Market Mad House

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Long Ideas

Toyota Is Close to Mass Marketing Zero Emission Fuel Cell Vehicle

  • Like Tesla’s electric vehicles, Toyota’s fuel cell powered Mirai sedan is a zero emission vehicle.


  • Unlike Tesla’s lithium-ion battery technology, Toyota’s fuel cell technology is almost ready for the mass market.


  • Mirai’s base price is $57,500, indicating that Toyota is close to developing a fuel cell car with a sticker price the average person can afford.


  • Toyota’s manufacturing infrastructure, finances, and dealership network give it the resources to quickly roll fuel cell vehicles out to a mass market.


  • Mirai’s hydrogen fuel cell stack power system is already delivering superior performance to Tesla’s Model S in some areas.


  • Honda is about to bring out a fuel cell vehicle with similar performance to Mirai.


Toyota's Mira is  almost on the road.
Toyota’s Mirai is almost on the road.

Tesla Motors (NASDAQ: TSLA) and electric cars might not be the future of the auto industry. Toyota Motor Company (NYSE: TM) is close to mass marketing a different kind of zero emission vehicle that delivers superior performance in some areas.

That vehicle is the Mirai (a Japanese word for future) sedan, which is powered by a fuel cell stack that converts hydrogen directly into electricity via an electrochemical reaction. The only pollution that the Mirai puts out is a cloud of water vapor, and Toyota intends to start selling it in the United States next year.

A Zero Emission Vehicle for the Average Person

The Mirai is a direct threat to Tesla because unlike Elon Musk’s lithium electric vehicles, it is almost ready to market to the average consumer now. Unlike the Tesla Model S, which is a luxury car similar to Mercedes Benz-C Class, the Mirai is a basic sedan similar to a Camry; in other words, something that most of us might actually buy and drive.

The Mirai’s price is also far closer to the mass market than anything Tesla is offering. The Verge reported that the Mirai’s initial base price will be $57,500—still well above the $31,000 the average American pays for a new vehicle but far closer to the mass market.

That price could drop substantially if Mirai sells well given Toyota’s manufacturing resources; the company owns 10 factories in the U.S. alone that produce around 1.3 million vehicles a year. Tesla, in contrast, has one car factory up and running and no plans for any more until after the gigafactory is up and running. That means Toyota could be in mass production of fuel cell cars before Musk breaks ground on his next auto factory.

Some Toyota marketing people have also made the dubious claim that the Mirai’s price tag could be lower than $45,000 when federal and state tax credits for fuel cell vehicles are deducted from the final cost. The federal government does provide an $8,000 to $12,000 tax credit for fuel cell car purchasers, but the IRS website indicates that credit could expire on Dec. 31, 2014, before Mirai goes on sale.

Fuel Cell Vehicles vs. Lithium Electric

To add another nail to Tesla’s coffin, Toyota’s fuel cell technology is demonstrating some superior performance to Tesla’s Model S. The Tesla website indicates that the range of the Model S series on a charge of electricity is 275 miles; the range of the Mirai on a tank of hydrogen is 300 miles, according to Toyota’s claims.

Unlike the Model S, it only takes around five minutes to fill the Mirai’s tank with hydrogen—around the same amount of time it takes to fill a standard vehicle’s tank with gas or diesel fuel. News reports indicate that the Mirai’s driving experience is much closer to that of a standard gasoline vehicle. In other words, it delivers the kind of real world performance a soccer mom, an Uber driver, or a commuter might tolerate.

The performance might also make Mirai a viable fleet vehicle for cab companies or government motor pools. Such fleets are a vast market that’s currently closed to Tesla because it lacks a mid-range model.

Fuel cell vehicles could also put out far more power than lithium electrics. Toyota CEO Akio Toyoda bragged in a YouTube video that the Mirai can put out enough electricity to power a house for a month. Honda Motor Company’s (NYSE: HMC) fuel cell vehicle, the Clarity, will actually come with a device called the Power Exporter that will allow owners to power homes or business with the Clarity’s fuel cell stack. Clarity is not supposed to go sale in the USA until 2016.

There is a major drawback to Mirai however; there are currently only a handful of hydrogen gas stations for cars in the United States, mostly in California. Like Tesla, Toyota will have to develop its own infrastructure for fuel cell vehicles. The company has announced plans to build 12 hydrogen gas stations in the Northeastern United States with the French industrial gas supplier Air Liquide (OTC: AI). That could be the beginning of a nationwide network.

Toyota Has the Cash to Roll Out Fuel Cell Vehicles

The question cynics will ask here is, does Toyota have the financial resources to build a continent-wide network of hydrogen fueling stations? The answer when you take a look at Toyota’s financials is yes. These numbers show that Toyota has an edge over Tesla:

  • Toyota reported a TTM revenue figure of $223.1 billion on Sept. 30, 2014; that means its revenues were around 100 times those of Tesla, which reported a TTM revenue figure of $2.86 billion on the same day.


  • Toyota also had an operating cash flow of $28.47 billion compared to Tesla’s $156.24 million.


  • To make matters worse, Tesla reported a net income of -$202.68 million on Sept. 30, 2014; Toyota reported a net income of $16.67 billion on the same day.


  • Tesla reported an operating margin of -4.38% and a profit margin of -7.09% on Sept. 30, 2014. On the same day, Toyota reported a profit margin of 7.47% and an operating margin of 9.15%.


Toyota has other advantages, including industrial partners such as Air Liquide that will build and operate at least some of the infrastructure and other car companies marketing fuel cell vehicles. In addition to Honda, BMW (OTC: BMW.DE) Mercedes Benz/Daimler AG (OTC: DDAIF) and Hyundai Motor Company (OTC: HLMF) are working on fuel cell vehicles.

A look under the Mirai's hood.
A look under the Mirai’s hood.

Finally, Toyota has one more huge advantage in a battle with Tesla: its dealership network. There are 1,500 Toyota, Scion, and Lexus dealers in the United States alone. Unlike Tesla, which is having a hard time selling its direct sales model to state legislatures, Toyota is licensed to sell cars in every state of the Union. Instead of building a store and hiring a sales staff, all Toyota has to do to sell Mirai is sit it out on the showroom floor between the Camry and the Prius.

If Mirai sells, Toyota can quickly bring out other fuel cell models, such as SUVs, minivans, and pickup trucks. All it has to do is add a fuel cell power plant to the models of those vehicles it is currently building. Tesla can only build cars, which are just one segment of the auto business.

Given the potential of fuel cell vehicles like the Mirai and the huge resources established automakers like Toyota has, it is hard to see what future Tesla has in the auto business. It looks as if the electric car dream and the Tesla future could be over before they even begin.