VW says fuel cell cars will struggle beyond Japan

Toyota will launch its first production fuel cell car, pictured, early next year in Japan.

TOKYO (Bloomberg) -- Volkswagen Group says cars powered by hydrogen fuel cells will probably struggle to catch on beyond Japan's borders.

Government subsidies of as much as 3 million yen ($28,500) a vehicle offered in Japan will probably be too high for other countries to match, the group's Japan President Shigeru Shoji said in an interview last week. Even in Toyota's home country, refueling will be impractical because handling hydrogen is challenging and building out infrastructure will be costly, he said.

"It may fly within Japan, but not globally," said Shoji, 51. Fuel cells could become another example of the "Galapagos syndrome" that plagues Japanese companies for making products that are only popular at home, he said.

The comments come as Toyota readies its first production fuel cell car, which will go on sale in Japan before April, priced at about 7 million yen ($69,000).

Shoji joins Tesla Motors CEO Elon Musk among skeptics of fuel cells and his comments illustrate the growing divide within the auto industry over which technology will prevail in replacing traditional gasoline and diesel cars.

'Relatively expensive'

Fuel cell cars, which only emit water vapor, offer one of the best solutions to reduce carbon emissions in Japan, said Dion Corbett, a Toyota spokesman based in Tokyo. He declined to comment on Shogi's remarks.

"Fuel cell system costs are still relatively expensive so we need subsidy support from the Japanese government," Corbett said. "It’s difficult to imagine that FCVs will become widely used in the next couple of years alone."

In June, Toyota said it expects Japan, Germany, California and the U.S. East Coast to generate the highest demand for fuel cell vehicles.

Prime Minister Shinzo Abe, leader of Japan's ruling Liberal Democratic Party, has outlined a vision for creating a "hydrogen society," with fuel cells powering homes and office buildings, as well as cars made by the Toyota-led auto industry.

Hybrid domination

VW’s CEO Martin Winterkorn said last year the company would sell 14 hybrid and electric models by 2014 and may offer as many as 40 depending on demand, without specifying a timeframe.

Toyota’s lineup of hybrids dominates the market for gasoline-electric cars, with more than 4 million Priuses sold since the model’s debut in 1997. Japan has provided subsidies to buyers of hybrids that helped spur early demand for such models.

The Japanese government’s plans to support hydrogen cars go further than through rebates for the vehicles. The New Energy and Industrial Technology Development Organization aims to make hydrogen the equivalent price of gasoline and to have 100 hydrogen fueling stations in place by about 2015.

Toyota has cited U.S. government estimates that predict hydrogen fuel will initially be more expensive than conventional gasoline in the U.S.

Toyota’s fuel cell will cost about $50 to fill up for about 300 miles of range when it goes on sale next year in California, Bob Carter, senior vice president at Toyota’s U.S. operations, said Aug. 12. The cost will eventually fall to about $30 based on Energy Department estimates, he said.

Toyota partnered with the University of California to model the specific locations that would be needed to handle a population of more than 10,000 fuel cells and believes it needs only 68 stations initially, Carter said last month. The state plans to spend $200 million to build at least 100 stations by 2024, with 40 ready by the end of 2016, he said.

“There are still a lot of questions lingering about how practical it is even though Toyota launches next year,” said Maruta. “By the time it gets very usable by the normal customers, it’s maybe still a decade or two decades away.”

Still, Volkswagen is hedging its bets. The company is monitoring Toyota’s progress and plans to stay no more than three years behind Toyota in fuel cell research and development, Shoji said.

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