Funding for green hydrogen startups, especially those in the growth stage, has seen a decline. Many hydrogen plants and fueling stations across the U.S. have closed, and the focus among automakers and governments appears to be shifting toward battery electric vehicles (BEVs).

Despite these challenges, BMW recently announced a collaboration with Toyota to develop a hydrogen fuel-cell consumer vehicle set for series production in 2028. BMW believes that achieving a transition to zero-emissions transportation requires a combination of BEVs and hydrogen vehicles, a perspective shared by several industry experts.

Juergen Guldner, BMW’s general project manager for hydrogen technology and vehicle projects, expressed to TechCrunch that hydrogen vehicles can complement the growing BEV market by catering to customers who may not want to charge their vehicles like they charge their phones. Guldner noted that hydrogen vehicles could provide a “best of both worlds” scenario, offering the advantages of electric driving alongside the convenience of refueling similar to traditional gasoline cars. 

“If you want to change people's behavior, offering choice is always a better approach than simply taking something away and declaring, ‘This is the solution. You must accept it,’” Guldner remarked during a BMW event at Climate Week NYC.

Jason Munster, founder of the hydrogen consulting firm CleanEpic, also highlighted that a combination of BEVs and hydrogen fuel cell vehicles is more cost-effective and sustainable. He explained that as more battery electric vehicles are added to the grid, the marginal cost increases. However, many areas currently have excess grid capacity, allowing for the addition of fast chargers.

Nonetheless, significant challenges remain.

The infrastructure required for hydrogen is considerably less developed than that for battery electric vehicles, and hydrogen must be produced using renewable sources instead of fossil fuels to maintain zero-emissions claims. Both Munster and Guldner argue that overcoming these obstacles is feasible if the entire ecosystem is considered.

“You can’t just have hydrogen fueling stations and vehicle manufacturers working independently,” Munster noted, referencing the issues that arose during the rollout of Toyota’s hydrogen vehicle, the Mirai, in California. Despite California having the most hydrogen stations in the country, they were not sufficiently accessible for most Mirai owners.

“Without all parts of the chain—production, distribution, and end-use—being interconnected with binding contracts, you cannot replicate the success that battery electric vehicles have achieved,” Munster added.

Guldner stated that BMW is working to develop such an ecosystem, partly by generating demand through potential partnerships with commercial fleet customers. The automaker has been testing a pilot fleet of hydrogen vehicles in over 20 countries for the past 20 months, receiving positive feedback.

Additionally, BMW is collaborating with Urban-X, a tech startup platform and venture capital firm associated with Mini, to identify companies that can contribute to the hydrogen ecosystem.

### The Challenges of the VC Model

Munster emphasized that the venture capital model is not ideal for hydrogen projects due to the long payback periods and substantial capital requirements. The Biden administration's Inflation Reduction Act (IRA), signed into law in August 2022, includes tax credits for clean hydrogen production. However, two years later, a lack of clear guidance is hindering the hydrogen industry's potential growth compared to the battery sector.

Munster described the initial guidelines for IRA hydrogen funding as “contentious,” “limiting,” and “not finalized.” The “three pillars” of the IRA hydrogen tax credit are incrementality, temporal matching, and deliverability, ensuring that hydrogen production genuinely results in reduced emissions by mandating the use of new, dedicated renewable energy for the electrolysis process (the separation of hydrogen and oxygen molecules).

The strictness of these three pillars poses challenges for companies seeking to qualify for subsidies. Munster has suggested more lenient regulations that would allow fossil fuels from the grid to power existing electrolyzers temporarily until a more developed renewable energy ecosystem is established.

The total subsidy amount is still uncertain, potentially ranging from $30 billion to $300 billion.

“Everyone is currently holding back their expansion plans based on the final size of this subsidy,” Munster concluded.