The European Fuel Cell Market: A New Study by Frost & Sullivan

              Automotive Fuel Cells Will Re-invent the Wheel

A revolution is occurring in automotive technology, a revolution so immense
that it threatens to unleash a paradigm shift that will change the face of
the entire global automotive industry. The genesis of this 'new wave' is to
be found in a device called a fuel cell. It is the industry's best hope of
being able to sustain individual mobility in the new millennium by
delivering 'clean' energy to power automobiles.

As Europe embarks on the journey that is the 21st century three main
factors equally pose a threat to the existence of the internal combustion
engine and therefore to the mobility it enables. The first issue is the
rapid depletion in global stocks of crude oil over the next 50 years. The
second concern is the growing prevalence of harmful pollutants in the
atmosphere principally Carbon Monoxide (CO) and Nitrogen Oxides (NOx) from
the combustion of fossil fuels. The third factor is the cost of energy,
which has increased significantly over the past three decades, as has the
overall demand for energy.

These are immediate problems, which require long term solutions, according
to Tif Awan, co-author of a new study by automotive analysts Frost &
Sullivan ? The European Fuel Cell Market for Vehicles, Components and Fuel
Retailing.  Mr Awan believes the race for supremacy in the fuel cell
powertrain market has already begun.

The study found the market for fuel cell powertrains had revenues of around
3.2 million Euros this year. Frost & Sullivan forecasts the fuel cell
market will gather pace up to 2008 when revenues will reach up to 47.7
million Euros. With small series production kicking off around this time
the only way is forward. Revenues are expected to reach 18.5 billion Euros
by 2020 and onto a phenomenal of 52 billion Euros by 2040.

The main competitive arena at the moment is research & development, Mr Awan
points out.  "For companies choosing to be at the forefront of this
revolution in automotive powertrain technology, research and development
will be imperative, it is where the long term competitive advantage will be
created."

As the race heats up key players are vying to deliver a credible fuel cell
powertrain to market within the next two years.  Notable amongst these is
DaimlerChrysler, the German automotive powerhouse and the transatlantic
automaker, Ford Motor Company.

The  majority  of European automakers have fuel cell development programmes
currently under way.  "Perhaps the most significant programme is Xcellsis,"
Mr Awan continues. "This joint venture was set up by Ford, Daimler Chrysler
and  the  fuel  cell  Company  Ballard  Power  Systems to produce fuel cell
engines."

Xcellsis,  now  wholly owned by Ballard, is set to deliver 30 Mercedes fuel
cell buses for commercial use as early as the end of 2002.

There  are  still  several  challenges to face along the way.  "The road to
mass  market  depends  on  numerous considerations.  Cost, for example. The
current cost of a fuel cell engine is in the region of €750 per kW compared
to   around  €20/kW  for  an  internal  combustion  engine.  A  significant
proportion  of  the  cost  element  can  be  attributed  to material costs,
effective research and development will play a vital role in bringing these
costs down and enabling mass production."

Another  challenge is the development of the technology. Fuel cell vehicles
use  hydrogen.  At room temperature this is a gas and in addition it has to
be  produced  either  through  electrolysis  from  water  or by reforming a
suitable  carrier  fuel  such as Methanol, Natural Gas or perhaps Gasoline.
Electrolysis,   although   feasible,   is   in  its  infancy.  This  leaves
reformation.  The  question  arises  whether  this  should  be  on-board or
off-board.  The  primary  disadvantage  of  the  former  is the cost of the
reforming unit; the advantage of the latter is efficiency, however then the
key  issue  becomes  storage.  The choice is between compressed gas at very
high pressure and the dangers this entails or liquid. Hydrogen is in liquid
state  at  ?270  degrees  Celsius  or just 3 degrees above Absolute Zero (3
Kelvin), at this temperature storage has to be in cryogenic tanks which are
extremely expensive.

Fuel  suppliers  have  yet to map out a clear route to achieve the ultimate
goal:  a scenario where pure hydrogen can be retailed to users of fuel cell
vehicles  just  as  gasoline  is  today.   The  industry is facing enormous
infrastructure investments, which cannot be recouped in the short to medium
term by fuel revenues.

Mr  Awan  says  the industry is also facing a catch 22 scenario.  "Consumer
demand must be present to justify the investment in infrastructure, and yet
the  infrastructure  must  be  present  to  supply  developing  demand," he
explains.    "Co-ordination   of   investment   from  fuel  suppliers,  car
manufacturers  and  governments is required to progress in a direction that
is to everyone's benefit."

In  the  immediate future, the industry is debating which intermediate fuel
can  be  used  instead  of  direct hydrogen.  "It seems that gasoline has a
stronger  business  case,  due to the existence of the current distribution
infrastructure,  and  the  lack  of  customer acceptable problems," says Mr
Awan.

"However,  gasoline is still plagued by reformer technology problems, while
methanol  reforming  is  well  established.  Methanol  producers  are  also
promoting  the  environmental benefits of using stranded and flared natural
gas."

Incorporating  the  revenues  of all three major fuel alternatives, Frost &
Sullivan  estimates  the  total  fuel revenues derived from automotive fuel
cell use will be 17 billion Euros by 2040.

Background
Frost & Sullivan is an international marketing consulting company that
monitors a comprehensive spectrum of industrial markets for trends, market
measurements and strategies. This ongoing research is utilised to
complement a series of research publications such as the European
Automotive Electric Motors Market to support industry participants with
customised consulting needs. Free Executive Summaries of all Frost &
Sullivan reports are available to the press.

Both of the report's authors ? Automotive Research Analyst Tif Awan and
Chemicals Industry Analyst Gavin McAulay ? are available for interviews.

Report Code: 3972, Publication Date: October 2001, Price: 5000 Euros