Almost 200 Firms Compete in Portable FCs; N. A. Firms Suffer R&D Funds, Job Drains

LONDON/VANCOUVER BC - A grand total of 188 companies, research institutions and other organizations around the globe are competing in the race to develop portable fuel cells, says a new survey published last month by the online portal “Fuel Cell Today” (FCT).

And a second survey of 18 publicly traded North American companies by Canada’s PricewaterhouseCooper reports a 20% increase in revenues (to U.S. $243 million) and a 50% increase in market capitalization (to $3.6 billion), but coupled to declines in r&d outlays (down to $204 million) and employment (to 2,741). The study is based on the companies’ 2003 annual reports.

Published in early September, “Fuel Cell Market Survey: Portable Applications” the third annual such survey conducted by FCT, the Internet portal operated by the catalyst and noble metals company Johnson Matthey, reported a 75% increase in the number of portable fuel cells built and sold in the year through July, on top of a 65% increase last year in roughly the same time frame.

The grand total to date by FCT’s count is just below 3,000 compared to roughly 1,700 last year, editor David Jollie told H&FCL.

The survey provides one-paragraph descriptions for some 114 organizations - from 3P-Energy, Germany; Aalborg University, Denmark; and Adaptive Materials, United States, to Voller Energy, Britain; Yuasa, Japan; and ZSW, Germany. Another 74 organizations in North America, Europe, and Asia are identified by name only.

For purposes of this survey, the category is defined as fuel cells of up to 1.5 kW, “clearly intended to be movable” and not used for powering any type of vehicle, including wheelchairs, golf carts, and the like. Nor does the survey include metal air fuel cells, biological fuel cells and educational fuel cells.

Industry Looks Healthy, But..........

The bottom line, says Jollie, is that “the portable fuel cell industry looks in a healthy state,” but he also cautions, “the true test is still to come as to whether fc technology can compete in all the sectors currently being investigated.” As more and more prototypes and early series products are being built by an “ever-growing” number of companies, “at the moment, the future looks reasonably bright.”

The survey says a number of companies are selling stacks commercially and have publicly advertised their prices. Still, a direct comparison of products and prices is difficult at this point, and therefore it is “not possible yet to see clear trends in price (or cost).”

The survey sees “discernible regional trends” in Asia, Europe and North America. In North America and especially the United States the survey sees “a very strong focus on military applications.,” with significant funding “from many parts of the Department of Defense.” The downside of defense funding has been that it has created “a tier of companies able to survive simply on prototype projects without ever producing a commercial product.” While not all U.S. fuel cell companies fit that description, “there is a clear sense that the industry is less commercial than might have been expected,” according to the report.

Japan Leads in Portables

Japan “is leading the way” in the portable electronic device segment, with major manufacturers such as Casio, Fujitsu and Toshiba all in the thick of things. North America’s Pacific Northwest - British Columbia, Washington, and Oregon - “is slowly building some expertise in fuel cells for consumer electronics,” says the survey, and Korea and Taiwan are two other major electronics centers active in portable fuel cell work.

Europe has neither the huge electronics industry like Japan nor the big bucks of the American military and is “perhaps less focused than either of the other major regions.” Still, there are some “interesting developments” such as Nokia’s fuel cell-powered headset, and Germany’s Smart Fuel Cell “came very early to the point of actually supplying a near-commercial or perhaps even commercial product.”

In terms of fuel cell types, the survey notices that the number of organizations working on solid oxide fuel cells is increasing, and other novel technologies, such as direct formic acid, flowing electrolytes and mixed reactant cells, are emerging.

In general, the survey says direct methanol has become the dominant player in portable fuel cells, helped by “significant sales” by Smart Fuel Cell but also others. “We expect this trend to continue over the next twelve months as companies like MTI MicroFuel Cells bring early-stage products into the market,” the survey says.

The survey identifies four distinct market segments: fuel cells as generators, exemplified by Ballard Power Systems AirGen; the military market; battery chargers; and, “most excitingly,” consumer portable electronics.

As to speculation that the lack of appropriate regulations may delay market introduction, the survey says the situation has begun to change during the last year. It singles out the U.S. Fuel Cell Council as one of the leaders in this effort. In Europe, “there is still a tendency for individual countries to try to work alone in setting standards,” but the process of streamlining and integration is slowly progressing. The leader in this area is clearly Japan, the survey asserts, with the Japan Electrical Manufacturers’s Association having brought together most major players to work on common standards for portables.

PWC: Nobody Made Money

The 12-page PricewaterhouseCoopers report notes that none of the companies surveyed were profitable, but the total net loss decreased slightly, from $384 million in 2002 to $367 million last year.

In general, companies working in PEM fuel cells and fueling infrastructure continue to dominate, the survey says. 2003 saw “a great deal of focus on the development of micro fuel cells, it noted, and “most of the technology in this demand-led drive to commercialization is in the DMFC area.” Divisions of large multinationals such as NEC, Gillette and Toshiba and “a select number of smaller private partners” are leading the way - obliquely confirming the findings of the FCT analysis.

Only three public companies - Manhattan Scientifics, Medis Technologies and Energy Visions - are active in this area, the report says, noting that “widespread adoption of fuel cell technology in portable markets will create a positive impact on investor perception, which will benefit the entire industry.”

Ballard Continues to Dominate Industry

Overall, Ballard Power Systems continued to dominate the industry, reporting $120 million in revenue, up 31% over the previous year. The company reported sales of 250 Nexa units in 20 countries.

“We don’t expect to see profitability in the majority of these companies in the short to medium term, although early profitability appears to be most likely in companies focused on fueling infrastructure such as Quantum, Stuart Energy and Dynetek," it adds.

Summarizing, the report says that despite the somewhat depressing signals, not all is gloom and doom. “On the surface, the industry is not a picture of health,” it notes. “The financing climate continues to be difficult for fuel cell companies, and the sector as a whole still faces many challenges. It has not yet produced a commercially viable company or product that by traditional measures - such as earnings - is successful. Timelines for technical development are not clear, and an explanation of the latest progress has not been clearly articulated.”

Still, said the report, it is important “to look below the surface to see what is happening in the fuel cell sector......we see significant developments not evident in the current financial results that bring more positive news.”

As already noted, the use of fuel cells in portable applications - cell phones, laptop computers, cameras - driven largely by consumer demand is on the horizon. PWC “has seen a substantial rise in the attention given to the portable application market over the last two years,” the report says. “The portable device markets are huge and will allow the general public to use fuel cells in an everyday environment. Bringing fuel cells directly to the public will go a long way towards overcoming many of the issues which have dampened enthusiasm for this technology’s promise.”

Looking further ahead, a “second round commercialization will come in stationary applications, such as institutional electrical generators. Ironically, the transportation sector, where fuel cells have earned the broadest groundswell of acceptance, will need a much longer time to reach the commercialization horizon.”

Beyond that, various environmental and economic factors continue to drive the need to develop fuel cells, the report says: China’s and India’s growing energy demands, the conflicts in the oil producing regions. “Financial results do not tell the story of the progress being made,” the authors conclude. Despite the red ink, “we see the next two years as critical in the sector’s future.” Contacts/Sources: The 26-page FCT report can be downloaded at www.fuelcelltoday.com/FuelCellToday/FCTFiles/FCTArticleFiles/Article_857_Portable0904.pdf. For The PricewaterhouseCooper report, contact Carolyn Morris (media), 416/941-8383 x 13207, e-mail carolyn.morris@ca.pwc.com; or John Webster, 604/806-7726. E-mail john.webster@ca.pwc.com.