Is Toyota Fuel Cell Sedan a Tesla Killer?

Toyota Motor Company (NYSE: TM) is making a big bet that hydrogen fuel cells and not lithium ion batteries are the automotive fuel source of the future. The company’s CEO Akio Toyoda is staking his reputation and his company on that bet.

Toyoda himself appeared in a YouTube video announcing the name for the company’s new fuel sedan. The name is actually Mirai, which is a Japanese word that means future. The video shows Mr. Toyoda showing off the car and bragging about its performance. He has apparently taken it for than a few test drives.

The Mirai has a 300-mile range on a tank of hydrogen gas, which its fuel cell converts directly into electricity. That means the Mirai already deliveries slightly better performance than the Tesla Motors (NASDAQ: TSLA) Model S, which has a range of around 275 miles on a charge of electricity.

Like the Model S, the Mirai is a no emission vehicle. The only exhaust its fuel cell puts out is water vapor. The Mirai looks like a direct challenge and a big threat to the Model S. One has to wonder if it is designed as Toyota’s Tesla killer.

Mirai vs. Model S

The Mirai has some advantages over the Model S; its tank can be filled in about five minutes—about the same amount of time it takes to fill a tank with gas or diesel fuel. It also has some disadvantages; there are only 19 hydrogen filling stations in the United States, mostly in California. The Model S can theoretically be charged at any outlet. Basically, you cannot drive the Mirai outside of California or the Greater Los Angeles area right now.

Mirai on a Test Drive
Mirai on a Test Drive

Toyota is trying to rectify that; it has teamed up with the French-based industrial gas supplier Aire Liquide (OTC: AI)  to build 12 hydrogen filling stations in New Jersey, New York, Massachusetts, Connecticut, and Rhode Island. Those will be the first such filling stations in the Northeast. Like Toyota, Aire Liquide is betting heavily on fuel cell technology; the company is planning to build networks of hydrogen filling stations in Denmark, Germany, and the Netherlands to service the European market.

In addition to being a car, the Mirai—like the Prius—is a sort of power plant on four wheels. Toyoda bragged that it can generate enough power to run a house for a month. That’s an impressive feat with lots of other applications.

Toyota might be in a good position to enter the power solution market and start marketing fuel cell generators for homes and businesses. Such grid alternatives are going to be a huge business in the years to come.

Mirai Could Be Half the Price of Model S

The Mirai, which will go on sale in the U.S. next year, will cost between $57,500 and $69,000 depending on the news source you believe, which is quite a bit cheaper than Tesla, where prices start at $101,000. It sounds as if Toyota’s no-emission vehicle is already cheaper than Tesla’s, and it could get cheaper.


Toyota representatives have also told The Verge that federal and state tax credits might push the actual price of the Mirai under $45,000, or less than half the price of the Model S. That means Mr. and Mrs. Middle Class might actually be able to buy a Mirai. It might also be economical to use Mirai as a fleet vehicle, such as a taxi cab, a government motor pool vehicle, or a police car, at those prices. Mirai has one feature that will be attractive to the cab industry: a large trunk.

Toyota representatives have also told The Verge that federal and state tax credits might push the actual price of the Mirai under $45,000, or less than half the price of the Model S. That means Mr. and Mrs. Middle Class might actually be able to buy a Mirai. It might also be economical to use Mirai as a fleet vehicle, such as a taxi cab, a government motor pool vehicle, or a police car, at those prices. Mirai has one feature that will be attractive to the cab industry: a large trunk.

So the potential market for Mirai is already a lot bigger than that for Tesla. Real people and not just Silicon Valley yuppies will be able to afford the Mirai. If it really has the performance Toyota is claiming, Mirai would also be a good Uber vehicle.

How Toyota Can Crush Tesla

Toyota certainly has the resources to roll out the Mirai and sell it in a big way. It currently has 1,500 dealers in the United States alone, which will allow it to put the Mirai right in the face of millions of buyers. Its established dealer network alone gives Toyota a huge advantage over Tesla’s direct sales and store model.

To expand, Tesla needs to build new stores. Toyota already has a dealership in every town in America and no need to fight the state legislature to get its business allowed in the state like Tesla does. Car dealers in many states, including Michigan, have effectively blocked Tesla’s direct sales model.

Toyota has plenty of other resources to crush Tesla with, including $223.16 billion in TTM revenue and $39.26 billion total cash. Tesla has $2.86 billion in revenues and $2.37 billion in total cash.

toyotamirai

To make matters worse, Tesla has an operating margin of -4.38% and a profit margin of -7.09%. Toyota has a profit margin of 7.47% and an operating margin of 9.15%. In plain English, Toyota is making money, and Tesla is not even with its high stock price.

Toyota is also a pretty good investment without the Mirai on the road; it reported a Return on Assets ratio of 7.47% and a return on Equity Ratio of 13.94%. Tesla reported a return on assets ratio of -2.06% and a return on equity ratio of -26.63%.

The bottom line is that Toyota looks like a pretty good investment. If you’re looking to invest your money in the alternative fuel vehicle of the future, Toyota seems like the way to go. It seems to have a better no-emission vehicle that’s cheaper than Tesla’s and the resources to quickly roll it out nationwide.

One just has to wonder how much longer Tesla can survive, particularly if Toyota starts rolling out a whole line of fuel cell powered vehicles like it has with the hybrids. If Toyota is smart, they’ll bring out a Mirai minivan fast. Akio Toyoda isn’t as charismatic as Elon Musk, but he might just be the one to win the no-emission vehicle wars.