Hydrogen Infrastructure, Fuel Cell Electric Vehicles, and Indirect Network Effects: Evidence from Japan

Contrary to expectations in business and policy circles, progress in the adoption of fuel cell electric vehicles (FCEVs) and the expansion of hydrogen charging stations (HCSs) has been slow in developed countries, raising concerns about the viability of hydrogen mobility. To address this challenge, this study examines the indirect network effects in Japan’s FCEV market. We estimate the impact of HCS deployment on FCEV adoption using vehicle registration data from 2013 to 2020 and a staggered difference-in-differences research design. Additionally, we assess the effect of FCEV stock on HCS deployment using a system generalized method of moments estimator in a dynamic panel model. The results indicate positive and statistically significant indirect network effects on both sides of the market; however, the size of the network effects remains insufficient to generate positive feedback loops. Weak indirect network effects are also reflected in event-study results, demonstrating that the effect of HCS deployment on FCEV adoption diminishes over time. Our study suggests that developing HCS networks at an early stage is financially unsustainable without strong demand-side growth. This study broadens the understanding of zero-emission vehicle markets by providing the first evidence on indirect network effects in the FCEV market, while highlighting key distinctions from the battery electric vehicle market.