Hydrogen hurdle: Sparks fly over Seoul’s gamble on fuel cell cars

A Hyundai Nexo hydrogen car refuels at a hydrogen station in Seoul. Low prices mean station operators are struggling to turn a profit. (Reuters)
Updated 25 September 2019

Hydrogen hurdle: Sparks fly over Seoul’s gamble on fuel cell cars

  • Deadly explosions and profit concerns turn Hyundai and South Korea’s FCV dream into a million-dollar nightmare

SEOUL: Aiming to cash in on a push by South Korea to promote fuel cell vehicles, Sung Won-young opened a hydrogen refueling station in the city of Ulsan last September. Just one year later, he is thinking about closing it down.

Sung’s new hydrogen station is one of five in Ulsan, home to Hyundai Motor Co’s main plants and roughly 1,100 fuel cell cars — the most of any South Korean city.

The government paid the 3 billion won ($2.5 million) cost — six times more than fast-charging equipment for battery electric cars — and the two pumps, located next to Sung’s gasoline stand, see a steady flow of Hyundai Nexo SUVs daily.

Even so, Sung hasn’t been able to turn a profit, hamstrung as the equipment can only refuel a limited number of cars each day and by the government’s decision to set retail hydrogen prices low to bring consumers on board.

“All hydrogen stations will have no choice but to shut down unless the government subsidizes operating costs,” Sung, 32, said. “Otherwise, this place will just become a 3 billion won chunk of steel.”

If those impediments to commercial viability were not enough, a fatal hydrogen storage tank explosion this year has spurred protests against the government and Hyundai’s ambitious campaign to promote the zero-emissions fuel.

Calling hydrogen power the “future bread and butter” of Asia’s No. 4 economy, President Moon Jae-in has declared himself an ambassador for the technology and targeted 850,000 fuel cell vehicles (FCVs) on South Korean roads by 2030.

That is no mean feat given fewer than 3,000 have been sold so far. Japan, also a big proponent of FCVs and with an auto market three times larger, plans 800,000 in the same timeframe.

The challenges of building out refueling infrastructure in South Korea underscore the long and uphill battle FCVs face to widespread adoption at a time when electric cars are stealing much of the green car limelight.

And for the government and Hyundai, the only automaker selling a fuel cell car in the country, it is an expensive project with no guaranteee of success.

Moon is set to spend $1.8 billion in central government funds to subsidise car sales and to build refueling stations for the five years to 2022 at current subsidy levels.

Subsidies cut Nexo’s price by half to about 35 million won and sales of the model, launched in March 2018, have surged this year. In contrast, Japanese subsidies fund one third of Toyota Motor Corp’s Mirai FCV, bringing its price to around $46,200.

Some critics argue Hyundai is the main beneficiary of the government’s ardent backing, but the automaker also has much at stake. With its suppliers, it plans to invest $6.5 billion by 2030 on hydrogen R&D and facilities.

“There are risks that come with the need to make large-scale investments in building (hydrogen car) production facilities, securing supply channels and establishing sales networks,” Hyundai said.

In May, a hydrogen storage tank at a government research project in the rural city of Gangneung exploded. It destroyed a complex about half the size of a soccer field, killing two and injuring six. A preliminary investigation found the blast was caused by a spark after oxygen found its way into the tank.

“One victim was blown away by pressure and then killed after being hit by rock,” said Kong Gikwang, a lawyer who represents the family of one of the two who died in a lawsuit against the research complex.

One month later, there was an explosion at a hydrogen refueling station in Norway. This week, a hydrogen gas leak and subsequent fire at a South Korean chemical plant caused three workers to suffer burns.

Such safety concerns have fueled protests by South Korean resident groups worried about hydrogen facilities being built in their areas.

Kim Jong-ho, who began a month-long hunger strike against a planned fuel cell power plant in the port city of Incheon two days before the Gangneung blast, said the explosion refocused attention from pollution risks of hydrogen production to safety. Incheon has since agreed to review the safety and environmental impact of the plant.

Potential station operators have also backtracked since the explosions.

Pyeongtaek city in April picked two gasoline stand operators to run hydrogen stands but within three months, both decided to bow out, forcing the city to restart its search.

