The role of hydrogen in building a sustainable 56/57

future for automotive mobility

Prism / 2 / 2021

The role of hydrogen in building a

sustainable future for automotive
mobility
Dr. Klaus Schmitz, Dietrich von Trotha

Transportation and mobility need to decarbonize and The pressing need to

decarbonize mobility
dramatically lower the sector’s emissions. This is necessary
means automotive
not just from a regulatory perspective, but also because only players are facing key
a truly sustainable transportation and automotive industry choices around the fuels
will be able to maintain its importance and prosperity in of the future. Taking
a holistic approach,
the long run.
the authors explain
why hydrogen is a
Moving to a zero emissions future creates a once-in-a-century strong candidate for
bet for the automotive, energy and transportation industries. powering automotive
transformation and how
The introduction of alternative powertrains and their related
a global green hydrogen
energy concepts is becoming a ecosystem is likely to
choice between battery electric develop moving forward.
vehicles (BEVs) and fuel cell electric
vehicles (FCEVs) powered by
hydrogen (H2). Although they are
complementary in many ways, the
enormous investments required in
R&D, production and infrastructure
for each of them, combined with the
requirements of scale for success,
will mean making the wrong bet can
potentially endanger the future of
established automotive companies.
It is likely that investments will only pay out for one of the
two approaches in specific applications if they achieve scale.
Advantages in scaling will be very difficult to catch up with.

The choice for replacing fossil fuel combustion engines

splits the industry. The world’s largest manufacturers (VW
by volume and Tesla by value), which are focusing solely on
BEVs, stand against the second-largest, Toyota (plus Hyundai
and some others), which has FCEVs as a core part of its
strategy. This divide is contentious – Elon Musk of Tesla has
described hydrogen as “staggeringly dumb”. However, even a
dual strategy (as pursued by the likes of BMW and Daimler) can
lead to risk if it dilutes the focus, development speed and scale
required for success.

At first glance, multiple factors seem to point to BEVs as the

best option for a zero carbon world. They are more efficient
than FCEVs, they are ahead in market penetration, and industry
and infrastructure around green hydrogen are underdeveloped,
which has led to supply constraints. Additionally, as green
hydrogen has further vital uses for decarbonizing, some argue
that limited supply should be focused on the applications with
the highest immediate carbon reduction impact, for example
replacing the current grey hydrogen used in industrial sectors
such as chemicals, which cannot be easily transformed through
electrification.

However, to gain a full perspective, a wider, more holistic

approach needs to be taken, looking beyond these perceptions.
In this article we argue that taking such an approach shows
that hydrogen does indeed have a key role to play in building a
sustainable future for the automotive sector, and we illustrate
this with some example applications.

Taking a holistic view of the hydrogen economy

Three interlinked factors determine the desirability of supplying

hydrogen for automotive applications: First, the global
availability of a sufficient and competitive supply; second, the
distribution of the available hydrogen supply between the
automotive sector and other industry applications; and third,
the achievable efficiency of hydrogen versus green electricity.
Taking this holistic view enables players to make more informed
decisions about their strategy.
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1. A global hydrogen economy and ecosystem

will emerge

Although renewable electricity production in Europe is

continuing to grow, there are limitations in its ability to meet
the continent’s needs. In Northern Europe, for example,
wind power is costly and available onshore space is limited.
More generally, in many heavily industrialized regions with
high demand, including Europe, Japan, and South Korea,
renewable electricity generation is more costly than in other
parts of the world. Although nuclear power remains an option,
this is still expensive and a growing number of governments
have, in any case, ruled it out as an energy source.

Nearly all forecasts suggest that a significant part of the

energy needs of these regions will need to be imported,
which will drive the development of a global hydrogen
economy. The greater yield potential of key locations for
renewables, such as solar in Namibia, Chile, Australia
and Saudi Arabia, will create investment and drive cost-
competitiveness for green hydrogen generation. Japan has
already signed agreements to import green hydrogen from
Australia, for example. Similar projects on exporting hydrogen1
are evolving in Chile, Morocco, Oman, Brazil, Saudi Arabia,
southern Europe2 and more.

