The Dilemma of the Hydrogen Fuel Cell Industry: Annual Sales of Vehicles Fall Short of 10,000 Units—Yet Demonstrators Already Eye Quick Profits

Some investors lack a clear and rational understanding of the fact that the hydrogen fuel cell industry is still in its early stages, while others have entered the market simply hoping to make quick profits. Once the market fails to deliver rapid returns, they find themselves in serious trouble. Li Yi, a project manager at a manufacturer specializing in core components for hydrogen fuel cell systems—commonly known as "fuel cells"—told a reporter from Caixin that his company has already laid off about 20% of its workforce this year and is now facing delays in salary payments compared to the past. Li explained that hydrogen-powered vehicles are currently in the "early stages" and still struggling to gain traction, with limited market potential and few real-world applications. As a result, the company’s products simply aren’t selling well. According to data from the China Association of Automobile Manufacturers, in 2023, China’s total production and sales of hydrogen fuel cell vehicles were just 5,631 units and 5,791 units, respectively. Yet, there are over a hundred companies producing fuel cell systems specifically tailored for these vehicles.

Li Yi's company currently faces a significant amount of long-outstanding accounts receivable, compounded by increasingly challenging financing channels, which have left the company with mounting cash flow pressures. Recently, reporters from First Finance discovered during field visits across multiple regions that several other enterprises are grappling with similar circumstances as Li Yi's company. Some investors still lack a clear and rational understanding of the fact that the hydrogen fuel cell industry is still in its early stages, while others have entered the market purely with the mindset of "making quick profits." As a result, once the market fails to deliver rapid returns, these investors find themselves in serious trouble.
Foshan City's Nanhai District is an important hub for China's hydrogen fuel cell industry, home to more than 100 related enterprises. However, during local interviews, many residents told reporters that aside from "knowing some buses are running on the road," they’ve hardly encountered hydrogen fuel cell vehicles in their daily lives. A hydrogen fuel cell is a device that directly converts the chemical energy of hydrogen and oxygen into electricity—its fundamental principle is essentially the reverse of water electrolysis. Today, its primary applications span transportation, aerospace power, energy storage, and even rail transit systems.
Currently in China, the primary application of hydrogen fuel cells is in hydrogen fuel cell vehicles. Although there are no official industry statistics indicating exactly what proportion hydrogen fuel cells currently hold in this sector, respondents told reporters that over 90% of the hydrogen fuel cells on the market today are used specifically in hydrogen fuel cell cars. For instance, at the company where Li Yi works, all of the core component products from their hydrogen fuel cell systems are exclusively applied to the hydrogen fuel cell vehicle market. 2018 was widely recognized as the inaugural year for China's hydrogen fuel cell industry. In 2021, five ministries—including the Ministry of Finance—approved pilot hydrogen fuel cell vehicle projects in five cities or city clusters: Beijing-Tianjin-Hebei, Shanghai, Guangdong, Zhengzhou, and Hebei.

In fact, hydrogen fuel cell vehicles—currently the primary application area for hydrogen fuel cells—are far from reaching maturity and widespread adoption; the industry remains in the demonstration phase. Several company representatives noted that the current state of the hydrogen vehicle market can be summed up as "vehicles are too expensive, and the market isn’t willing to pay." Xiongchuan Hydrogen Energy Technology (Guangzhou) Co., Ltd. (hereafter referred to as "Xiongchuan Hydrogen"), a manufacturer of hydrogen fuel cell vehicles that also operates a fleet of such vehicles, revealed internally that its hydrogen-powered dump trucks come with a hefty price tag—each vehicle costs more than twice as much as a comparable diesel-powered dump truck of the same tonnage, significantly increasing the initial investment burden. Moreover, hydrogen fuel itself is considerably pricier than diesel, further driving up operational costs. Combined with these challenging factors, the payback period for these 200 vehicles has been markedly extended—and in some cases, has even become virtually impossible to predict.
