Ewanick's next bold bet: Hydrogen stations

LOS ANGELES -- Joel Ewanick once looked out on the world from the 24th story of General Motors' riverfront headquarters in Detroit, where as a star marketing chief, he controlled the third-largest advertising budget in corporate America.

Fired in 2012 over a debated soccer sponsorship, Ewanick soon found himself in much humbler digs: a windowless 250-square-foot rental office near Los Angeles, a space he shared with two University of California-Irvine researchers he had just met.

During the next year, they concocted a business plan for a network of retail hydrogen filling stations across California. It filled 900 pages.

"It wasn't difficult to talk about vision," Ewanick said in an interview last month, a couple days after moving his offices to a borrowed house in Newport Beach, Calif. "We were just three guys, and until the day before yesterday, we were three guys in a cage."

The company that emerged from those cramped quarters, FirstElement Fuel Inc., now plans to build 19 hydrogen filling stations in California next year, nearly twice as many as there are in the U.S. today. Based on projections by California officials, FirstElement would control nearly 40 percent of the state's hydrogen stations at the end of 2015.

If Honda, Hyundai and Toyota are the companies defining what fuel cell vehicles are, it's FirstElement, as the leading retailer of hydrogen, that largely will define how and where they will be refueled. That means it could play just as critical a role in determining whether the first hydrogen-powered cars offered outside small test fleets will gain acceptance in California as an alternative to battery-powered electric vehicles.

"Fuel cells are clearly the endgame," Ewanick said in an interview. "You could make an argument that natural gas or electric vehicles are going to be the next step, but if you know the endgame, why not go straight to the endgame?"

There's little time to waste. This week in Los Angeles, Toyota is to unveil the fuel cell EV that it plans to launch in California next year, in its biggest bet on clean transportation since the launch of the Toyota Prius hybrid in 1997. Hyundai has had its fuel cell Tucson crossover on the market for a few months. Honda, which has leased a hydrogen-fueled car called the FCX Clarity in small numbers since 2008, plans to bring its next-generation car to market in California in 2015.

For the design of its pumps, FirstElement chose a streamlined blue slab with a glass awning. Customers will be able to roll up and pay by credit card from day one, using a familiar screen. But to make the experience easier, FirstElement is considering offering an app that would allow drivers to pay from their smartphone.

To fund these pumps, which will be built at existing gasoline stations, Ewanick's team has coaxed a $7.2 million loan from Toyota and $27.6 million in grants from the California Energy Commission. It has inked a $25.5 million deal to buy equipment and fuel from the industrial gas company Air Products, which will arrange to have its hydrogen delivered to FirstElement's stations by truck.

For Toyota, which sees hydrogen battling electricity for market share as the dominant transportation fuel in the decades to come, the loan to FirstElement was "a very unusual step," said Craig Scott, the automaker's national manager of advanced technologies. "But the process for building stations wasn't happening at the pace we were expecting.

"If the stations don't come as we expect, we're all going to be sweating," he added. "Without the stations, there can be no vehicle sales."

Even if the vehicle sales materialize, the economics may take years to catch up.

FirstElement projects that a single hydrogen station will cost about $1.4 million, plus $300,000 or $400,000 in construction costs, and at first, these stations will refuel just a few dozen cars each day. That explains why oil refiners and industrial-gas companies aren't placing big bets on hydrogen fueling infrastructure, and the biggest backer so far is the State of California.

"You know what? It's not a very good business," said Ewanick, whose previous venture was a bid to help resuscitate plug-in hybrid carmaker Fisker Automotive. "It's not something where you're going to make a lot of money. This is more of a labor of love. Now, 10 years from now, 15 years from now, it could turn into something cool. But if you're getting into it to make money, you're in it for the wrong reasons."

While the business model is a work in progress, the rest of the plan is taking shape.

During an October interview at FirstElement's house-turned-headquarters in Orange County, maps and blueprints were splayed on the coffee table. Ewanick, taking sips from a Starbucks cup, gestured excitedly at the sites where FirstElement plans to build stations.

The important thing, he said, was to have "clusters" of stations in places where people live and work: Los Angeles, Orange County and Silicon Valley. But FirstElement also plans to build a station in remote Truckee, Calif., near Lake Tahoe, and another in Harris Ranch, Calif., halfway between Los Angeles and San Francisco.

Shane Stephens-Romero, one of Ewanick's business partners, said usage at these outposts will be low, and delivery trucks will need to drive an hour or two just to keep them stocked with hydrogen fuel. They are a money-losing proposition -- the price of sustaining a statewide network.

"You have to have that station for someone to go from one end of the state to the other. People want to do that," Stephens-Romero said. "We put that there so they could use the car just like they would the internal-combustion engine. But we will not make money on that station -- probably ever."

And even as the leading retailer, FirstElement knows it ultimately has less control over the business of hydrogen than, say, Air Products, Chevron or Royal Dutch Shell, which all operate at least one hydrogen station to stay abreast of the business.

Hydrogen can be made from renewable sources such as solar energy, but for now, it is mostly made by "reforming" natural gas. If fuel cells take off, oil and gas companies could quickly rush into the market.

Ewanick isn't concerned.

"We fully expect to get run over someday," Ewanick said. "Some big company will come in, see it as a growth business, and then we're going to be a small player. We're OK with that."

Jaclyn Trop contributed to this report.