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■ Date: March 31, 2021
【Fuel cell testing market, another promising wave in China hydrogen industry?】
 
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In 2018, one of the largest hydrogen R&D center in China has been put into operation in Baoding, Hebei by Great Wall Motors with RMB 140 million invested in over 100 fuel cell testing equipment. Likewise, fuel cell and stack integrators, which just constructed fuel cell production sites in China, are also procuring more testing device for mass production. For example, Weichai, a leading state-owned fuel cell commercial vehicle manufacturer in Weifang, Shandong, procured 70 sets of testing equipment from Hephas Energy, Kewell, and Rigor.
 
Does it mean the fuel cell testing market is the next wave in China hydrogen industry? To answer this question, in this article, we will explore the fuel cell testing industry and later examine its market potential in the next 20 years.
 
Fuel Cell Testing Laboratory in Great Wall Motors
 
Status Quo
 
Along with the development of hydrogen fuel cell market, the testing segment also evolves as the outburst of fuel cell industry in China. By far, over 500 sets of testing equipment are estimated to have been installed in the market, under which Pearl River Delta and Yangtze River Delta generate over 60% of market demand. Due to the well-developed logistic industry in these two regions, high-power fuel cell vehicles will be widely employed for cross-provincial transportation. Besides, the procurement power of Hubei and Shandong provinces are also bullish among the others. The outstanding demand in these regions are highly aligned with the initiative of local governments to develop the fuel cell market, which has promoted the emergence of new market entrants from fuel cells and fuel cell vehicles, thereby stimulating the growing demand for test equipment.
 
In addition, while the mid-power range (60kW to 99kW) of testing device is the mainstream at the current market, it is anticipated that high power will become the target market in the future. Driven by fuel cell’s attribute and well-adaptability for long distance transport in China, fuel cell vehicles are encouraged and subsidized by Chinese government to work towards high-power development (see Figure 2). As such, large power testing sector is expected to become the next major target market for players.
 
 Figure 1: Fuel cell testing equipment market coverage by geography and power range
Figure 2: Rated power transition of FCEV from 2018 to 2020
 
Market Transition
 
Before 2016, universities and research institutes were the major procurement power of fuel cell testing equipment for research purpose. However, the purchasing power was very limited in China, and further constrained by the restricted procurement budget. Meanwhile, some buyers are intimidated by the expensiveness of foreign products. Therefore, without the support from domestic substitution, buyers chose to import the key component (e.g., electric load) from overseas to build their own testing devices for single fuel cell examination.
 
As the fuel cell market started to develop in China, the corporate users (e.g., fuel cell stack & system integrator, FCV manufacturer, and third-party testing center) gradually take over the place as mainstream consumers, so does the product preference which shifts from single fuel cell examination to medium-high power stack testing, also to the extent of key component and BoP diagnosis. Moreover, in recent years, domestic players in fuel cell testing segment are budding in China.
 
“Domestic suppliers have acquired a decent amount of market share by offering lower price and outstanding customer service, under which after-sales service plays a vital role in business operation, takes over at least 40% of total business hour.” 
- According to one of the Senior Executive from Hephas Energy, a leading fuel cell testing equipment supplier in China.
 
Meanwhile, fuel cell system and stack testing become two of the most competitive segments in China, concentrated by both international and domestic players. On top of that, industry players are working towards the R&D of high-power stack (>100kW) and system (>150kW) test bench, in order to secure the large power market share in advance (Figure 3).
 
Figure 3: Automotive fuel cell testing equipment competition market
 
Market Pain Points
 
On the other hand, the market has showcased two market pain points at the moment which slows down player’s movement in acquiring market share.
 
1. Concerning automation level
 
The automation level is causing concern in fuel cell testing equipment industry. By far, the majority of testing devices are experiencing manpower assembly regardless of international or domestic players. Two circumstances have driven this phenomenon. First, limited downstream demand in the previous decade did not drive up the need of production capacity expansion, due to the downstream demand where the need of testing equipment mainly came from academics and research institutes. As such, there is no need for equipment suppliers to consider automated production. Second, customization in testing equipment is a common practice in product offering, whereas this is driven by the imperfection of test protocol in China, leaving downstream clients with ambiguous requirement of testing items. As a result, testing equipment suppliers are unable to conduct mass production of standardized product according to local standards.
 
2. Long deliverable period for international players
 
Deliverable period is a critial issue for international players who only manufacture outside of China. It is estimated that the average deliverable period for an overseas fuel cell stack testing device can take up to 2 years. Meanwhile the majority domestic manufacturers only take maximum 6 months to deliver a customized test bench. In other words, long deliverable period weakens the competitiveness of international players in China to a certain extent, especially in the context of rapid growth in market demand. More specifically, it will discourage downstream buyers from procuring foreign products, leaving domestic supplier to share the market.
 
Future Market Sizing
 
Based on INTEGRAL’s forecast, the number of FCEV will respectively reach 3.4 million and 6.9 million by 2035 and 2040. Therefore, our base-case estimate of the fuel cell testing equipment market across China is, thus, 28k sets in 2040 (Figure 4), according to the significant correlation between FCEV number and fuel cell testing device. For further reference, please refer to <China will have more than 29.8 million FCEVs on the road by 2050>.
 
To put that into perspective, the market potential in 2040 will be 52 times greater than that of 2020. Meanwhile, supposing the average sales price of testing equipment will reduce to RMB 1 million with the maturity of local key components, the industry value is anticipated to exceed RMB 28 billion by 2040, showing 21 times greater than the current market value. As a result, when the market pain points are resolved, the industry is expected to reach the early commercialization stage between 2025 to 2030 with the strongest demand growth momentum. After which we expect the industry to become further mature and be fully commercialized from 2035 onwards.
 
In addition, Pearl River Delta and Yangtze River Delta are expected to be the key markets and generate the greatest fuel cell testing demand in China which accounts for 53% by 2040 in total. This is due to the policy and incentive support from government to hydrogen and fuel cell industry in the local market. On the other hand, Jing-Jin-Ji (i.e., Beijing, Tianjin & Hebei), Central South (i.e., Hebei, Hunan, Henan, Guangxi & Hainan), Sichuan and Shandong provinces are the markets that should not be neglected. These markets are anticipated to see an outbreak in the future (reaching roughly 39% by 2040) driven by the increasing number of fuel cell vehicles and downstream fuel cell players.
 
So, to answer whether fuel cell testing market is the next wave in China at the beginning of this article, the answer is Yes.
 
Figure 4: Fuel cell test equipment demand forecast (2020-2040)
 
However, the expansion for international players is still facing lots of obstacle and issue, for further analysis regarding major testing players in China, please stay tuned for part II. Should you have further questions about hydrogen and related topics, please feel free to drop us an email at info@integral.net.cn., and don’t miss out our next blog about fuel cell testing industry players in China.
 
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