Japan’s auto giants can navigate the hydrogen hype. Tokyo wants cleaner vehicles like fuel-cell models to replace gas guzzlers by the mid-2030s. It’s reminiscent of Beijing’s push into electric cars. But unlike start-ups in the People’s Republic that became hooked on handouts, $52-billion Honda and $249-billion Toyota can enjoy a smoother ride.

For decades, China backed battery power to reduce smog and oil imports, encouraging hundreds of entrepreneurs to enter the market. But fluctuating policy tested start-ups. Mere months after Tesla-wannabe Nio went public, its second-quarter net loss nearly doubled as Beijing slashed subsidies, reducing grants available to buyers of its ES8 sports utility vehicle by around 80 per cent compared with the previous year.

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Japan’s government first revved up investment into hydrogen in 2014. Still, Toyota has sold only around 11,000 hydrogen-powered “Mirai” since the model’s debut that year. It is reminiscent of China’s young electric-vehicle ventures like Li Auto, which had only delivered some 10,000 cars before listing in New York in 2020.

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In the fast lane

Now Tokyo is putting hydrogen in the fast lane. Prime Minister Yoshihide Suga’s commitment to ramp up consumption could lower prices and increase investment into infrastructure like charging stations, reducing hassle and also running costs for drivers: fuel distribution and retail account for about 60 per cent of end-users’ outlay, according to the Hydrogen Council and McKinsey. The government also offers generous subsidies to reduce sticker prices, offsetting the high cost of the hardware.

The experiment could catch investors’ imaginations much like China’s start-ups have: Nio and Li Auto are valued at around $93 billion and $27 billion respectively, though neither has turned a profit. Hydrogen technology stocks are already on a tear in North America, where shares in fuel-cell products designer Ballard and Fuelcell Energy, specialising in power plants, have risen more than 200 per cent and 1400 per cent, respectively, over 12 months.

Toyota and Honda won’t offer a pure play on the theme. They continue to make traditional combustion engines, as well as electric and hybrid models. Unlike start-ups, scale allows them to spread bets on the next big thing. That leaves much to win and relatively little to lose for Japan’s automakers.

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