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Hydrogen Under the Hood at Toyota

Stocks in this article: F GM NSANY TM TSLA

And Toyota, which spends more on research and development than any other company in the world, has been working on hydrogen fuel cell technology for decades. The company will finally start selling its hydrogen powered cars -- which were unveiled at recent car shows held at Los Angeles and Washington -- as early as 2015. The vehicles can reach from zero to 60 miles an hour in 10 seconds and, unlike electric vehicles that take hours to recharge, the hydrogen car can refuel in just around five minutes.

I am enthusiastic about hydrogen-powered cars, which should have a big role to play in the future.

But Tesla founder Elon Musk famously called hydrogen fuel cells "bullsh*t" and referred to fuel cells as "fool cells." Musk strongly believes that the future lies only with electric vehicles.

Toyota remains undeterred and continues to invest heavily in fuel cells. The company believes that its hydrogen cars could be the next Prius -- a game-changer for Toyota. However, that doesn't mean that the company is going to ignore the development of its popular hybrid models. On the contrary. Toyota is pursuing higher sales and profits in Europe and Russia in the current year by growing sales of hybrid cars.

Unlike hydrogen-powered cars, which emit only water vapor, hybrid cars use petroleum. However, hybrid cars have significantly lower carbon emissions and are considerably more fuel efficient than a conventional gasoline or diesel-powered vehicle.

In Europe, Toyota is the 10th biggest player in terms of car sales. The business, however, has been improving its sales volume in Europe. Moreover, unlike American rivals General Motors (GM) and Ford (F), Toyota has been profitable in Europe. In its latest results announced earlier today, Feb. 4, Toyota reported a 17% increase in sales volume in Europe from last year as its operating income in the continent rose an impressive 91%, from the same quarter a year ago, to $174.7 million.

Here, Toyota's growth is being led by the company's hybrid vehicles. In the U.K, Toyota's production rose 65% in 2013 due to the strong demand for hybrid cars. The company's plants in the U.K. are now running at full capacity and producing more hybrids than ever before. As a result, hybrid cars accounted for around 20% of Toyota's European sales in 2013, as opposed to 13% in 2012.

While Toyota is betting big on hydrogen and hybrid vehicles, its competitors are increasing their focus on electric vehicles. Toyota's Japanese rival Nissan (NSANY) is gearing up to significantly increase the output of its electric Leaf from its plant in Sunderland, U.K., to tap into the growing demand from Europe.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Sarfaraz A. Khan is a capital market analyst and finance writer. Khan earned an MBA from the University of Aberdeen, located in the heart of the UK's oil and gas industry. Not surprisingly, his specialty lies in energy stocks. He also covers consumer goods, services sector, technology stocks, emerging markets and ETFs. His work appears on Seeking Alpha, Motley Fool and TheStreet.
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