The hydrogen fuel cell industry, positioned upstream in the supply chain, finds itself at a critical crossroads. On July 10th, the China Association of Automobile Manufacturers (CAAM) released the latest production and sales data: Hydrogen fuel cell vehicle (FCV) production in June 2025 was 188 units, a year-on-year decrease of 81.5%; sales were 251 units, down 76.4%. In the first half of the year, cumulative FCV production reached 1,364 units (down 47.2% YoY), with sales at 1,373 units (down 46.8% YoY).

At the recently concluded 2025 International Conference on Hydrogen and Fuel Cell Vehicles (FCVC 2025), Ouyang Minggao, Academician of the Chinese Academy of Sciences, Professor at Tsinghua University, and Chairman of the International Hydrogen Fuel Cell Association (IHFCA), acknowledged that while China's hydrogen fuel cell products are steadily developing and the country now boasts the largest fleet of hydrogen fuel cell commercial vehicles globally, overall sales remain low. Market development has been relatively slow, particularly with last year's decline compared to the previous year. Ren Yahui, Founder, Chairman, and CEO of Shanghai Hydrogen Technology Co., Ltd., was more blunt: "The entire hydrogen industry is now entering 'deep waters,' especially in component sectors like hydrogen fuel cell systems. Insufficient market demand and persistently high costs are making business operations extremely difficult for enterprises."

Hydrogen energy is a crucial component of the future national energy system, a vital carrier for achieving green, low-carbon development at the end-use level, and a key strategic emerging industry. Facing these current challenges, how can the hydrogen fuel cell industry safely navigate these "deep waters"?

Market Volatility and Pressure Behind the Gloom

The hydrogen fuel cell industry has high barriers to entry, with market leaders concentrated. Companies like SinoHytec, REFIRE Group, Guofu Hydrogen, and Sinosynergy Hydrogen Energy, with their early entry and extensive, deep layouts, have gradually gained brand recognition and market influence. However, their annual financial reports paint a less rosy picture.

· REFIRE Group (HKEX): 2024 operating revenue ~¥649 million (down 27.5% YoY), mainly due to fluctuating customer demand amidst the developing commercialization landscape and infrastructure. Net loss attributable to owners ~¥737 million; adjusted net loss ~¥417 million.

· Sinosynergy Hydrogen Energy (HKEX): 2024 operating revenue ~¥442 million (down 36.9% YoY); gross profit ~¥40 million (down 77.2% YoY); net loss attributable to owners ~¥407 million.

· SinoHytec (A+H): 2024 operating revenue ~¥367 million (down 54.2% YoY): net loss attributable to owners ~¥456 million.

· Guofu Hydrogen: 2024 operating revenue ~¥459 million (down 12.2% YoY): net loss attributable to owners ~¥210 million (significantly wider than the ¥73.3 million loss in 2023).

The dismal performance across major players in 2024 highlights systemic industry issues:

1.Early Commercialization Phase: Transitioning from "policy/demonstration-driven" to "scenario/commercialization-driven," resulting in small overall market scale and incomplete infrastructure.

2. Financial Pressure: Increased cash flow strain across the supply chain impacting project execution.

3. Intensified Competition & Lagging Infrastructure: Contributing to a significant drop in market demand.

4. Accounts Receivable Burden: Extended customer payment cycles, aging receivables, and increased bad debt provisions impacting profitability. SinoHytec's 2024 bad debt expense surged 122.6% YoY to ¥194 million; receivables over 2 years old ballooned from ¥579m (28% of total) in 2023 to ¥1.053 billion (48%). REFIRE's trade receivables/bills/contract assets (net of impairment) rose ~19% YoY to ~¥2.4 billion.

SinoHytec attributed this partly to the FCV subsidy mechanism: manufacturers sell vehicles net of subsidies, awaiting reimbursement from central/local governments, leading to large receivables and long collection cycles.

Compounding the problem is uncertainty over policy continuity. The cost reduction inherent in new energy technologies relies on scale. Early-stage industries depend heavily on policy support. With subsidies tapering and the first FCV demonstration city clusters nearing expiration, cost pressures intensify, squeezing already narrow profit margins.