Taking cost as an example, the 31-ton hydrogen fuel cell dump truck produced by Xiongchuan Hydrogen Energy costs 1.2 million yuan. Even after deducting the 330,000-yuan policy subsidy, its price still remains 200,000 to 300,000 yuan higher than that of a comparable diesel vehicle. During interviews with companies, the most common sentiment reporters heard was that the hydrogen fuel cell industry is still in its early stages, with both the industrial chain and technological capabilities yet to reach maturity. Notably, significant shortcomings persist—particularly in terms of cost, materials, and technology. At a hydrogen fuel cell bus station in southern China, when reporters asked drivers about their experience operating these vehicles, the feedback was overwhelmingly negative: "Poor experience," "Many issues," and "Constant anxiety over maintenance."
Li Shancheng, who once served as the station manager of China’s first hydrogen refueling station put into commercial operation, told reporters that the high cost and unstable supply of hydrogen, coupled with numerous challenges, bottlenecks, and pain points across key stages such as production, storage, transportation, and refueling, are further hindering market growth. For instance, some hydrogen stations are located in chemical industrial parks, catering primarily to demonstration vehicles rather than those used for everyday operations. "From this perspective," Li Shancheng said, "the development of the hydrogen fuel cell vehicle industry still has a long way to go."
According to statistics from the GGII Hydrogen Electric Industry Research Institute, hydrogen fuel cell vehicles achieved 7,478 new-vehicle registrations in 2023, representing a significant year-on-year increase of 49.4%. However, these vehicles were supported by 96 hydrogen fuel cell system manufacturers, yet only 15 of them supplied systems for more than 100 vehicles each. By the first half of 2024, registration numbers had climbed to 2,490 units, marking a 10.6% rise compared to the same period last year—yet the number of manufacturers supplying over 100 vehicles had dwindled to just 6. Additionally, data from the China Association of Automobile Manufacturers reveal that from 2015 through the first half of 2024, China’s cumulative production and sales of hydrogen fuel cell vehicles totaled 21,267 units and 20,740 units, respectively. Based on these figures, the average annual production and sales of hydrogen fuel cell vehicles over the past decade have remained stubbornly low—at just over 2,000 units per year. Compared to the country’s ambitious production capacity plans, this figure appears remarkably modest.
Zheng Xianling is the President Strategy Advisor at CIMC Group, with a long-standing focus on the hydrogen fuel cell industry. In an article she wrote in April, she revealed that, according to capacity plans from major hydrogen fuel cell companies, China's domestic production capacity for hydrogen fuel cells could already meet the needs of over 300,000 vehicles—but currently, actual annual shipments remain below 10,000 units. "As for this year," Zheng Xianling noted during an interview with a reporter from Caixin, "the development momentum in the hydrogen fuel cell vehicle sector is still largely limited to maintaining demonstration operations and product validation, with no commercially viable, large-scale, or industrialized business model yet taking shape."
An industry observer pointed out that not only hydrogen fuel cell vehicles—but the entire hydrogen energy sector—has yet to reach a mature, universally commercialized stage. Now is the time to focus intently on advancing and refining the underlying technologies, rather than prematurely aiming to quickly capitalize on market opportunities in an "inappropriate" manner. "The market hasn’t even taken shape yet; how could you possibly expect to pick ripe fruits when the tree isn’t ready?" This misalignment in thinking is partly rooted in some newcomers’ misjudgments about the industry. Back in 2018, the Ministry of Finance and other relevant departments issued the "Notice on Adjusting and Improving Fiscal Subsidy Policies for the Promotion and Application of New Energy Vehicles." While subsidies for most other new-energy vehicle models were significantly reduced, hydrogen fuel cell vehicles continued to receive substantial financial support. It wasn’t until 2020 that these policy incentives began to gradually phase out, underscoring the high expectations placed on this emerging technology at the time.
As various favorable policies continue to be introduced, more and more companies are entering the hydrogen fuel cell industry. A reporter’s inquiry through Tianyancha revealed that since 2017, the number of newly registered hydrogen-energy-related enterprises has been steadily increasing. As of July 2024, there are nearly 4,000 active hydrogen-energy-related businesses nationwide. To date, 27 out of China’s 31 provinces have already unveiled provincial-level hydrogen fuel cell industry development plans.

