems to be a Japanese thing as Subaru ( OTCPK:FUJHY) ( OTCPK:FUJHF), Mazda (OTCPK:MZDAY) ( OTCPK:MZDAF), Kawasaki ( OTCPK:KWHIY) ( OTCPK:KWHIF) and Yamaha ( OTCPK:YAMHF) also have hydrogen ICE developments underway. Here I explain why I’m mystified. It makes me even more cautious about investment in Toyota as remaining a leader as the world exits the ICE and adopts BEV (Battery Electric Vehicle) transport.

When there is major technological change this always causes some disruption, but going from horse & cart to the ICE did not stop because of the large industry surrounding horses and carts.

Toyota is working on a hydrogen powered ICE

YouTube is the “go to” when you have an unfamiliar job to do (eg replace a part in just about anything). So a natural place to get the lowdown on a hydrogen powered ICE is YouTube. Sure enough I found a YouTube on Toyota’s hydrogen ICE developments.

The YouTube seems credible and shows that this is an early stage of development, with significant hurdles. For example, Toyota entered their hydrogen combustion engined Corolla in a 24 hour race and travelled 1634 km, but this required 4 hr of refueling (35 refueling stops each taking 7 minutes). The team also spent just 12 hours driving as the vehicle needed 8 hr of repair and safety checks over the 24 hours. The big surprise for me is that it was asserted that a hydrogen fuel cell is a more efficient hydrogen car, meaning that the size of hydrogen fuel tanks needed on a hydrogen powered ICE to be 2x those of a fuel cell car of the same power output. I’ve seen it argued that switching from gasoline to hydrogen is no big deal, but the above YouTube made clear that the transition is non-trivial. Note that the hydrogen ICE is NOT a conventional ICE.

Toyota’s view is that converting a petrol ICE to hydrogen is no big deal. The YouTube above seems to indicate a number of practical issues that have not been solved.

I continue to be puzzled about Toyota’s strategic direction. Is it serious about the Mirai which it recently upgraded? If so why is President Toyoda talking up Toyota’s hydrogen powered ICE program?

While President Toyoda trivialises the problems of switching from fossil fuel to hydrogen powering its ICE, the above YouTube presentation indicates that there are challenges for ICE powered by hydrogen. For starters this means less performance or bigger hydrogen fuel tanks. Surely this simple arithmetic is a major block for adoption of hydrogen powered ICE?

Toyota makes much of range anxiety and time to refuel for BEVs (which I’m certain that BEV owners are puzzled about). The point is that the 24 hour race involved 35 (repeat 35) refuelling stops each requiring 7 minutes in travelling 1634 km…..

Having talked a lot about range anxiety in relation to comparison between BEVs and its fuel cell vehicle the Mirai, Toyota’s bZ4X doesn’t excel with the size of its battery (range up to 250 miles).

A recent comparison of the RAV4 Prime plug-in hybrid with the bZ4X doesn’t encourage customers to go BEV. The bZ4X seems more a town car than a vehicle that might cover general automotive use. Could it be that the bZ4X is positioned to deflect customer interest to its RAV4 hybrid, which has better performance, more cargo and towing capacity, and more than double the range?

A breakthrough at the recent COP 26 climate summit in Glasgow was getting 30 countries to agree to work together to make zero emission vehicles accessible, affordable and sustainable in all regions by 2030. Some emerging markets (eg India, Rwanda and Kenya) agreed to accelerate the transition to zero emission vehicles and this is to be supported by $200 million World Bank funding for emerging markets.

Toyota was one of four major car manufacturers who refused to sign the COP 26 pledge to only sell zero emissions cars and vans by 2035. The other companies are Volkswagen (OTCPK:VWAGY), Renault-Nissan (OTCPK:NSANY) and Hyundai-Kia (OTCPK:HYMTF). This is consistent with these manufacturers still hoping to sell cars with an ICE beyond 2035. ICE manufacturers that signed up include Ford (F), General Motors (GM), Jaguar Land Rover, Mercedes-Benz (DDAIF) (DMLRY) and Volvo.

Obfuscation about BEVs versus hybrids with an ICE is not limited to Toyota. Nissan has a similar strategy and recently made a big announcement about its electrification strategy involving spending $17.6 billion over 5 years, but that doesn’t mean a switch to BEVs as it is mostly about hybrids. Readers need to look closely at the fine print, as the way Nissan and Toyota present the transition it is easy to think that they mean BEVs when they talk about electrification.

The contortions being used by Toyota to avoid confronting what most of the automotive industry have already accepted (the switch to the BEV) are becoming increasingly bizarre. On the face of it, Toyota’s enthusiasm for developing an ICE car that runs on hydrogen demonstrates lack of confidence in its massive development program for fuel cell vehicles. What is senior management of Toyota thinking? I remain cautious about Toyota’s future notwithstanding that today it is one of the world’s most successful car makers.

I am not a financial advisor but I do pay attention to the dramatic switch to electrification that is gathering pace in the transport industry. I hope my commentary about Toyota helps you and your financial advisor when thinking about investment in the transport space.

This article was written by

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.