“At first, I had great interest. But once I looked closely, I realized the government was pushing for something that can’t make profits,” one of the prospective operators said. “And I couldn’t live worrying about whether there would be an explosion.”

To counter such fears, the government is holding briefings for residents, while Hyundai said it is working to convince consumers of hydrogen’s safety with information promoted through Youtube and social media.

Despite government plans for 114 hydrogen stations — key for the widespread adoption of FCVs — to be built by the end of 2019, only 29 have been completed. Difficulties in gaining funds from local governments or businesses meant to help shoulder half the costs, delays in finding sites and opposition from residents have also hobbled efforts.

Those constructing the stations know they are in for a slog. “There will be a period of going through the valley of death,” Yoo Jong-soo, CEO of a consortium which has been tasked with building 100 stations, but which does not expect to make money until 2025, said in a June presentation.

The consortium, which includes Hyundai, has also called on the government to subsidise operating costs for hydrogen stands. Such a move is under consideration, an industry ministry official told Reuters, declining to be identified as the plan has not been finalized.

“This will only increase the burden for taxpayers who have to pay for the government’s hydrogen society splurge,” said Ryu Yen-hwa, a former Hyundai Motor engineer and auto analyst who believes FCVs do not make commercial sense.

Just last month, Moon’s administration announced it would more than double spending on the “hydrogen economy” to over 500 billion won next year.

That includes 359 billion won on FCVs and refueling stations, up 52 percent percent from this year and a huge leap from the 29.8 billion won spent in 2018.

Hyundai, which touts the Nexo as an “air purifier on the road,” is banking on Seoul’s aggressive targets to help it achieve economies of scale and bring down costs.

It aims to cut the cost of a hydrogen car before subsidies to 50 million won once annual FCV production reaches 35,000. It hopes to make 40,000 per year by 2022, compared with plans for 11,000 next year.


SoftBank back to black with $12 billion profit after record losses

Updated 11 August 2020

SoftBank back to black with $12 billion profit after record losses

  • Results come after SoftBank launched an aggressive plan to sell up to $41 billion in assets to finance a stock buy-back

TOKYO: SoftBank Group on Tuesday reported a $12 billion quarterly net profit to June, recovering from eye-watering losses as tech stocks rally and the firm sheds assets to shore up its finances.
The results will be a relief for chief Masayoshi Son, who has faced an increasing drumbeat of criticism after recent record losses for the firm.
Son transformed what began as a telecoms company into an investment and tech behemoth with stakes in some of Silicon Valley’s hottest start-ups through its $100 billion Vision Fund.
But he has battled opposition to his strategy of pouring money into start-ups — including troubled office-sharing firm WeWork — which some analysts say are overvalued and lack clear profit models.
The 11.9 percent rise in net profit to $12 billion puts SoftBank back in the black after a turbulent financial year that saw its investment woes magnified by the coronavirus pandemic and plunges in global stock markets.
Son has insisted that his strategy is sound, and that SoftBank’s portfolio is broad enough to weather the storm, but acknowledged the challenges when the firm reported an eye-watering $8.9 billion annual net loss in May, hit by the WeWork debacle and stock crashes.
The results come after SoftBank launched an aggressive plan to sell up to $41 billion in assets to finance a stock buy-back, after Son said shares were undervalued.
The fundraising was also intended to reduce the firm’s debts and increase cash reserves.
Paired with the recent recovery in tech stock prices, the strategy appears to be paying off, analysts said.
But it warned that the pandemic continued to cause uncertainty, bolstering its investments in e-commerce and food delivery firms, but hammering those in the hotel and hospitality sectors.
It said it would not offer a forecast “due to numerous uncertainties affecting earnings.”
Son has struggled to interest investors in a second round of the Vision Fund as he deals with the woes of some of his most high-profile investments, notably WeWork.
Once hailed as a dazzling unicorn valued at $47 billion, the office-sharing start-up has suffered a stunning fall from grace.
Son stood by his investment, even upping his stake, but things began to unravel last year as WeWork haemorrhaged cash and canceled its share offering, with founder Adam Neumann pushed out.
SoftBank this year scrapped a plan to buy up to $3 billion WeWork shares as part of a restructuring program, and the start-up is now suing for alleged breach of contract.