Stranded on an "Island" of Supply-Demand Mismatch

The revenue challenges are symptomatic of deeper issues: inadequate infrastructure, limited market space, supply-demand misalignment, and policy uncertainty.

While domestic supply chain localization accelerates across components (tanks, pumps, valves, stacks, systems), upstream hydrogen production, storage, transport, and refueling still account for over 60% of the end-user hydrogen cost. Technical bottlenecks and import dependence persist in these areas.

"To break through technical barriers and maintain competitiveness, fuel cell companies invest heavily in R&D, but the long development cycle and difficulty in near-term commercialization further drive up costs," an unnamed industry executive told China Automotive News. "The small market gap, oversupply, and immature business scenarios make it hard to scale production and amortize costs."

"Hydrogen is a strategic emerging industry facing complex, systemic challenges," noted Liu Sha (pseudonym), another industry representative. The hydrogen value chain is interlinked; balanced development requires progress across the entire chain. While China focused initially on core fuel cell tech and vehicle demonstrations, the current bottleneck has shifted upstream to hydrogen production, storage, transport, and refueling.

"Strengthening technological innovation and expanding market scale are the two key paths to cost reduction, and they influence each other," Liu Sha stated. "Hydrogen applications exist in vehicles and non-vehicle sectors, some exploring sustainable models, others hindered by cost and other factors."

Zhang Tianyu, Chairman of Foresight Energy Technology, concurred that while challenges remain (durability in harsh conditions, high onboard storage costs, material localization), the primary barrier to profitability is the infrastructure/hydrogen supply side:

1. High Hydrogen Price: High storage/transport costs. 20MPa tube trailer efficiency is low (238kg/trip, serving ~6 trucks). 50MPa trailers could cut costs 40-50% by reducing trips. Liquid hydrogen transport (density ~5x higher, cost ~1/10th) offers potential but requires investment. High refueling station costs (land, O&M) push reliance on cheaper skid-mounted stations, hindering large-scale commercial operation readiness.

2. Infrastructure Policy Bottlenecks: Lengthy approval processes for fixed stations (~1 year) and regulatory hurdles for skid-mounted stations (1-2 months build, hard approvals) perpetuate the "vehicles waiting for stations" problem.

The narrow application focus, primarily on FCVs, further traps the industry on an "island" bounded by high upstream costs and limited downstream markets.

"Multi-Pronged Approach" for Self-Rescue

Fu Lan (pseudonym), an energy research institute representative, offered a sharper critique: "FCV success is predicated on the success of the entire hydrogen industry. The hydrogen burden should never have rested solely on the automotive sector." Relying only on the auto sector's relatively small demand cannot activate the vast hydrogen supply chain or justify massive investments in pipelines and station networks, inevitably leading to a vicious cycle of "high cost - low adoption - limited scale - higher cost."

Industry voices strongly desire breakthroughs upstream. "Solving the energy supply problem – pipelines, station networks – requires equipment industry breakthroughs, government guidance, and investment from large state-owned energy enterprises (SOEs)," Liu Sha explained. "Recent large-scale green hydrogen projects (investments often billions of yuan) are mostly SOE-led; SMEs like us participate in specific segments."

Despite the "deep winter," companies are actively pursuing multiple paths forward. REFIRE's 2024 report offered a glimmer: overseas revenue surged 151.7% YoY, and non-vehicle FC system sales jumped 132.6%. Narrowing losses and improved cash flow signal market-driven adaptation efforts.

Liu Sha outlined key industry needs:

1. Policy Continuity: Continued support during the critical commercialization transition phase ("help onto the horse, then accompany for a while longer").

2. Financial Relief: Policies to shorten SME receivable cycles and expand financing channels for core tech innovators. "Current subsidy models cause long payment cycles. Companies must pre-finance while maintaining R&D, creating immense pressure."

