It’s fair to say hydrogen vehicles have been slow to catch on… but why? In part because of Toyota- until recently they held all the fuel cell patents, which made it very difficult for anyone else wanting to produce a fuel cell vehicle. But let’s not be too tough on them- Toyota went on to release over 5,000 key hydrogen patents to the rest of the world in 2015. Innovation has been rapid since.

But what about those of you who say lithium batteries are the future? Not necessarily so. Hydrogen fuel cells take up less space and are lighter than batteries. They’re also longer range and take minutes to fill up, more like a traditional petrol vehicle- so no need for charging! Hydrogen is therefore well suited to big vehicles; trucks, buses, ships. And in the future, trains could even be powered by fuel cells. Vehicles that move on set routes are better suited as the associated infrastructure is easier to build out.

The market seems to view Lithium as VHS to hydrogen’s Betamax. But we don’t necessarily share that view. After all, petrol and diesel have happily co-existed.

Hydrogen is itself a store of energy and requires production (which is energy consuming). There are a few ways to make hydrogen, but from an environmental perspective, it only really makes sense if that production (splitting water) is powered by renewables. But, despite the plunging costs of renewable energy, this is still too expensive right now. None-the-less, hydrogen offers significant promise as a way of storing excess renewable energy longer-term, beyond the short-term… which will most probably be dealt with by a battery.

We therefore continue to monitor the adoption of hydrogen technologies across various industries with interest. For instance, Anheuser-Busch has ordered 800 trucks from Nikola Motor (they ordered 40 Battery trucks from Tesla also). The trucks will be powered by fuel cells supplied by Plug Power. BUD are aiming for 100% renewable brewing by 2025. Nikola expects to test trucks with BUD at the end of this year with actual integration starting in 2020. Nikola plan to invest in over 700 fuelling stations across America in the next 7 years; with the first 14 running by 2021. Other manufacturers ranging from Hyundai to Daimler (and obviously Toyota) are keen too.

But it’s not just heavy transport. Hydrogen could offer a route to significant decarbonisation for many industries who have resisted emission reduction and continue to hold out for carbon capture and storage (CCS) as the decarbonisation silver bullet. Unfortunately, whilst it sounds great, commercial CCS at scale still seems unlikely even in the medium term.  Steel manufactured using hydrogen from renewables is a possibility for example.

Hydrogen has lofty industrial backers from Shell to Toyota but seems unloved or at least underappreciated by investors. It also has the potential to fulfil a variety of roles, including heating homes, fuelling vehicles, feeding industrial processes and storing excess renewable electricity for when it is needed. No-one (ourselves included) anticipated how quickly the cost or renewable technologies would fall enabling their rapid growth. For those industries who have thus far resisted significant decarbonisation, maybe hydrogen (from renewables) will be the solution.

Kames has investments in Anheuser-Busch, Tesla, Daimler and Shell.

About the author

Neil Goddin is Head of Equity Quantitative Analysis and also has joint responsibility for managing funds within the Global Equities team. In addition to investment management responsibilities, he leads the team responsible for building and maintaining the Kames equity investment screen, which is used across the equity team, and advising on optimising risk levels in the funds. Neil’s role differs from most typical quant professionals as he sits within the fundamental team, has joint responsibility for managing funds and is an integral part of the equity team; rather than the more traditional model where quant teams sit separately, away from investors. Neil joined us in 2012 from LV Asset Management where he was Head of Investment Risk. Prior to that, he worked for WestLB Mellon Asset Management and Deutsche Asset Management in various risk-management roles. He has 20 years’ industry experience and is a Certified Risk Manager by the Global Association of Risk Professionals (as at 30 November 2018).

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