1

TOYOTA
Toyota Motor Corporation is the world's biggest automobile producer.
During 2020 it produced 8.5 million vehicles, compared to 8.3 million by
its close rival, Volkswagen. Yet despite its market leadership, Toyota is
an industry outlier in terms of its technology strategy.
While Volkswagen, General Motors, Ford, Daimler, and other
leading automakers have committed themselves to a future based
upon battery electric vehicles (EVs), Toyota has been reluctant to
wholeheartedly endorse EVs based upon lithium-ion battery
technology and is investing heavily in an alternative EV technology:
fuel cells powered by liquid hydrogen.
Although fuel cells have been used by NASA for space vehicles since
1962, their acceptance by consumers and the motor industry seems as
far away in 2021 as it had in 1966 when General Motors introduced the
world's first car powered by fuel cell. Industry leaders are skeptical of
hydrogen-powered cars: Tesla's Elon Musk dismisses fuel cells as
"mind-bogglingly stupid," while the CEO, Herbert Diess, predicts: "You
won't see any hydrogen usage in cars. Not even in 10 years, because
the physics behind it are so unreasonable."
Yet, in December 2020, Toyota launched the updated version of its
Mirai, the world's first mass-produced hydrogen fuel-cell vehicle.
According to chief technology officer, Masahiko Maeda, Toyota's goal
for the second-generation Mirai "is to be that first step toward wide-
spread adoption" within "the bigger story of reaching a carbon neutral
society."

However, the challenge facing Toyota is daunting. Between 2014 and

2020, a mere 11,000 Mirais had been sold, compared to 2.3 million Prius
hybrid cars. The key barrier to consumer acceptance was the Jack of a
hydrogen-fueling infrastructure-in 2020 there were only 432 hydrogen
refueling stations throughout the world. Without a commitment by the
vehicle industry as a whole to fuel cells, it seemed unlikely that the
massive investment needed to develop hydrogen production and
distribution would occur.

Fuel-Cell Technology and the Hydrogen Economy

Fuel cells produce electricity as a result of hydrogen molecules reacting,

first, with a catalyst (usually platinum) to produce hydrogen ions and
then with oxygen to produce water. Fuel-cell technology has advanced
steadily since the first workable cells were developed during the 1930s.
Figure 1 provides a timeline of the evolution of fuel-cell technology and
its application to transportation.
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There are several different types of fuel cells. While all produce power
from the reaction between hydrogen and oxygen, they use different types
of electrolyte. Most of the fuel cells used in transportation vehicles
utilize proton exchange membrane (PEM) technology.

Despite almost 60 years since their application to road vehicles, fuel-

cell EVs are still restricted to experimental and niche uses. Table 2
shows the estimated populations of fuel-cell EVs.
The supply of hydrogen was the biggest factor constraining the
adoption of fuel cells. There are four main sources of hydrogen:

• Green hydrogen is the most environmentally friendly and most

expensive source of hydrogen. It uses electricity generated from
renewable energy technologies to electrolyze water, separating
the hydrogen and oxygen atoms.
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TABLE 2 Numbers of fuel-cell vehicles in the

United States, China, Europe, and Japan, 2020

Cars Buses Truc Forkli Fueling

ks fts stations
USA 2019 7271 35 n.a. >30,00 42
0
20-30 target 5.3m. 0.3m. 7100
China 2019 1000 11,600 n.a. 100
2030 target 1 m. 500
Europ 2019 100 76 100 300 152
e 0
2030 target 3.7 45,000 n.a. 3700
m.
Japan 2019 380 91 n.a. 250 135
0
2030 target 0.8 1200 n.a. 10,000 900
m.
Source: Modified from Deloitte, “Fueling the Future of Mobility
Hydrogen and Fuel Cell Solutions for Transportation”(2020).

