Fuel cell companies have a tradition of producing far more hyperbole than marketable products. For years, a constant flow of press releases has announced prototypes, testing, and technological breakthroughs. But there have been precious few reports of anyone actually making money.

One critic is Sanjiv Malhotra, a former industry consultant to investors and fuel cell companies. In an interview last fall, he criticized fuel cell companies for lacking a critical focus on commercialization. He said the challenges associated with commercialization outnumbered the many technology challenges. “These companies are made up of scientists and engineers, not manufacturing people,” he said.

For example, he noted that companies traditionally have invented every component themselves instead of using off-the-shelf components, which is a mistake that increases costs and lowers reliability. Companies have not been focusing on reducing costs, enhancing reliability, or making early-stage relationships with OEMs and fuel-cell developers, he said.

Now, things may be changing. Recently, the announcements have been about cost-cutting, manufacturing, and distribution, which suggests these companies are finally gearing up for production.

Smart Fuel Cell, for example, announced a new membrane that would use half of the platinum catalyst, significantly reducing cost. The company also announced a distribution partnership with Heliocentris, which sells educational fuel cell equipment and training materials.

Hitachi Maxell reported a new catalyst using a third of the platinum, again reducing costs while increasing power density.

And just last week, PolyFuel released a new version of its membrane that the company claims is easier to manufacture than its previous version. The hydrocarbon membrane can be manufactured with existing processes for fluorocarbon membranes, such as DuPont’s Nafion, the industry standard. That, again, cuts costs.

These price-reduction strategies, along with the announcements about manufacturing strategies and distribution plans, suggest fuel cells are inching closer to the marketplace.

Several other companies, including Toshiba, Smart Fuel Cell, and Medis Technologies, have said they expect to launch micro fuel cells this year, another sign they’re heading toward a profitable business.

Manufacturing strategies

PolyFuel CEO Jim Balcom said his company’s latest membrane directly confronts the issue of manufacturability. “Of the several critical problems to be solved, manufacturability remains high on the list,” he said.

Farah Saeed, program manager for backup power solutions at Frost & Sullivan, said the strategies in recent announcements are all important steps toward commercialization. “Companies are on the road to commercialization of micro fuel cells,” she said. Frost & Sullivan expects worldwide shipments of 1.5 million by the end of 2005.

Dan Benjamin, a senior analyst for ABI Research, agreed that the latest announcements are good news, particularly those breakthroughs that reduce costs. “Price is a really big deal,” he said. But he isn’t sure whether the announcements indicate a change of focus.

The bottom line is that both technology gaps and commercialization challenges need to be solved for fuel cells to be successful.

Issues remain

“There are a lot of advances being made, but there are so many major issues that they can take their pick,” said Mr. Benjamin, who thinks it is a bit premature to be looking toward distribution. And while production problems will become important eventually, he doesn’t believe they are an issue for the first low-volume wave of products.

Some of the technological needs, such as safe packaging, fuel storage, and humidity management, are more critical for the short-term, according to Mr. Benjamin. “There might be some products, but mass production is not going to be an issue until the production of cell phone fuel cells,” he said.

He expects shipments in the “single-digit thousands” by next year. “People have been saying for years, ‘Next year is going to be the year.’ But maybe this year we really can say that next year will be the year that we’ll be seeing some of these,” he said.

Mr. Benjamin still isn’t sure whether companies will meet their promises of launching micro fuel cells this year, however.

“They may be orderable, as opposed to buyable, this year,” he said. “We’ve been seeing announcements like that for years, and you have to approach these statements very guardedly. But I do think… it’s a legitimate possibility that we will see shipments by next year.”