"Following the trend—everyone rushing in at once." Gu Jun, head of a company specializing in manufacturing core components for hydrogen fuel cell systems, shared with reporters an example: Over the past few years, his office has frequently hosted government investment promotion teams from across the country. This year alone, about 20 teams have personally visited his company to explore collaboration opportunities—some even expressing their willingness to allocate prime local land for setting up production facilities. He noted that these teams hail not only from relatively economically advanced regions but also from areas still lagging behind in economic development. According to the aforementioned observer, many of them are primarily motivated by the prospect of quick profits, overly focused on policy incentives while paying insufficient attention to industry fundamentals and long-term market dynamics. As a result, once their initial expectations fail to materialize, they often find themselves grappling with operational challenges.
A noteworthy phenomenon is that many companies are facing a difficult dilemma between orders and funding. "When we receive an order, we're always torn—do we accept it or not?" Li Yi admits candidly. He explains that because the initial investment for these projects is enormous—often exceeding one million yuan—even after contracts have been signed, even a slight fluctuation in the customer's financial situation could lead to delayed payments. "And unfortunately, this situation is happening far more frequently these days," Li Yi adds. He reveals that the company is currently grappling with massive accounts receivable totaling tens of millions of yuan—amounting to nearly half of last year's total annual revenue—and that some of these receivables have remained outstanding for almost two years. A significant portion of these debts stems from the company's core hydrogen fuel cell system components, while another part originates from the production equipment used to manufacture those critical parts. This overwhelming backlog of receivables is severely hampering the company's daily operations, research and development efforts, and ability to launch new projects—causing the company's previously rapid growth trajectory to come to an abrupt halt.
Faced with financial pressure, the company was forced to cut jobs while simultaneously making significant adjustments to its business model. Previously, relying on trust in customers' creditworthiness, the company would swiftly kick off production after receiving a small advance payment. However, given the current shifts in the market environment and the uncertainty surrounding customers' ability to pay, the company has been compelled to adopt a more cautious approach—now requiring over 60% of the payment upfront as a prerequisite for initiating projects. This move is aimed at easing financial strain and minimizing the risk of default. Several senior executives told reporters that before 2023, companies generally adopted a "carefree" attitude due to relatively easy access to financing, leading them to continuously expand production lines and even advance funds to customers—often neglecting internal management practices. As a result, some projects have now reached a point where not a single penny can be recovered.
However, fundraising has become increasingly challenging these days. "The tighter companies' financial situations are, the harder it becomes to secure funding, as investors have grown more sensitive to risk," Gu Jun noted. He gave an example: "Not long ago, we were on the verge of landing a venture capital deal, but after just half an hour of discussion, the investors realized that the industry would likely need at least another five years—or even longer—to show significant results. Ultimately, they decided to pull out." An industry insider recalled that back in 2019, when the hydrogen energy sector was riding high as a "hot trend," he and the company chairman, during a brief exchange at an industry forum, quickly assessed the potential—and promptly decided to invest 50 million yuan into a hydrogen fuel cell enterprise that, at the time, seemed particularly promising.
Two years ago, Gu Jun’s company easily secured a bank loan worth over ten million yuan and enjoyed a three-year interest-free benefit. Back then, the bank was “very accommodating”—from application to fund disbursement, the entire process took only two to three months. But today, the approval cycle for banking loans has significantly lengthened, and the scrutiny criteria have become increasingly stringent. As a result, Gu Jun has had no choice but to abandon bank financing as a means of raising capital. Gu Jun has noticed that, amid growing macroeconomic uncertainties, investors are now adopting a more cautious approach when it comes to industries like hydrogen fuel cells—sectors that are relatively new and characterized by longer development cycles. Instead, they’re gravitating toward projects that promise quicker returns and carry lower risks. Consequently, since the beginning of this year, Gu Jun has adopted a strategy of scaling back production and gradually slowing down the company’s growth momentum. Hydrogen fuel cell vehicles, once hailed as the darling of the new energy industry for their pivotal role in driving the transition of energy systems, upgrading the automotive sector, and advancing environmental protection, now face a shifting landscape of investor confidence.
