Why Toyota's Move to Fuel Cells Won't Affect Electric Vehicle Sales

NEW YORK (TheStreet) -- Toyota (TM) is bowing out of the electric vehicle market. Come December, the Japanese car company will cease production and development of all plug-in electric cars.

Is this a blow to the struggling EV market? No.

In place of Toyota's $30,000 plug-in Prius and its $50,000 all-electric Rav-4, Toyota will be slamming the gas pedal, or more accurately the hydrogen pedal, on its $69,000 fuel cell vehicle (FCV) Mirai, to be sold in Japan starting April and later in 2015 in California. This move comes as Toyota's Prius plug-in sales have skyrocketed 297% year over year as of May.

While delving into new experimental technologies is understandable, abandoning EV at this time makes little sense. Toyota is assuming the markets are interchangeable and the people who are interested in EV will also be interested in FCV. This is doubtful.

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Consider the numbers. First, there is the cost of the car itself. The Mirai will be more than twice as expensive as the Prius plug-in. Second, there is the cost of fuel. At best, according to future estimates by California municipalities involved, it will only equal the price of gasoline, and that's only when the infrastructure matures. Compare that with current promotions like Nissan (NSANY) and CarCharging's (CCGI) No Charge to Charge program for EV and it certainly looks like Toyota has taken a step backward by abandoning EV.

Third, there is the problem of manufacture. Mass-produced hydrogen comes from none other than oil and natural gas itself as a byproduct of processing. It's the same source as fossil fuels, solving none of the problems caused by those fuels. While hydrogen can be produced from the electrolysis of water, the cost is a whopping five times as expensive as producing gasoline. The cheapest way to produce hydrogen at present is to strip it from methane, about equivalent to the cost of gasoline. But why not just use the methane itself as energy, rather than spend extra energy removing the hydrogen and then using that? It doesn't make any sense, thermodynamically speaking.

The EV market consists of environmentally conscious people who are also looking to save money on gasoline. While FCV could theoretically fit the bill if hydrogen could be cheaply produced from water, right now it cannot, and it is doubtful if it ever will because the amount of energy needed to break hydrogen away from oxygen -- a covalent bond -- will never change. Chemistry is chemistry. Breaking hydrogen away in methane is cheaper because for every molecule of methane, you get four hydrogens, whereas in water you only get two. But still, it will never be as cheap as just using the methane.

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