Hyundai Motor Group Chairman Euisun Chung has made a number of bold moves since he took the company’s reins late last year. He’s put more money into electric vehicles and orchestrated a deeper shift into the world of robotics. But another important part of his effort to transform the company from conventional carmaker to mobility giant involves embracing hydrogen-based technology. And on that front, the jury’s still out.

The experience of Song Young-jin shows just how tough it will be for Hyundai to succeed in a world increasingly embracing electric-battery-powered motors. The 38-year-old sales manager in Euiwang city bought a Hyundai Nexo, whose hydrogen-fuel-cell engine emits only water vapor, in March 2020. Wooed by Hyundai’s advertising, he felt a hydrogen car would be good for long commutes and better for the environment.

By August though, fed up with having to drive 50 kilometers (40 miles) every week to the nearest hydrogen refueling station, he was looking to sell. In a double blow, Song watched in dismay as the value of a second-hand Nexo crashed on a used-car site by around $1,000 a month.

“I liked the hydrogen car itself—it’s quiet, and charging takes just 5 minutes, faster than an electric car,” Song says. “But refueling stations are lacking, and the maintenance costs [for parts such as hydrogen tanks] are huge, which is probably why they’re so cheap in the used-car market. Next time, I’ll buy electric.”

South Korea’s biggest automaker is the only global car company besides Japan’s Toyota Motor Corp. to make such a big bet on hydrogen, pledging to have all of its new commercial vehicles, including buses and heavy-duty trucks, run on either batteries or hydrogen fuel cells by 2028. Its goal is to introduce a “wide range of hydrogen-based mobility solutions by 2040,” Chung said in September, from passenger cars and trains to ships and even things that fly.

That puts Hyundai Motor Co. at odds with most of the world’s other large automakers. Volkswagen AG, an EV bull, has said it will have a global carbon-neutral fleet by 2050. Mercedes-maker Daimler AG has promised it will only sell EVs from 2030 on, while Honda Motor Co. is aiming for 100% EVs by 2040. Yet, like Toyota, Hyundai doesn’t see electric batteries as the only answer. Saehoon Kim, head of Hyundai Motor’s Fuel Cell Center, said in a YouTube video in September that “for the perfect realization of net-zero, we need electric and hydrogen. It’s good to have two cards in your hand.”

Consumers in Korea, however, haven’t warmed to hydrogen cars the way Hyundai might have hoped. The vehicles account for less than 0.1% of total sales in the country. (Even Kim has said he feels sorry for hydrogen car owners, acknowledging many were “having troubles refueling” but saying they should “endure this pain.”)

Yet Hyundai has gone “too far and invested too much money on hydrogen cars to stop now,” says former Hanwha Investment & Securities Co. analyst Ryu Yeon-wha, who works as a green-energy mobility consultant. The automaker seems to have underestimated the possibility of success for battery-powered EVs, Ryu says. “Just two years ago, an official at Hyundai told analysts that ‘we do not make a toy like Tesla.’ They told people battery-powered electric cars wouldn’t be able to travel for more than 150 kilometers, while hydrogen cars are advantageous because of the longer-range driving.” The driving range of electric cars has since improved significantly.

Hydrogen-powered vehicles do have some advantages. They charge much faster and, though they cost a lot more to produce than EVs, they’re widely considered to be more practical for commercial use, because battery-powered trucks and buses are seen as being heavier and they take much longer to charge than hydrogen commercial vehicles.

Korea has more hydrogen cars plying its roads than any other country, with the some 18,500 passenger hydrogen-fuel-cell cars sold since 2016 trumping even Japan, a far larger market where rival technologies are also trying to gain ground against EVs. But the lack of refueling infrastructure has become a big sticking point.

Global sales of passenger fuel-cell vehicles, 2020

Data: MarkLines; BloombergNEF

In January an anonymous petition with 2,277 signatures was posted on the Korean presidential office’s website complaining about the expense of hydrogen cars, with several signers grumbling about the high maintenance costs associated with the fuel-cell stack, the heart of any hydrogen vehicle.

Hyundai says it expects sales of fuel-cell vehicles to increase as global demand grows. In South Korea from January through September, the company sold about 6,400 Nexos, and it exported an additional 875. That compares to about 87,000 battery-powered electric cars the company sold globally, according to Seoul-based Hana Financial Investment over the same period.

“Hyundai Motor Group is backing hydrogen to play a significant role in building a sustainable future and reducing society’s dependence on fossil fuels,” the group said in a statement. “After two decades at the forefront of fuel-cell technology development, the group will expand its fuel-cell technologies for wider application in its vehicles.”

The automaker’s hydrogen focus has two roots. First is the personal interest shown in the technology by Chung’s billionaire father Chung Mong-koo, who used to commute to the office in the company’s Tucson ix hydrogen car on occasion. Second is South Korea’s long political support of hydrogen vehicles. President Moon Jae-in’s administration has increased the number of refueling stations and helped Hyundai realize mass production of the Nexo. The government gives buyers almost 50% subsidies on the cars themselves, while also meting out large subsidies to commercial bus operators and owners of refueling stations. With such support from Moon, Hyundai now plans to produce 500,000 hydrogen cars annually starting in 2030.