The "China Hydrogen Energy Industry Infrastructure Development Blue Book (2016)," jointly compiled and organized by the Chinese Academy of Standardization and the National Technical Committee for Hydrogen Energy Standardization, forecasts that by 2030, the number of hydrogen fuel cell vehicles in China will reach 2 million, accounting for approximately 5% of the nation's total automobile production. By that time, China is expected to become the world's largest market for hydrogen fuel cell vehicles, with the industry's output value projected to surpass the trillion-yuan mark. However, as the hydrogen fuel cell vehicle industry continues to develop, growing concerns have emerged about its increasing reliance on government policy support. Some respondents pointed out that there is a widespread tendency within the industry to hold overly optimistic expectations regarding favorable policies. Although the policy direction remains clear, delays and inadequacies in implementation at the operational level have made it difficult for companies to secure the anticipated backing, often derailing their strategic plans. In September 2020, the Ministry of Finance, the Ministry of Industry and Information Technology, and other relevant departments jointly issued the "Notice on Launching Demonstration Applications of Fuel Cell Vehicles" (commonly referred to as the "reward-for-subsidy" policy), initially set for a four-year demonstration period ending in 2024. "But currently, it appears this policy cycle may extend into 2025," Li Shancheng told reporters. As for policies beyond 2026, no concrete measures have yet been unveiled, adding a layer of uncertainty to businesses' operations.
According to Zheng Xianling, from 2010 to 2022, cumulative subsidies for electric vehicles exceeded 200 billion yuan, and to this day, these vehicles still enjoy exemptions from purchase taxes. In contrast, under the "reward-for-subsidy" policy for hydrogen fuel cell vehicles, the total accumulated subsidies across three tiers amounted to only 21.25 billion yuan. Moreover, core component manufacturers can only receive government funding after their fuel cell vehicles have reached targeted mileage milestones—leaving the hydrogen fuel cell vehicle industry severely strapped for cash. A Guangzhou-based company that simultaneously operates both hydrogen fuel cell vehicle manufacturing and vehicle operation businesses has already deployed 200 hydrogen-powered dump trucks. These vehicles have already logged "several tens of thousands of kilometers," yet the company continues to operate at a loss. A company insider shared their perspective on government support: "A single hydrogen-powered dump truck costs 1.2 million yuan, whereas a diesel-powered one is priced at just 500,000 to 600,000 yuan. How can you possibly convince others to buy such an expensive hydrogen vehicle? You’ll need to come up with some creative solutions—perhaps the government could mandate that only hydrogen-powered dump trucks be used when issuing new licenses, or even designate specific demonstration zones exclusively for hydrogen-fueled vehicles. With a subsidy of 370,000 yuan per vehicle, the net cost still exceeds 800,000 yuan after deducting the incentive—a price tag that’s actually 200,000 to 300,000 yuan higher than that of a diesel-powered model. By offering hydrogen subsidies and controlling license issuance, we could gradually phase out diesel vehicles altogether, paving the way for hydrogen-powered dump trucks to dominate the market."
Last year, Zou Yuquan, CEO of Hongji Chuangneng Technology (Foshan) Co., Ltd., told a reporter from Caixin that the most pressing issue right now is how to quickly reduce costs and break free from an over-reliance on subsidies. He believes that accelerating the commercialization of hydrogen fuel cell vehicles is the only viable path forward—only when end-users are genuinely willing to pay for and adopt hydrogen-powered vehicles will the industry truly gain momentum. More specifically, he emphasized that the price of 49-ton hydrogen fuel cell heavy-duty trucks must be kept below 800,000 yuan per vehicle, while passenger cars should remain around 350,000 yuan each. Additionally, keeping the cost of hydrogen at approximately 25 yuan per kilogram is essential as the first critical step toward ensuring market-driven operations. "To this day, I still hold this view," he added. (Li Yi and Gu Jun in the article are pseudonyms.)

Translated from Sina Auto

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