This new industry opens up opportunities for players in

the wider ecosystem, including, for example, generation,
distribution, fueling stations, brokerage, and electrolyzers.
We expect that this will lead to a sufficient supply of
hydrogen globally from 2030 onwards.

1. Hydrogen and other fuels based on hydrogen, e.g., synthetic fuels or ammonia
2. Southern Europe (e.g., Portugal, Greece) is considered “global” here
2. It is advantageous to use hydrogen in the automotive
as well as industrial sectors

When comparing the various uses of hydrogen in a

decarbonizing economy, two applications stand out due
to their current activities and expected demand. First,
the existing chemical industry, which currently uses grey
hydrogen (generated from fossil fuels) as feedstock and,
second, automotive mobility. Today, with not even 5 percent
of current hydrogen produced from green, renewable
sources, there is insufficient supply to cover both.

Given that BEVs are an available option for automotive

mobility, and that their downstream consumption efficiency
is higher than that of FCEVs, some therefore argue that
green hydrogen use should therefore focus on where it can
deliver the greatest overall carbon reduction benefit, such as
replacing grey hydrogen in industry.

However, this argument misses some key points. Firstly, as

we have explained above, we expect that rapidly growing
demand will drive a global green hydrogen supply economy
that will be sufficient to meet both industrial and automotive
needs over the long term, towards 2030 and beyond.

Secondly, we expect that pricing levels for green hydrogen

will be such that application in the automotive sector will
still be relatively attractive versus other industries. Even
with increasing CO2 prices and tightening regulation, green
hydrogen prices will be substantially higher than taxed grey
hydrogen, naturally slowing its adoption. At the same time,
automotive emissions regulations are likely to remain stricter
than those of heavy industry, driving the use of green energy
for automotive applications at even higher cost.

Ultimately, many forecasters, such as the German Energy

Agency, predict that our global ambition of net zero impact by
2050 will only be met with hydrogen application in multiple
sectors, including automotive as well as heavy industry.
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3. The real energy efficiency of hydrogen can be much

higher than is commonly assumed

The majority of studies that compare FCEV and BEV use

show clear efficiency gains for battery electric – achieving
approximately 75 percent efficiency compared to roughly 25
percent for fuel cells, for example, as shown by Transport &
Environment and Traton. However, these studies are based on
the presumption that sufficient locally generated renewable
energy will always be available to meet demand. As we have
mentioned above, in practice this cannot be guaranteed in
many high-demand regions, such as Europe.

To understand efficiency better, a broader approach

needs to be taken that considers energy production
efficiency (upstream), which is specific to each country/
region as energy is generated differently, as well as energy
consumption efficiency (downstream), which is specific to
each application and depends, for example, on powertrain
efficiency. This downstream consumption component
has been the focus up to now, with, for example, with the
“tank-to-wheel” efficiencies that are embodied in current
automotive regulations. Essentially, when fossil fuel energy
resources are burned, they are lost; hence, it is vital to
maximize their consumption efficiency.

In the renewable world a different approach is needed. The

sun comes up every day, and the wind continues to blow.
They are not used up in the same way as a barrel of oil.
This means it is better to define efficiency in relation to the
upstream generation resource as well as the downstream
consumption component. For example, solar panels or wind
power plants have different yields depending on their location:
a solar panel in Germany generates 1,000 kWh/kWp p.a.,
while the same panel generates over 2,000 kWh/kWp in
sunny locations such as northern Africa. When comparing
these alternatives, electricity in Germany would start off with
only 50 percent efficiency. Here, we are using a “panel-to-
wheel” definition of efficiency3.

3. A broader term would be “source-to-wheel”, including other renewable sources

such as wind power
Moreover, if surplus renewable power is available but cannot
be used or stored, then generating green hydrogen is still the
best approach for this surplus. In such a situation generating
hydrogen from renewable electricity may be seen as highly
efficient.

Furthermore, the efficiency of electricity compared to

hydrogen for automotive applications varies dramatically
depending on how green energy is produced. (See Figure 1.)