The industry widely sees ¥20-25/kg hydrogen as the tipping point for commercial vehicle competitiveness against diesel and EVs. Foresight Energy believes this is achievable within ~3 years. Zhang Tianyu advocates leveraging low-cost industrial by-product hydrogen (low-carbon) to scale end-use applications: "Use cheap hydrogen to build the industrial ecosystem," using FCVs as the "bull nose ring" to pull the entire chain forward.

Xue Lulu, Sustainable Transport Director at WRI China, advises pushing "outward" as well as "upward." WRI research identifies two key hydrogen pilot opportunities beyond road transport in the next 3-5 years:

1.Sustainable Aviation/Shipping Fuels (SAF/SMF).

2. Decarbonization of high-energy industries (petrochemicals, chemicals, steel).

As China's carbon market expands, industrial demand for renewable hydrogen is expected to grow, providing clearer market pull – potentially the industry's "second growth curve."

Forging the Hydrogen Future Through Full-Chain Synergy

At the recent 2025 China Auto Forum, Wan Gang, former Minister of Science and Technology and current Chairman of the China Association for Science and Technology (CAST), affirmed FCV progress: "Through years of effort, fuel cell system power density increased from 250 W/kg to 750 W/kg (3x); system cost dropped from ¥15,000/kW to ¥2,500/kW (80% reduction). We now have 27,000 FCVs operating (mostly commercial vehicles), 542 hydrogen refueling stations built, 120,000 tons/year green hydrogen capacity, and 400 km of hydrogen pipelines." He stressed the importance of the initial phase and mastering core technologies for future advancement.

The true "spring" for hydrogen FCVs depends on deep synergy across the entire hydrogen industry and all application scenarios. Breaking the deadlock requires concerted effort from all stakeholders.

As the 2025 FCV demonstration policy expiration approaches, industry consensus calls for:

· Continuous Policy Support: Seamless transition to new support mechanisms.

· National Hydrogen Highway Network: Unified implementation of incentives like toll waivers nationwide.

· Dedicated Financing Channels: For infrastructure and innovation.

· Green Hydrogen Cost Reduction Toolkit: Comprehensive policies.

· Diversified Application Scenarios: Breaking beyond transport.

Wan Gang recommended strengthening policy continuity, precision, and scenario adaptability: shifting focus from key tech/chain support to scaling, application in key scenarios, and infrastructure acceleration (e.g., hydrogen highways, corridors).

Building large-scale, long-distance pipelines and dense station networks requires massive, long-term investment. Ouyang Minggao noted a hydrogen station may take over 8 years to reach breakeven. State-owned enterprises (SOEs), with their capital strength and long-term perspective, are crucial for laying this foundation.

Beyond domestic growth, Xue Lulu sees potential in "going global" with Chinese technology and standards. She suggested future policies focus on:

1. Expanding Applications: Extend beyond road transport to aviation, shipping, and industry to boost domestic green hydrogen demand.

2. International Standards: Develop and align renewable hydrogen standards (definition, carbon footprint, certification) for export, seeking mutual recognition with key markets like the EU.

3. Optimizing FCV Truck Policies: Refine support for heavy-duty FCV demonstrations.

Zhang Tianyu proposed specific policy refinements:

1.Precise & Efficient Funding: Streamline central funding disbursement directly to companies, avoiding local government delays and unfulfilled matching fund promises.

2. Policy Flexibility: Allow adjustments to keep pace with rapid tech and business model evolution.

3. Broader Scope: Expand successful demonstration models to more eligible regions.

4. Diverse Incentives: Supplement subsidies with financial support, road priority rights, hydrogen-carbon synergy mechanisms.

5. Wider Application Fields: Extend incentives to power generation, marine, drones, and rail.

Hydrogen energy development is a systemic challenge requiring full-chain, cross-sectoral, and ecosystem-wide collaboration. The key to breaking free from the "deep waters" lies in abandoning the outdated notion of relying solely on the automotive sector. Instead, a deeply integrated "four-wheel drive" interest community encompassing the vehicle, industrial, power, and policy sectors must be forged. Only through such a powerful, cross-industry symbiotic network can the promising hydrogen industry navigate the challenges and sail towards a sustainable future.