GBA Brief

Foshan’s bid for a fuel cell future

A policy address from the Chinese premier, Li Keqiang, in March highlighted hydrogen energy for the first time. The plan is put 5,000 fuel-cell vehicles on the roads by next year, with hopes of selling more than a million hydrogen-powered cars over the next ten years.  Foshan from the GBA wants to be at the forefront of the hydrogen revolution.

What’s the new interest in cars running on hydrogen fuel cells? Unlike lithium-ion batteries, which are powered by a store of electrical energy produced away from the car, they get their power from the chemical reaction in converting hydrogen stored in the vehicle, emitting water vapour as a result. Companies like Toyota are betting that cars with hydrogen fuel cells will eventually prove just as popular as electric vehicles because they refuel faster and can be driven for longer distances between recharges.

Earlier this month, the Japanese giant unveiled a revamped hydrogen-powered sedan in its latest push to popularize the niche technology. The new Mirai model targets a 30% improvement in driving range, or approximately 400 miles, thanks to an upgraded powertrain and larger capacity hydrogen storage tanks. 

Foshan at the forefront

The commitment of global brands like Toyota should give Foshan extra confidence in sticking to its bet on fuel cell technology. Already a frontrunner, Foshan announced its hydrogen energy blueprint last year, aiming to grow the sector into an Rmb100 billion industry within ten years. 

To get there, the city has been luring innovative startups in the making of hydrogen fuel cells and other key components like electric control units, as well as specialists in whole car assembly.

Although considered as one of the top three car-making cities in the GBA, Foshan is best known for its clusters of parts suppliers, and is often overshadowed by its bigger brothers Guangzhou and Shenzhen. Guangzhou is home to Guangzhou Auto, which makes its own-brand cars and runs several joint ventures with Toyota and Honda. The country’s electric vehicle icon BYD is based in Shenzhen.

That’s why Foshan is trying to think differently and focus on a technology where it can get a head start. Traditional cars and electric vehicles (EVs) won’t be the answer, so its officials have opted for fledgling fuel-cell cars (FCVs). If successful, the city could become one of the top production bases for fuel-cell vehicles and their core components. The emerging energy could also be applied to other areas like shipping and rail, promising more room for growth. 

High hopes for hydrogen

Foshan’s ambitions have already drawn the attention of leading players. Shanghai Re-Fire Technology, for instance, announced plans to build a multibillion-yuan plant in Foshan at the beginning of this year. Re-Fire is a believer in hydrogen’s energy future, given its zero emissions, speedy charging and long-range benefits. Counting top players like FAW, Dongfeng and Yutong as partners, it is already a significant supplier of fuel cell systems and powertrains.

Feichi Bus, whichrecently fulfilled a 100-unit order of FCVs to Shenzhen for logistics use is another fuel cell investor in the city. It madeits first delivery to an overseas client in August, providing three buses to the Malaysian city of Kuching (unfortunately initial operations were delayed, after problems sourcing the correct purity of fuel). Other notable players include Huate Gas and GreenWheel. 

The network effect, with Sinopec 

Despite offering the green benefits of EVs and the refuelling speeds of gasoline vehicles, hydrogen fuel cell cars are yet to catch on with consumers at large. If you cannot refuel a car, you cannot drive it. And FCVs are yet to sell in any volume because the refuelling infrastructure hasn’t been built out to support them. 

The Chinese government is committed to building 1,000 hydrogen refuel stations by 2030 and Foshan aims to offer 57 of them. It already hosts the first of the hydrogen refuelling stops and the largest of the hydrogen-powered public bus fleets. 

But knowing that a denser network of refuel stations is key to the wider adoption of fuel-cell cars, Foshan’s government has been encouraging the private sector to invest, especially in the all-in-one type of stops that can serve traditional cars, EVs and FCVs from the same location. Sinopec launched the first station of this kind in July. 

Another major player for Foshan’s FCV ambitions, Sinopec’s plan is to piggy-back on its existing gas stations to expand the hydrogen refuel network. The energy giant has gone a step further by buying a stake in Re-Fire and pledging to find ways of generating, storing and transporting hydrogen at lower cost.

All hail to a ‘hydrogen society’?

Wan Gang, a former government minister often credited with driving China’s EV battery boom, is another keen supporter, calling for the creation of a “hydrogen society” that combats air pollution across the nation.

But truth be told, the market for FCVs is still very small. About 2,000 were sold last year, compared to over 1 million EVs. Another reference point: Toyota has sold about 10,000 such models, after many years of research and investment.

Overreliance on subsidies could be a potential problem too. Hailed as a keynote investment for Foshan, the fuel cell car project launched by Changjiang Automobile last year was to involve a total investment of Rmb12 billion over two phases, delivering final production capacity of 160,000 units a year, according to initial planning (the plant would make both EVs and FCVs).

After so much early fanfare, a Yicai report in August revealed that work at the site, which was empty other than a few earthmoving machines, didn’t look like it was very advanced, despite promises that the plant would be ready for production this year.

Media reports are that a slowdown in funding has brought the project to a halt and that Changjiang was behind in paying its employees and suppliers. Its financial difficulty is partly to do with the downturn of the automobile industry as a whole and a cutback in EVs subsidy, but unrealistic planning has also been blamed. Another allegation is that promises ofgenerous subsidies have intrigued too many newcomers, not many of which will be able to build commercially viable businesses.

Yet while Foshan is pushing hard to make its plans more practical, rivals want their own piece of the action as well. Guangzhou Auto and Toyota have plans to jointly launch FCVs in the Chinese market, which seems likely to pull production to Guangdong’s provincial capital. The Japanese giant is working with other Chinese brands such as Beiqi Foton Motor and Beijing SinoHytec too. Favourable policies are starting to attract substantial funds into the sector, which means that there will be more participants and more competition as well.