Eelion Capital, a Chinese private-equity investment company with 1.3 billion yuan ($193 million) under management, is bullish on the future of hydrogen-powered vehicles despite naysayers such as Elon Musk, founder of electric carmaker Tesla Inc., who don’t think the technology is workable.

“Starting with large vehicles, using hydrogen will be very effective” as a fuel, Eelion Managing Partner Bian Yijing said. Lithium-ion batteries “have been at the forefront of capital investment in the past two or three years and are an important technology, but they have their own limitations. We can’t see a big change in their production costs in the short term.”

Eelion’s interest in hydrogen vehicles contrasts with the growing momentum toward lithium-ion batteries, powered in part by Tesla and its lineup of electric vehicles such as the just- released Model 3. A majority of Eelion’s investment focuses on new materials, including those used for new energy, Eelion’s Bian said.

At the moment, fuel-cell buses are starting to make inroads in some Chinese cities such as Beijing and Foshan. Beiqi Foton Motor Co., a Chinese automobile maker, last year secured an order for 100 fuel-cell coaches.

For coaches used in public transport or tourism, “starting points and destinations are relatively fixed, making hydrogen refuel not a problem,” said Bian, adding that vehicles using fuel cells can achieve longer ranges compared with lithium-ion batteries.

Investment Focus

Outside China, Toyota Motor Corp. is leading Japan’s efforts to use hydrogen and fuel cells to power cars, heat homes and keep factories running. Other companies pursuing the technology include Panasonic Corp., Toshiba Corp. and JX Nippon Oil & Energy Corp.

Fuel cells convert hydrogen into electricity, leaving only water vapor as a byproduct. They’ve been in use for decades and gained prominence when the U.S. space program took off in the 1950s. It’s only in the last few years that they’ve become cheap enough for more widespread commercial applications. Sourcing and handling the hydrogen for them remains one of the biggest logistical and economic challenges.

Eelion has a long-term strategic cooperation with Tsinghua University’s Industrial Development Research Institute, which incubates battery technology, Bian said. The Shanghai-based company was set up in 2014, with its investment focus on new materials, environmental protection and intelligent manufacturing, according to Bian. Currently all their investment is in China.