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The leaders in hydrogen fuel cell technology, General Motors Company (GM - Analyst Report) and Honda Motor Co. (HMC - Analyst Report), entered a long-term agreement to collaborate on development of next-generation fuel cell vehicles in order to meet the fuel economy standard set in the U.S.

Both GM and Honda have more than 1,200 fuel cell patents between them, filed between 2002 and 2012, and experimental vehicle fleets. They are the top two companies in terms of total fuel cell patents according to the Clean Energy Patent Growth Index.

Both companies aim to develop the vehicles by 2020. The alliance will bring down their costs in building this expensive technology by sharing each other’s expertise and suppliers.

Why Fuel Cell Vehicles?

The U.S. mandate requires corporate average fuel economy of 54.5 miles per gallon by 2020 and there is no better competent than fuel cell vehicles. Why? Fuel cells have highly fuel-efficient technology compared to gasoline and electric batteries. Secondly, it has a longer driving range (up to 400 miles) than electric cars but pollutes less than gasoline vehicles.

Fuel cell vehicles use a chemical reaction between hydrogen and oxygen to generate power in an electric motor. They are not pollutants because they emit water vapor and heat instead of smoke, and the water vapor can run five times longer than electric cars.

Fuel cell vehicles reduce dependency on petroleum. They can also be recharged in as little as three minutes compared with eight hours of recharging an electric battery.

Available Fuel Cell Vehicles

So far, there are only two fuel cell vehicle models available – Honda FCX Clarity and the Mercedes-Benz F-Cell. Among them, FCX Clarity achieved the World Green Car title in 2009. Honda plans to launch the revamped version of FCX Clarity in Japan and the U.S. in 2015, and later in Europe.

Some of the global automakers are also trying to develop fuel-cell vehicles through collaborations. In Jan, Toyota Motor Corp. (TM - Analyst Report) and BMW AG announced plans to launch fuel-cell vehicles by the end of this decade. Daimler AG (DDAIF), Ford Motor Co. (F - Analyst Report) and Nissan Motor Co. (NSANY) have also announced a tie-up to build fuel-cell vehicles within five years.

Headwinds

Despite several advantages, the road to adoption of fuel cell vehicles looks patchy. The major barrier to production of fuel cell vehicles is its cost, mainly associated with the platinum required to start the chemical reaction within the fuel cell.

Secondly, lack of hydrogen stations in the U.S. is a concern. These stations are also concentrated in a few locations in the U.S. and need huge investment to build (more than $1 million).

Therefore, collaborations in fuel-cell technology look sensible as they seem to address the cost issue, whether for building the technology itself or the network of hydrogen stations.

Currently, General Motors retain a Zacks Rank #3 (Hold).

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