The Fall of Universal Hydrogen was Inevitable - Not an Indictment of H2
When I was at the US Department of Energy, I co-lead-authored DOE’s inaugural Hydrogen Commercial Liftoff report. We notably found that aviation was not a cost-effective use of commercial hydrogen over the next decade, and is not part of commercial liftoff of hydrogen. Any switch of aviation to hydrogen outside of niche uses will only be after a successful wider commercial deployment of hydrogen.
In light of this it comes as no surprise that Universal Hydrogen folded after burning through $100M. Universal hydrogen had a goal of switching aviation fuel to hydrogen. It aimed big: large passenger planes converted by the early 2030s, expanding from there. Far from being an indictment of the Hydrogen economy, the failure of Universal Hydrogen is more a symptom of VC money chasing hype.
The Universal Hydrogen test plane in flight
Aside from the reasons that the DOE Commercial Liftoff report made clear on why H2 for aviation isn’t commercially viable in the next decade, Universal Hydrogen faced headwinds that many startups faced – but most startups don’t try to tackle so many:
1. Making a Frankenstein hardware solution for a difficult problem
2. Working in the most difficult commercial hardware space – aerospace
3. A leadership team that didn’t understand hydrogen, infrastructure, or product development in a nascent economy
4. Trying to solve too many problems at once
5. Not establishing a product-market fit
6. Not having the right partnerships
7. Changing large airport logistics is impossible
In any startup, a single one of these can end the startup. A good or charismatic leader can lead the way through one or two. All at once would be impossible for even an Elon Musk or Steve Jobs to resolve. None of these are unique to Universal Hydrogen, and we’ve seen them all in the energy and transportation space before.
The problems
Frankenstein solution
Universal Hydrogen tried to Frankenstein a bunch of new parts together onto a plane and airport logistics. This isn’t a recipe for commercial success in most cases. Tons of other startups entering the energy equipment space are making similar mistakes.
Famously, one the first major changes that Elon Musk made when he joined Tesla was to do a clean-sheet design on the kluge that was the original Roadster. The original roadster took a gas powered Lotus, stripped the combustion components, and ran a bunch of batteries in parallel to make it go 70 miles. This sort of worked for sales because individual early adopters thought it was cool – there is no such adopter in commercial aerospace. Indeed, Tesla’s first major change to their industry was redesigning a BEV with a sled design for the frame, designed around batteries, allowing the next gen of Tesla to come in with 3-5x the range at a lower price point. At that point, BEVs could succeed.
Universal Hydrogen was trying to kluge together a solution for airplanes, refuelers, and distribution. They weren’t doing fit-for-purpose design for anything. In a space without masses of individual early adopters, this strategy as the first stepping stone will always fail.
Aerospace is hard
Going into very difficult commercial spaces is playing life on hard mode. Pretty much it’s reserved for founders with extremely deep pockets from prior successes (see Elon Musk post PayPal with both Tesla and SpaceX as well as Jeff Bezos with Blue Origin vs pretty much every other electric car company in the graveyard (fisker twice, lordstown motors, faraday future, etc.))
Commercial aerospace is harder than rocket science. Private aerospace is a much easier space to succeed in, but Universal Hydrogen wanted to go big and splashy – they wanted commercial passenger aerospace. And then they stacked difficult spaces of energy and fuel logistics on top.
Generally speaking, don’t enter hyper competitive and difficult commercial spaces without far more backing and support. Any startup doing this is highly unlikely to succeed. Stacking together wither other difficult spaces will guarantee failure.
The leadership team
I had a chance to meet much of the technical leadership team when I interviewed with Universal Hydrogen while waiting for my US DOE background check. I ended the interview early because I was so disappointed with the CTO’s knowledge of the hydrogen ecosystem. In one example, he roughly said “hydrogen is not a solution for anything but aerospace, and everything else is a distraction.” When I explained that hydrogen fork lifts had already proven him wrong and it would extend to transport trucks, he brushed it aside. It was clear he had no clue how Hydrogen works, and didn’t really care to. Worse, they impugned the opportunity of the entire space with their grand dismissal of all other uses of hydrogen. I immediately knew Universal Hydrogen was sunk at this point. They knew nothing about hydrogen, had no experience in hydrogen, and didn’t care to learn.