Saudi Arabia's Helios plant is the world's biggest green

hydrogen project. Its hydrogen output will be converted
into ammonia for ease of shipping to consumer countries.
• Grey hydrogen, the most common form of hydrogen
production, uses steam methane reformation to extract
hydrogen from natural gas.
• Blue hydrogen uses the same process as grey hydrogen, but
the carbon emissions from the natural gas are captured
and stored (or reused).
• Brown hydrogen is the cheapest way to make hydrogen but
also the most environmentally damaging due to its use of
thermal coal in the production process. However, carbon
capture can limit environmental damage. A consortium
comprising Kawasaki, J-Power, Shell, and AGL Energy is
developing a major project in Australia's Latrobe Valley to
produce hydrogen from lignite (brown coal) to ship to Japan.
·

The interdependence of every step of the hydrogen value chain-

from hydrogen production to hydrogen distribution to fuel-cell
development to the production of fuel-cell vehicles-creates a
chicken-and-egg problem where no company is willing to invest
unless it is assured of investment at other stages in the chain;
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hence, the vital role of governments in supporting and

coordinating investments in fuel-cell technology, fuel-cell
applications, and hydrogen infrastructure. Hydrogen development
programs are in place in the United States, China, European
Union, and Japan:

- United States. The Department of Energy's Hydrogen

Strategy report outlined the Department's plan "to
accelerate research, development, and deployment of
hydrogen technologies in the United States." Programs
include H2@Scale to fund R&D in hydrogen
production, storage and dist1ibution and H2USA, a
public-private partnership with vehicle manufacturers
to support hydrogen infrastructure. The California Fuel
Cell Partnership envisages one million fuel cell EVs on
California's roads by 2030.
- China. The draft of China's 14th Five-Year Plan announced in March
2021
included further support for hydrogen. Specific
measures were expected to include continuing
subsidies for the purchase of fuel-cell EVs and
encouragement of fuel-cell applications to buses
and trucks. China will phase out sales of
petroleum-fueled road vehicles by 2035: a half
of new vehicles sold in China must be fuel cell,
plug-in, or plug-in hybrid.
- Europe. The aim of the EU Hydrogen
Strategy is to decarbonize hydrogen
production and expand its use in sectors
where it can replace fossil fuels. The
emphasis is on increasing the production and
use of green hydrogen through investing in 6
GW of renewable hydrogen electrolyzers by
2024 and 40 GW by 2030. A European Clean
Hydrogen Alliance, comprising public and
private stakeholders will identify and
coordinate investments.
- japan. The 3rd Strategic Roadmap for
Hydrogen and Fuel Cells announced in
October 2019 prioritized lowering the cost
of hydrogen through importing "brown" and
"grey" hydrogen and targets 900 hydrogen
refueling stations by 2030.

Intellectual Property
Innovation in fuel cells is indicated by a stream of patent
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applications (see Figure 2). Patent holders include private

companies (52% of patent awards), national laboratories (35%),
and universities (13%). The decline in patent applications since
2014 is due, not so much to declining R&D efforts, as to a
lower priority among companies to protect their proprietary
technologies. Thus, since Toyota's 2015 announcement of its
intention to allow royalty-free use of its patents related to fuel
cells and hydrogen storage, Toyota's new fuel-cell patent
applications declined from 1860 in 2014 to under 500 in 2019.
Table 3 shows the companies with the biggest portfolios of fuel-
cell patents.

FIGURE 2 Fuel-cell patent applications

10000 .-...._... .. ·-···--·-·....... - -·--··-·-·-·...-·--·-·" ---......_..... --·--··•------------------•··--·

9000
8000 ..........·.-. --
· ....-. .......... ......_.....
7000
6000

4000

1000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: Data from lphlytics; FCHO Observatory.
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TABLE 3 The leading holders of fuel-cell patents, 2019

Company Number of
patents
Toyota Motor Corp. 17,011
Nissan Motor Co. 5852
Honda Motor Co. 5583
Hyundai 4409
Panasonic 2365
Ford Motor Co. 2209
General Motors Corp. 1832
DensoCorp. 1768
Samsung Electronics 1387
Kia Motors Corp. 1376
Source: Data from The patent race for fuel cell vehicles,
https//www.iam-media.com/patent-race-fuel-cell-
vehicles.

Toyota's Fuel-Cell Strategy

Toyota's strategy is characterized by its commitment to long-term

development. This development embraces continuous improvement
(kaizen), quality, and growth. The quest for continuous improvement
and quality is embodied in the Toyota Production System-the
philosophy and techniques of manufacturing excellence that have
disseminated globally under the labels of "lean production," "total
quality management," and "six-sigma." Toyota's commitment to
growth is manifest in the company's transformation from being a
supplier of a single model of car and two models of truck to its
domestic market in 1954, to supplying models in almost eve1y
segment of the automobile market throughout the world.
Toyota's commitment to long-term development is also apparent
in its emphasis on innovation. In 2007, then-CEO, Katsuaki
Watanabe, was asked about his vision for the future:

I want Toyota to come up with the dream car-a vehicle that can
make the air cleaner than it is, a vehicle that cannot injure people, a
vehicle that prevents accidents from happening, a vehicle that can
make people healthier the longer they drive it, a vehicle chat can
excite, entertain, and evoke the emotions of its occupants, a vehicle
that can drive around the world on just one tank of gas.

