Toyota Stock Could Soar with the Rollout of a New Hydrogen Car
In the range contest, the new Mirai from Toyota Motor Corporation (ADR) (NYSE:TM) has beaten the Tesla Model S with a “score” of 312 miles to 270. (Source: The road ahead, Toyota tops Tesla, boasting 312-miles range for Mirai, Forbes, July 5, 2015.) The results were noted at the Aspen Ideas Festival last summer, when Toyota presented its hydrogen cell-powered car. In fact, contrary to popular perception, given the success of its hybrid Prius, Toyota is not counting on the success of battery-powered electric vehicles as much as hydrogen cell ones.
The Mirai, which in Japanese means “future,” converts hydrogen into electricity using fuel cells, which produce zero emissions in the form of water vapor. However, unlike a Tesla, it can refuel in less than three minutes rather than the 60 minutes needed by a Tesla Model S. It’s that long if charged with a supercharger—several hours if you stick to your regular household outlet.
Thanks to the fuel cell, Toyota can offer all the benefits of an electric car without the range anxiety. In a fuel cell, the operative principle is reverse electrolysis. Hydrogen and air flow around two electrolytic plates, which act as anodes and cathodes, separated by a polymer membrane. The hydrogen and oxygen particles on the plates are chemically attracted but the membrane prevents them from uniting. The buildup of energy, or potential, becomes the electricity or power that then feeds the electric motors.
Toyota Stock is a Bet on the Future of Transportation
This is what Toyota considers as the future of transportation, noting that its practical refueling can be adapted to all kinds of vehicles. For the time being, however, Tesla enjoys an advantage. There are only 12 hydrogen charging stations in the U.S. (two of which are in California). Elon Musk’s Tesla car owners can boast about having a network of 200 supercharging stations. Not to mention that Musk’s cars can be charged at home.
But Tesla has merely won the first and very minor round, whereas Toyota has the technology to win the war between the technologies, which will take at least a decade to play out.
Indeed, Toyota plans to install another 100 hydrogen refueling stations by 2020, also in California. (Meet the Mirai: Why Toyota wants to make your next car run on hydrogen, Washington Post, May 12, 2015.) For now, despite the abundance of hydrogen and its zero emissions (water vapor), it is still at the experimental stage. Nevertheless, Toyota is not alone. Hyundai is also relying on the ultimate success of hydrogen fuel cell technology. So too is BMW, which is working on a hydrogen-powered sedan, promising a range of 300 miles.
Elon Musk Wins the Battle, But Toyota Will Win the War
The lesson here is that even while Elon Musk has been winning the media battle, the founder of Tesla Motors and Space X is not necessarily the holder of the one and only truth when it comes to revolutionizing the automobile.
Tesla investors must not confuse Tesla’s success, which is largely confined to California, with a global automotive market. This will amount to more than 65 million sales in 2015.
Meanwhile, TM’s stock is a safe investment. In the wake of the Volkswagen AG (OTC:VLKAY) scandal, Toyota is poised to resume its role as the world’s largest automobile manufacturer—a position which will be hard to challenge given its huge market presence and vehicle variety.
In contrast, Tesla Motors, Inc. (NASDAQ:TSLA) stock is rather bubbly. Its ludicrous performance mode is rivaled, if not beaten, by its 43-times book value. On top of that, it has negative profit margins. By comparison, TM stock trades at 1.37 times book value. Apple Inc. (NASDAQ:AAPL) trades at 5.68 times book value.
Toyota Stock at $250.00? It’s Possible
Tesla Motors has survived by convincing Wall Street that electric vehicles are the future and that rival technologies are bunk. Unlike Toyota, for which even the hybrid technology started out as market experiment, Tesla cannot afford to be wrong. Toyota, however, can afford to develop the ultimately more practical hydrogen fuel cell system, while risking very little in the short or long-term run.
Toyota has already taken advantage of its market dominance and appeal. Its Mirai was chosen as the pace car for NASCAR, a car racing franchise not typically associated with green car buyers. Just like Tesla critics who end up being targeted by major media campaigns, Musk famously described fuel cells as “bullsh*t.”
Toyota took up Musk’s bovine excremental challenge, producing and distributing a video promoting the Mirai. Accompanied by a breeder, the presenter of the video shows that cattle dung can really be used to produce hydrogen to fuel its car.
Meanwhile, Tesla has benefited from heavy taxpayer support, suggesting its groundbreaking technology cannot pay their own way. At the same time, Toyota can afford to launch a fleet of hydrogen cell vehicles and lose with minimal effects on the stock, if any.
If Tesla Motors continues at its current rate, it will break down like a house of cards because it is way overvalued by almost every single metric. Conversely, Toyota still has everything to gain and nothing to lose from its fuel cells.