Moon’s ambition to build a “hydrogen economy” will require government expenditures of about $800 million this year, just 0.04% of South Korea’s 2020 gross domestic product but still one of the biggest outlays on the technology globally, according to BloombergNEF. Although a Nexo costs about 70 million won ($59,400) out of the showroom, government subsidies reduce that almost by half. A Tesla Inc. Model 3 retails for around $50,000 in Korea.

Korea is even creating an “H2 Pilot City” in Ulsan, a coastal hub about 300 kilometers south of Seoul. Home to Hyundai’s largest plant and myriad suppliers, Ulsan is also the birthplace of Korea’s shipbuilding and petrochemicals industries—sectors now in decline as young people move away, pushing the city’s unemployment rate last year to the nation’s highest.

Ulsan is already producing about 820,000 tons of hydrogen a year, or half the country’s current supply. By 2030 local officials plan a plant in the city with annual capacity of 13,000 tons of liquefied hydrogen (enough to refuel 100,000 Nexo cars), a 200-kilometer hydrogen pipeline system, and about 67,000 fuel-cell cars on the road. The ultimate goal is to install hydrogen fuel cells in apartment blocks, hospitals, and even at Hyundai’s manufacturing plant.

Other companies in Ulsan are getting on board. Hyosung Corp. is building hydrogen refueling stations to roll out across the country, and Lotte Fine Chemical Co. is seeking to distribute green hydrogen using ammonia. (Green hydrogen is hydrogen generated from renewable sources such as wind, solar, or hydro, whereas the hydrogen produced in Ulsan currently is gray hydrogen, derived from natural gas and produced using fossil fuels, making it the least renewable form of the gas.)

Still, while Ulsan may be bubbling, its enthusiasm hasn’t filtered throughout the country. The number of hydrogen refueling dispensers nationwide stood at 117 as of Sept. 30, or one for every 146 hydrogen cars, according to data from the Ministry of Environment obtained by Noh Woong-rae, a lawmaker from the ruling party. By comparison, there’s one EV charging point for every two battery-powered cars.

The location of hydrogen refueling stations is a challenge because of public concerns about their safety—two people died and six were injured when a hydrogen tank exploded in 2019 in Gangwon province—and high cost. Local authorities spent about $2.5 million on one station in Seoul that has a single fuel dispenser, compared to a cost of about $84,000 for a gas station with four pumps.

Hydrogen cars are also less energy-efficient than electric ones, because of losses from heat and friction. “Hydrogen cars aren’t economical for consumers yet,” says Kim Tae-Nyen, president at Mirae-Mobility Research and Service. “Even for Hyundai, it’s a losing business. It costs about $84,000 to produce a hydrogen car, while they’re selling it at $60,000.”

A BNEF report on Korea’s hydrogen goals in August found that Korea’s current government funding for hydrogen is too focused on supporting the use of gray hydrogen in less-promising areas such as fuel-cell vehicles, instead of development of green hydrogen for use in industries such as steel production, where the use of renewables is currently difficult. Meanwhile, most passenger car manufacturers have scaled down their fuel-cell programs over the last five years as battery-electric vehicles establish “an insurmountable lead,” BNEF’s head of Asia Pacific research, Ali Izadi-Najafabadi, said.

According to the Korea Automobile Manufacturers Association, an advocate for automobile suppliers there, Hyundai may be enamored of hydrogen cars because they have more components than EVs, whose relative simplicity is widely expected to put many auto-parts suppliers out of business. That could cause labor problems for carmakers who aggressively pursue vehicles that require fewer workers to build.

Auto-parts makers in Korea aren’t prepared for hydrogen or electric cars, according to KAMA representative Kwon Eun-kyoung. A union in Korea criticized Hyundai’s decision earlier this year to invest 8.4 trillion won in the U.S. and expand production capacity there. “Hyundai faces a dilemma between developing a new technology and maintaining the workforce,” Kwon says.

Others see Hyundai’s hydrogen bet as a smart strategy longer term. As Toyota often argues, hybrid cars will play a crucial role in decarbonizing global transportation--particularly in places such as Southeast Asia and Africa where affordability and infrastructure issues could limit demand for EVs--and the future isn’t going to be solely electric.

“Few people expected a battery could move a car just a decade ago,” says Choi Kwangwook, chief investment officer at J&J Investments Co. “Who knows? There could be another Tesla in the future that revolutionizes the energy industry in favor of hydrogen cars. If that happens, it’d be a jackpot for Hyundai.” —With Hongcheol Kim and Ali Izadi
 
Read next: Hyundai Sees a Bright Future for Hydrogen Solutions by 2040