Realizing Toyota's vision for the future involves a heavy

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commitment to research and development. In the financial year

2019-2020, Toyota spent lflll0.0 billion ($101.8 billion) on R&D,
more than any other automaker except Volkswagen. Toyota operates
a global network of R&D facilities. In Japan, these include basic
research at Toyota Central R&D, autonomous driving at TRI-AD
(Toyota Research Institute-Advanced Development), and product
development at the Toyota Technical Center. In the United States,
they include research into energy and environment, safety, mobility
infrastructure
and artificial intelligence by Toyota Research lnstitute, Inc. At the
beginning of 2021, Toyota owned more patents than any other
automaker.
However, despite Toyota's technological strengths, its approach
to product innovation is cautious. Toyota follows an incremental
rather than a radical approach and prioritizes customer
acceptability over technological ambition. This conservatism is
especially evident in its approach to EVs.

Toyota and Electric Vehicles

Toyota's skepticism over batteries powered, plug-in EVs stemmed from
its recognition of the limitations of lithium-ion battery technology with
regard to range, safety, cost, and recharging time. While building its base
of expertise and proprietary technology in EVs, it was conservative in
bringing this technology to market. Its preference between 1995 and
2020 was to emphasize hybrid technology: cars powered by both internal
combustion engines and electric motors-the former generating power
to be stored in a batteries.
The Toyota Prius was the result of a project begun in 1993 to develop
a car for the 21st century with radically improved fuel performance.
When launched in 1997, the Prius was the first mass-produced hybrid
automobile and for the next two decades accounted for the majority of
the world's hybrid cars. Yet, despite dominating the market for hybrid
EVs, Toyota was reluctant to take the subsequent steps toward full
electrification. The plug-in, hybrid Prius was launched in 2012-two years
after other manufacturers had introduced plug-in hybrids. Toyota was
even more tentative over plug-in, battery EVs. Despite amassing more
patents related to batteries than any other automaker during 2000-2018,
Toyota did not introduce a mass-produced, battery EV until 2021.
However, by 2020 it had 10 battery EV models under development and
planned to equip these models with solid-state batteries "early in the
decade"-a development that it anticipates will be a "game-changer."
Central to Toyota's EV strategy was a reluctance to commit to any
single technology or design configuration. While committing to a goal of
EVs representing 40% of all new models by 2025 and 70% by 2030,
these would include a battery EVs, plug-in hybrids, traditional hybrids,
and hydrogen fuel-cell models. Toyota believed that there was no single
dominant technology: different customers and different markets would
favor different solutions. According to the head of Toyota's North American
sales, Toyota would become "the Macy's department store of
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powertrains."

Toyota and Fuel Cells

During 201&-2021, expectations concerning the future of the automobile
have con verged around battery technology. Led by the remarkable
success of Tesla-both in the automobile market and in the stock
market-investments by automakers in new battery models have been
greeted by a wave of enthusiasm from investors, environmental groups,
and politicians. Yet, Toyota observes that notably absent from these
enthusiasts are customers. In 2020, EVs represented a mere 4.6% of
global automobile sales; for the United States, the figure was 2.4%. In
every country where EVs had secured a major market share, the
government offered subsidies for EVs and levied penalties on
petroleum-fueled vehicles. Consumer hesitancy over EVs was the major
factor in Toyota's delayed introduction of plug-in battery EVs. In 2019,
the head of Toyota North America sales declared that, on EVs, the
industry was ahead of the consumer: "We are continuously working on
EV entries. But right now, there's no demand."
Hence, Toyota's investment in fuel cells is not a choice of hydrogen power
over battery power, it is a recognition that both are developing technologies
and it is as yet too early to pick a winner. Toyota's approach to fuel cells
has been similar to its approach in batteries: it is investing heavily in R&D,
but in terms of major commitments of capital investment, it is holding back
on the multibillion investments required to launch mass produced global
models.

