As industries navigates increasingly volatile times, the importance of the state and good governance increases. Bold policy decisions can be pushed through that have the potential to transform industries and change the way we do business.
A case in point is the European Clean Hydrogen Alliance that was launched in July of 2020. Drawing on the lessons of the 2008/09 crisis, European lawmakers realised that money spent on supporting the economy during the COVID-19 crisis needed to be used effectively. What better way to invest this money than using it to mitigate the impending climate crisis, the impact of which will eclipse the hardship seen in the pandemic, and to rebuild European industrial ecosystems around a hydrogen-based economy?
While the European announcement garnered a lot of interest, it must be understood in its global context. China has been investing in hydrogen technology as the preferred solution for long-haul transport for some time. Korea and Japan have made major investments in fuel cell technology as well. In the US, the picture is less clear. While California has passed the Advanced Clean Truck (ACT) regulation that includes sales quotas for zero-emission trucks from 2024, legislation at a federal level has not been supportive of a transition to a carbon-neutral economy.
Given the current volatile market environment and the need to invest in other technologies such as electrification, autonomy and telematics, it is evident that no single player will have the wherewithal to go at it alone
As a consequence, the spectre of a commercial vehicle world where innovation ran at two very different speeds was as scary as it was real. However, with Democratic Party Victory in the 2020 presidential election and President-Elect Joe Biden’s commitment to a carbon-neutral economy by 2050, the overall direction of the US is once again in alignment with trends in Europe and Asia. Investments in fuel cell technology will hence benefit from larger scale effects, a key issue in driving down the overall cost of fuel cell systems and hydrogen fuel.
All these developments have generated a lot of interest in hydrogen along the value chain. Investors, utilities, industrial gas companies, suppliers, OEMs, fuel station operators and fleets are trying to understand what this hydrogen-based economy means for them—and above all, when it will become truly relevant. After all, the large- scale fuel cell introductions which have been projected several times over the previous decades and are yet to materialise.
Look towards 2030
Based on its understanding of the market, Roland Berger believes that relevant product introductions will happen only in the latter half of this decade. Based on our proprietary models of hydrogen production costs, infrastructure developments and vehicle technology costs, we see a potentially positive business case for long-haul trucks happening at hydrogen costs of about US$5/kg. Relevant double-digit market shares for hydrogen trucks in the US will be achieved in the 2030-2035 time frame.
Hydrogen will hence play a significant role in long-haul transport in the mid-term. Today, the maturity of the technology is lower than that of electrified trucks. Electrified truck operations require truckmakers to provide consulting services to fleets to help them operate their vehicles effectively, and this will be even more important and comprehensive in the case of hydrogen. To drive adoption of the technology, OEMs must ensure access to cost-effective hydrogen as well as services around the vehicle for efficient operation. In short, truckmakers will need to co-ordinate both the up- and down-stream side of the business.
The hydrogen web
Take the example of Hyundai in Switzerland. Hyundai has pulled multiple players into an ecosystem to establish carbon-free e-mobility in Switzerland. The ecosystem covers all elements from hydrogen production to vehicle use. The core of this ecosystem is Hyundai Hydrogen Mobility, a company that offers fuel cell trucks to customers (also part of the ecosystem) in a pay-per-use model. To drive adoption of fuel cell technology, Hyundai Hydrogen Mobility bears all the technology risk in this model, ensures green hydrogen supply via a partnership with Hydrospider and provides service support via a partnership with AutoAG.
Providing access to hydrogen, especially green hydrogen, at acceptable prices is key. Green hydrogen—produced via electrolysis powered by renewable energy—will be the fuel of choice in the future. Blue hydrogen—produced using natural gas, combined with carbon capture and storage—may be a solution as well, while grey hydrogen—produced predominantly from coal without carbon capture and storage—must be seen as a bridge fuel that does not have long-term viability.
The Hyundai and similar models necessitate a capability shift. Truckmakers will need to build up the capability to orchestrate a network of partners to ensure a valid customer experience. In part, these capabilities will compensate for a loss of competence around the fuel cell stack which will be a buy rather than make decision for most if not all players down the line.
How do we access or build up relevant fuel cell capabilities? As the fuel cell competence set is largely different from that of internal combustion engines, we have seen a fair amount of M&A in this space. On the supplier side, key players such as Cummins (Hydrogenics), Bosch (PowerCell) and Weichai (Ballard Power and others) have either bought players outright or partnered with them to build up relevant skills quickly. On the OEM side, Daimler and Volvo are looking at leveraging the former’s passenger car technology for trucks in a joint venture. Traton recently announced a co-operation with Hino which will open up access to Toyota technology, and Nikola has tapped into fuel cell technology from GM.
The high amount of co-operation in the industry is no accident. With the current cost position of fuel cells, generating and leveraging scale effects via co-operation is a must, both for hydrogen production and the development and production of hydrogen-powered trucks. Otherwise, as mentioned earlier, the industry will not be able to achieve use cases with positive total cost of ownership and by extension, it will not be able to build up self-sustaining hydrogen transport solutions.
These scale effects will only be achieved if the industry and regulators across Asia, Europe and the US come together to create a solution that is as uniform as possible, within a standards-based framework. While there will be competition around technology solutions and leadership, as well as share of the industrial value chain, markets must agree on common standards and interfaces to drive scale effects and allow us to make the transition to a carbon-neutral transport sector as quickly and as cheaply as possible.
Given the current volatile market environment and the need to invest in other technologies such as electrification, autonomy and telematics, it is evident that no single player will have the wherewithal to go at it alone. Partnerships are the key, either between the industry heavyweights or with smaller players that have attractive technologies. Partnerships will go beyond the normal industry players to include utilities, specialised green hydrogen players, industrial gas players, fuel station operators, oil and gas players, and more. These partnerships will ensure a comprehensive understanding of the hydrogen ecosystem and will drive risk reduction, investment optimisation and speed to market.
Navigating the maze of opportunities may be sometimes daunting but is feasible with the right support. As we embark on our journey to a carbon neutral economy and go through the most challenging transition in the industry’s history, it is the only way forward.
Dr. Wilfried Aulbur is Senior Partner at Roland Berger. Dr. Walter Rentzsch is Principal