100% Electrolysis & H2 transport Hydrogen at -55% efficiency

-45% loss fueling station
Scenario I

Local
green
electricity Transportation Electricity at -95% efficiency
-45% loss charging station

100% Electrolysis & H2 transport Hydrogen at

-50% efficiency
-50% loss fueling station
Scenario II

Solar park
in Middle Electrolysis, H2 transport,
East electricity production & Electricity at -25% efficiency
transport charging station
-75% loss

Figure 1: Upstream energy scenarios and impact on efficiency

Locally generated green electricity delivers 95 percent

efficiency, compared to 55 percent efficiency when using
this source to create green hydrogen. However, as green
electricity cannot always be generated locally at the time and
on the scale needed, some energy generation will be required
from remote locations (such as solar parks in the Middle East).
In this case, since the produced electrical energy needs to be
converted to hydrogen for long-distance transport and back
to electricity for local consumption, the efficiency of electrical
power drops to 25 percent, around half of the efficiency of
hydrogen.
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Challenging the assumption that green electricity is

limitlessly available in the exact amounts, when and where
needed, has an enormous impact on the applicability of
BEVs and decreases their efficiency and green credentials.
Green electricity production in Europe will not be enough
to completely electrify the automotive sector, and even
if this happened, the grid would not be able to cope with
the transformation. It is also likely to have an impact on
pricing, particularly around fast vehicle charging, which will
significantly affect the operating costs of BEVs, such as in the
heavy-duty/truck sector.

Hydrogen application in automotive mobility

This holistic approach to understanding the hydrogen

economy leads us to the conclusion that hydrogen does have
a key role to play in the zero carbon automotive sector of the
future: there will be sufficient supply, pricing levels should
not be prohibitive, and in many situations the real “source-to-
wheel” efficiencies will be attractive versus BEVs.

Moving on to look at which automotive applications are likely

to be the most attractive for hydrogen-powered fuel cells,
heavy-duty trucks is the most obvious application for initial
deployment. The large scale of the truck market is such that
it can also act as enabler to other applications such as cars;
hence, this will be decisive for the sector as a whole.

Assuming for now that both technologies, BEV and FCEV, will
achieve technological requirements4, such as lifetime, range,
handling of cold weather, vibration and refueling/recharging
times, and further assuming that there will be an equal degree
of regulation for both, four deciding factors remain:

4. 1.5 m km lifetime, range of 800 km for BEVs with 80 percent recharge in 30 min,
2,000 km for FCEVs with refueling in 15 min
 1. Infrastructure: If needed, both BEV and FCEV
infrastructure can and will be built up, but charging and
refueling need to fit well to operational processes. Rapid
charging of the large batteries needed for trucks is an
even bigger challenge than high-performance charging
for cars in terms of the infrastructure, parking space and
time required. Every minute that a commercial vehicle
is off road, it is losing money, which makes minimizing
charging time vital.

2. Energy prices: With the decarbonization of electricity

generation, electricity costs will be likely to increase
substantially, potentially turning the current operating-
cost advantage of BEVs into a disadvantage.

3. Autonomous driving: With autonomous driving, which

is expected to arrive in this decade for trucks, charging
times can no longer double up as mandatory driver
breaks. This makes the long-range advantage of FCEVs
even more significant.

4. Payload: A decrease in payload would negatively

impact the business case. For high-energy demands
and long-range requirements, batteries would weigh
substantially more than the powertrain of FCEVs.

Strategic options for heavy-duty truck

manufacturers

Coming back to the opposing positions in the automotive

industry and looking at heavy-duty trucks in particular,
manufacturers can take one of three strategic directions, each
of which has its risks and relies on particular developments
and scenarios taking place.

1. B
 EV-focused strategy
Successful adoption would rely on a combination of
low electricity prices, a smooth charging process and
substantial, transformative improvements in battery
performance. The major risk to this strategy is the
impact of autonomous driving on commercial range
requirements and charging times.
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2. FCEV-focused strategy
This relies on the fast emergence of a hydrogen
economy with competitive prices and infrastructure in
place. On the technology side, it requires advances in
areas such as the durability of fuel cells above current
development projections.

3. Dual with both BEVs and FCEVs

This is based on the belief that FCEVs and BEVs are
both needed for different use cases within heavy-duty
trucks, or else are adopted as a strategy to mitigate the
risk of choosing one technology above the other. The
main risk of this strategy is that the split focus means
that insufficient resources are devoted to each, so that
the scaling of FCEV (and BEV) technology cannot be
achieved within necessary time frames.