Toyota began developing fuel-cell EVs in 1992. Its first fuel-cell car
was displayed in 1996. The subsequent versions of the car between 1996
and 2008 featured improvements to its proprieta1y fuel-cell stack, to its
high-pressure on-board hydrogen tanks, and to overall system
configuration. From December 2002, some fuel cars were also made
available through leasing to selected public sector and commercial
customers in Japan and California. The Mirai, the world's first mass-
produced fuel-cell vehicle, was launched in Japan in December 2014 and
in California and Europe the following year. Also in 2015, Toyota
launched its Sora fuel-cell bus.
Between 2015 and 2020, about 15,000 Mirais were sold worldwide-
one of Toyota's lowest-selling models. However, with the launch of the
2021 version of the Mirai with new styling, greater power and range,
and a lower weight and price-Toyota expects a tenfold increase in
chose sales. Also in 2021, demonstration versions of Toyota's first fuel-
cell electric truck will become available. The 25-tonne truck is being
developed with Toyota's commercial vehicle subsidiary, Hino.
A major part of Toyota's development efforts in fuel-cell EVs have
gone into improving the design and performance of the fuel-cell stack.
These include:

- reducing weight and size

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- simplifying the design-including eliminating the need

for an external humidifier
- enhancing the performance of the electrode catalyst
- improving fuel economy
- strengthening the high-pressure hydrogen tanks using carbon fiber.11

Diffusing Fuel-Cell Technology

In developing its fuel-cell EVs, Toyota bas collaborated with
governments, research institutes, and other companies. Toyota's 2013
collaboration agreement with BNIW included a joint commitment to
develop fuel-cell systems.
At the 2015 Consumer Electronics Show in Las Vegas, Toyota took its
biggest initiative to disseminate fuel-cell technology by announcing:

Toyota believes it is important to give priority to spurring more

widespread use of FCVs [fuel cell vehicles] at the initial introduction
stage, and therefore believes concerted initiatives with energy
companies that are looking to expand hydrogen station infrastructure,
and automobile manufacturers that are looking to move forward with
FCV development and market introduction, will be vital.

Toyota will allow royalty-free use of its FCV patent licenses by chose
manufacturing and selling FCVs through the initial market introduction
period, which is anticipated to continue until about 2020. This
initiative will include patents that are critical to the development and
production of FCVs, such as those relating to fuel cell stacks (approx.
1,970 patent licenses), high-pressure hydrogen tanks (approx. 290
patent licenses), and fuel cell system control technology (approx. 3,350
patent licenses).
In 2020, Toyota announced a number of collaboration agreements aimed at
expanding the deployment of fuel cells:

• Collaboration with Hitachi, Japan Railway East to develop

railway locomotives powered by fuel cells and storage batteries.
• Joint development of maritime hydrogen fuel-cell systems with
Corvus Energy, the No1wegian supplier of fuel-cell systems for
ships.
• Establishment of United Fuel Cell System R&D, a joint venture
with Beijing Automobile Group, China FAW Corporation,
Beijing SinoHytec Company, Dongfeng Motor Corporation, and
Guangzhou Automobile Group, to develop fuel-cell systems for
commercial vehicles in China (2020).
• Establishment of a Brussels-based Fuel Cell Business Group to
collaborate with companies, governments, and research
organizations to encourage applications of hydrogen fuel-cell
technology to cars, trucks, urban bus fleets, forklifts, generators,
boats, and trains.
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e Collaboration with Fenix Marine Services, Kenworth Truck, and the

Port of Los Angeles to develop a fuel-cell truck to move containers
from the terminal to distribution centers in the Los Angeles area.
• Collaboration with Denyo Company, a supplier of mobile power
generators, to equip Toyota's Dyna light-duty trucks with its Mirai
fuel-cell system, not just to power the truck but also to provide off-
grid electricity supply to outdoor entertainment sites and disaster
areas.

Toyota's goal with these collaborations is both to provide greater

momentum to the adoption of fuel-cell technology and to expand the
market for its own products. In particular, Toyota is seeking to expand its
role as a supplier of its Mirai fuel-cell system to other vehicle
manufacturers. In February 2021, Toyota announced the availability of
its fuel-cell modules: "The new module will be easily utilized by
companies that are developing and manufacturing FC products for a
wide variety of applications, including mobility such as trucks, buses,
trains and ships, as well as stationary generators."13 The fuel-cell
modules are available in vertical and horizontal configurations and with
60 kW or 80 kW generating capacity. This "Toyota inside" strategy has
been likened to the "Intel inside" strategy adopted by Intel in building its
domination of the market for microprocessors for persona! computers.