Another frequent issue in the space is experience in equipment. Universal Hydrogen largely came from a software background team. ACubed was largely where the Universal Hydrogen leadership team arose. They explicitly explore digital solutions and opportunities in aerospace. Going into a physical bits space with a digital bits background is rarely a solution to success. Somehow this is very common in H2, however.
If you want to know if your hydrogen investment is sound, ask the leadership team about their commercial understanding of other end uses in the space. If they have a bad answer, don’t invest.
Trying to solve too many problems at once
Any startup that tries to fully integrate solving a lot of hard problems at once is going to fail. Nikola tried to do clean energy, hydrogen production, and trucks. After Trevor Milton, the former CEO, was imprisoned for fraud, the new leadership focused on trucks because vertical integration is tough.
Nikola was focused compared to Universal Hydrogen. Universal Hydrogen had expertise in aircraft equipment integration, one of at least nine new problems they were single-handedly trying to solve without strong partnerships – the others were hydrogen production, hydrogen logistics, hydrogen liquefaction, liquid hydrogen management, liquid hydrogen venting controls, fuel transport logistics, new aircraft design, and airport logistics.
Even Tesla only took on a few problems at a time (clean sheet design of a vehicle, power train design, charging stations). Other expertise came after they solved these, like doing their own batteries and megapresses.
Not establishing a product market fit
Buzzwords without a product-market fit are the first sign that a startup is more hype than action. Universal Hydrogen capitalized on hypes in both hydrogen and the clean energy transition.
“We’re going to replace the engines on big planes” is not a product-market fit. “We’re going to replace hydrogen on private planes at private airports with easier logistics integration in developed countries that are hammering down in climate emissions” ($7B market by 2030 in the EU alone) is a very solid product-market fit. Universal Hydrogen was the former.
Generally speaking, if you’re working with hardware, you want a niche of a market you will conquer and then expand from. Tesla went for wealthy homeowners with early adopter profiles before building a big enough network to go big with the Model 3.
If you’re an investor, don’t settle for “we’re going to do everything” in H2 or in clean energy – find a company that has found its large niche to control and expand from. If you’re a entrepreneur, engage an expert to nail your product-market fit to raise effective capital and establish vital partnerships.
Not having the right partnerships
A new hydrogen end-use can’t be done alone and requires strong partnerships. Making the right partners means being able to carry out proper due diligence. That requires having people on the leadership team with both commercial and technical experience to run diligence on partners, or having strategic investors or outside advice to run diligence.
As an example, Tesla partnered with Panasonic until they were ready to build their own batteries. In our current example, Universal Hydrogen was using liquid hydrogen, AKA rocket fuel, and zero of their investors were Air Liquide, Air Products, or Linde - the only three companies in the world that really know liquid hydrogen.
Liquid hydrogen expertise in partnership would only solve two of the nine major problems identified above.
If you are looking to invest or succeed as a startup in a difficult space, be assured you have the right partnerships.
Changing airport logistics is impossible
This is a problem unique to Universal Hydrogen – their goal of using existing large-scale commercial airports was never going to work. Airport fuel logistics are already difficult – adding in a whole new fuel that requires extremely different handling, safety, and training was impossible. Space at airports is already at a premium – all the new equipment wouldn’t even fit in.
Add in that an H2 airplane can only fly to other airports that have H2, and we arrive at an impossible problem: the chicken and the egg issue of infrastructure and H2 at large commercial airports is far more difficult than at smaller or private plane airports.
Other H2 aerospace companies are doing much easier models that get around or drastically reduce this airport logistics issue. Find companies that are built around solvable problems.
Wrapping it up
Universal Hydrogen largely had a talented management team. But those talents weren’t applicable to the problems they were trying to solve.
If you look at many other hydrogen companies that aren’t named Nikola or Plug, or most clean energy companies, they have maintained laser focus on problem.
Success in this space comes from solving difficult but tractable problems with the right partnerships and right leadership. Universal Hydrogen didn’t fail because of intractable problems in hydrogen – it failed because they never established product market fit, tried to do too much, and had the wrong leadership for what it wanted to do.
I’m going to close with saying that the DOE was very clear that hydrogen for aviation isn’t going to be a large offtake for hydrogen within the next decade. The writing has been on the wall here over 18 months. There are niches in H2 aviation that can work in the short term, but large commercial passenger airplanes is not one of those spaces.