Based on our analysis outlined above, which concludes that

a strong hydrogen economy will be created with competitive
prices independent of the automotive industry, and BEVs
will be impacted by relatively high charging prices due to
increasing generation costs, high infrastructure investments,
and competitive market dynamics, we have determined that:

• 
By 2030 FCEV trucks will have a lower total cost of
ownership (TCO), costing around 1.5 euro cents per
km and ton, compared to 1.7 euro cents for a BEV
equivalent.

• T
 hese costs are likely to fall further post-2030 as the
global hydrogen economy accelerates.

Of course, there are still many other things that need to be

factored in, for example, potential changes in technology such
as advances in battery technology, changes in regulation that
impact the current equivalence of FCEV and BEV technology,
and any decisions made on the use of nuclear that could
impact the local generation and wider use of hydrogen.
Furthermore, manufacturer strategies will also need to reflect
the current product portfolio, regions targeted and capabilities.

Insights for the executive

Based on this broader perspective it becomes clear that

commonly cited concerns around efficiency, prioritization or
green hydrogen supply are not barriers to the use of green
hydrogen in vehicles.

Efficiency is no argument against hydrogen

The industry needs to take a holistic view of decarbonization.
Traditional efficiency measures will be different in a net zero
world – inefficiencies in the use of green energy produced in
the desert may yet turn out to be acceptable because of its
stable, year-round supply. “Source-to-wheel” needs to be
the metric to follow.

Given that many nations will rely on imported green hydrogen,

the only question is whether to convert it to electric power
locally in the vehicle, or centrally, and then transfer it to charge
large batteries.

A new global hydrogen ecosystem will be created

Hydrogen is a third major pillar in decarbonization, along
with energy efficiency and electrification, and can be used in
industry and power generation, as well as mobility. For many
industrial (feedstock) applications, green hydrogen is the only
decarbonization option available if countries are to meet the
95 percent reduction target.

The current view, which states that in regions such as

Europe green hydrogen will be produced from renewables,
will change as economies switch to green hydrogen
generated elsewhere. Although optimal, cost-competitive
supply locations are scarce (requiring political stability, wind,
sun, space and water), there will not be the same level of
dependency as in oil and gas. This is because renewables can
be produced in more locations – less optimal sites will simply
cost more, adding to the need for fast investment decisions.
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Players need to take a holistic view

Given the diametrically opposed moves of the two biggest
car builders, the unpredictable nature of regulation and the
dependency on scenarios involving technology advancements
(such as batteries) and energy supply strategies, players may
struggle to place their bets wisely. To manage this well, they
need to build a holistic understanding of the situation, with
focus on energy supply, regulation and technology, creating
a strategic foundation for these make-or-break decisions.
The optimal choice will be application-specific – essentially,
hydrogen is more advisable the larger the energy demand.
A BEV-only strategy based on the perceived inefficiency and
unavailability of green hydrogen should be reconsidered,
especially for heavy-duty applications. Dual fuel strategies
must assure sufficient scaling through partnering.

Define your path now

As decarbonization is a must, every player in the sector,
whether a regulator, investor or provider in the field of
mobility, needs to define its specific vision and strategy for
transformation. A thorough cross-sectoral understanding is
needed, for example, to be able to predict future regulations.
Scenarios involving energy supply, regulation and technology
need to be defined. A basic strategic point of view needs to
be developed, covering how much to follow certain trends
or whether to rely on a pure holistic sustainability position
(akin to a value investor such as Warren Buffett), as well as
preferences around risk and gain.

The new ecosystem will offer a range of opportunities.

Players (whether automotive, chemical or energy) need to
position themselves now in the ecosystem, if necessary
moving into related fields (e.g., electrolyzers, distribution).

The hydrogen race has begun, with a global green hydrogen

industry becoming mature post 2030. Organizations therefore
need to invest now to secure leading positions in the
ecosystem as it emerges.
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Klaus Schmitz
is a Partner at the Munich office of Arthur D. Little and
co-heads the Automotive and Manufacturing Practice in
Central Europe.

Dietrich von Trotha

is a Manager at the Frankfurt office of Arthur D. Little and
a member of the Automotive and Manufacturing Practice.