Fuel Cells versus Batteries

Fuel cells and plug-in batteries are distinct alternatives in the quest to
supersede petroleum-fueled road vehicles. During 2021, battery power
was clearly in the lead: among ail road vehicles (including buses and
trucks). At the end of 2020 there were less than 25,000 fuel-cell vehicles
on the world's roads compared to over 10 million plug-in EVs
(excluding two-wheeled vehicles). Among the world's major automobile
producers, only Toyota, Hyundai, and Honda were producing fuel-cell
cars in 2021; ail had launched, or were developing, plug-in battery
models. The situation was summed up by former editor of Green Car
Reports, John Voelcker:

Despite more than half a century of development, starting in 1966 with

GM's Electrovan, hydrogen fuel-cell cars remain low in volume,
expensive to produce, and restricted to sales in the few countries or
regions that have built hydrogen fueling stations.

Yet, in 2021, it was hardly "game over'' for fuel cells. Despite
production models from only Toyota, Hyundai, and Honda, other
manufacturers were developing new models of fuel-cell cars including
Audi, SAIC, and Grove Hydrogen Automotive, a Chinese start-up.
However, it was clear that the lead market for fuel-cell road vehicles
would be trucks and buses, where the weight, range, and recharging time
of currently available batteries were a major handicap. Thus, General
Motors had agreements to supply its Hydrotec fuel-cell system to
Navistar and start-up truck-maker, Nikola; Audi planned to introduce its
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fuel cells into heavy trucks prior to developing its own fuel-cell SUV;
and, in China, eight companies were developing fuel-cell buses or
trucks.
In terms of the prevailing technologies in 2021, neither fuel cell nor
battery EVs offered clear superiority (see Table 4); the critical difference
was that batte1y EVs were much further ahead in terms of
commercialization, market acceptance, and infrastructure development.
Looking ahead, it was unclear whether the promise of the hydrogen
economy would remain a promise rather than a reality. In several areas
of application, it seemed that fuel cells would be favored in situations
where grid recharging was not available, such as ships. However, the
wider application of fuel cells to road vehicles would depend upon the
technology's ability to develop sufficient momentum to encourage the
necessary investments in hydrogen production, hydrogen distribution,
and vehicle development. Bloomberg NEF's forecast was that by 2040,
fuel-cell vehicles would represent just under 1% of the global passenger
vehicle fleet-and this would be dependent on a dramatic reduction in the
cost of producing green hydrogen. However, in trucks and buses, fuel-
cell adoption would be greater, accounting for 1.5% of medium-duty
truck sales, 3.9% of heavy-duty truck sales, and 6.5% of municipal bus
sales by 2040. These global averages obscure a geographical difference:
fuel-cell adoption will be greatest in California, China, parts of Europe,
Japan, and South Korea.16

TABLE 4 Comparing fuel cells and plug-in battery EVs

Criterion Fuel cell Plug-in Comments

materials
Fuel cost

Vehicle Life-cycle
CO2emissions

cost

Range

Speed of
refueling

Refueling
locations

Dependence
upon scarce raw
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our times the cost of electricity ta

H caver an equivalent distance.
y
Fuel-cell EVs cost 50-100% more than
d
plug-in EVs ta produce, but the gap
r
will narrow with economies of
o
scale and learning.
g
e Toyota Mirai 402miles;
n
Tesla Model 3 (Long
Range) 360 miles.
c
o Fuel cell EV: 4 minutes. Plug-in EV:
s 30 minutes- 6 hours.
t Hydrogen fueling stations: 432
s
worldwide; battery recharging
stations:>1 million.
t
h With current technologies, fuel
r cells require platinum, batteries
e require nickel and cobalt. But fuel
e cells require only tiny amounts
of platinum:10-20 g per vehicle.
t
Fuel cell and plug-in E\/s have a
a
similar range. For each, the range is
f broad

For Toyota, the key questions were whether it should continue to

invest at all in fuel-cell R&D and, if so, at what level, with what degree
of collaboration with other companies and organizations, whether to
focus on research or on development, and whether its commercialization
efforts should focus on supplying fuel-cell modules or final products?