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Beyond Ice

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The Michigan Economic Development Corporation asked CAR to undertake a study to begin to understand the implications of fuel cells for the state. Recent technological developments suggest the internal combustion engine (ICE), which has been the driving force during the first 100 years, may be obsolete within the coming decades. Many industry participants believe that fuel cell technology has demonstrated that it has the potential to replace the ICE auto applications. Although there are significant hurdles yet to be overcome in the development of a cost-effective automotive fuel cell and a viable infrastructure, the implications for the automotive industry (and Michigan) would be truly profound. Currently there are 33 engine plants and 14 transmission plants in North America. The development of a cost-competitive automotive fuel cell would likely make many of those powertrain facilities obsolete. As these plants close, they would likely be replaced by facilities specially built for the new fuel cell technology. Yet the path to this new manufacturing paradigm is as uncertain as the fuel cell technology itself.

The fuel cell market can be divided into at least three segments: the specialty or premium market, stationary applications, and high-volume transportation applications. These three markets have vastly different volume levels and they are driven by the cost of manufacture per kilowatt. It is also important to note that these manufacturing issues will only be relevant if the technological development challenges of the fuel cell can be overcome.

Standby power is the primary application of premium or specialty fuel cells for use in businesses highly sensitive to power disruptions. Due to the high value placed on uninterrupted power delivery, this market could justify costs in the $1,000/kW price range. This stage of manufacturing can be referred to as “Generation 1” technology. There are Generation 1 manufacturing facilities currently in the start-up phase, and the products are undergoing proof-of-concept testing. These units will likely be cost effectively manufactured for consumer markets by 2003. Volumes will likely be less than 1,000 units per year.

To cost effectively meet the volume requirements for the second stage, the stationary market, the fuel cell in-dustry will likely have to advance to what could be called “Generation 2” manufacturing. To achieve cost effectiveness, stationary fuel cells will likely have to be delivered to the consumer on the $400 to $600/kW range. The volumes required for this cost reduction could be in the range of 10,000 to 100,000 units. It is possible that such manufacturing advances may not be fully implemented for 5 to 7 years.

The final volume challenge will be delivering fuel cells for transportation applications with a target cost of at or below $100/kW. This Generation 3 manufacturing technology will have to cost effectively deliver fuel cells in volumes above 100,000 units. However, it is possible that such manufacturing capability may be 10 or more years away.

The capital investment strategy for companies is a critical element of fuel cell manufacturing. Advancing from generation to generation will require significant advancements in manufacturing processes. Such fuel cell manufacturing technology is rapidly developing. Therefore, if a company invests in current technology, it may quickly be left with dated—possibly even useless—equipment within a few short years. Yet, if it fails to make investments in the early stages, it risks failing to gain initial market penetration and thus faces even greater barriers upon entry. Consequently, one of the most critical—and perplexing—decisions a company must make is the timing for investment in manufacturing facilities.

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