Daimler is to join forces with Swedish competitor Volvo Group to develop fuel cells for trucks, with the aim of bringing hydrogen-powered heavy-duty vehicles to the market in the second half of the decade.

The German truckmaker will create a new €1.2bn legal entity, which will consolidate its 25-years of hydrogen expertise. Volvo will pay more than €600m in cash for 50 per cent of the as-yet unnamed business.

Additionally, both parties will each immediately invest a “nine-digit” amount in the new company, Daimler said, and will increase that amount until a commercially viable product is built.

The joint venture by the world’s two largest truckmakers marks one of the biggest investments by the industry into fuel cell technology, as it braces itself for strict EU-wide emissions targets. 

The new company, which will initially employ 250 people, will be based in the German state of Baden-Württemberg, where Daimler brand Mercedes has been researching the technology for decades. 

Hydrogen trucks, which run off energy converted by either electricity or natural gas, cost much more to produce than diesel models, which make up the vast majority of European fleets. However new European regulations require manufacturers to bring the CO2 footprint of trucks down by 30 per cent in a decade, and lithium batteries used in electric vehicles tend not to offer the range required by commercial customers.

“For trucks to cope with heavy loads and long distances, fuel cells are one important answer,” said Martin Daum, the chief executive of Daimler’s trucks business, although he stressed that measures such as a CO2-based road toll system would be needed to incentivise the use of hydrogen vehicles.

“We see at the moment, a historic day when oil is basically free, because you have so much more production than demand, and that can easily happen in the future,” Mr Daum told the Financial Times.

Mr Daum said combustion engine trucks would be cheaper to produce for at least 10 to 15 years, and remain so even once hydrogen fuel cell production was scaled up.

Martin Lundstedt, Volvo Group’s chief executive, also called for governments to back the development of the fuelling stations across the continent.

“Electrification of road transport is a key element in delivering the so called Green Deal, a carbon neutral Europe and ultimately a carbon neutral world,” Mr Lundstedt said.

But he warned that “for this vision to become reality, other companies and institutions also need to support and contribute to this development, not least in order to establish the fuel infrastructure needed”.

The deal further increases the footprint of China’s Geely in Europe’s auto sector. The company, which is Daimler’s largest single shareholder, also owns a significant stake in Volvo Group, although Mr Daum insisted that Geely boss Li Shufu had “nothing to do” with the joint venture. 

“I don’t think Geely was even informed about it,” he added.

While hydrogen has been championed by the EU and by German chancellor Angela Merkel’s government, the technology remains in its infancy and would require a dedicated new supply system to become a viable alternative to fossil fuels.

Last week, Siemens joined forces with German energy provider Uniper to devote some of its coal power plants to the production of CO2-neutral hydrogen. 

Daimler’s Mr Daum said he was confident that hydrogen supply would be ramped up further. “I believe in free markets, and where there is demand, there will be supply, and what we did today is create tremendous demand.”