Hydrogen fuel cells work in a similar manner to cells in a battery. hydrogen gas can be made in-car by filling the water tank and plugging the car into the wall and letting the magic of electro-chemistry do the rest. the tail pipe is for off-gassing.
these sites may help
http://en.wikipedia.org/wiki/Liquid_fuel
http://en.wikipedia.org/wiki/Fuel_cells
these sites may help
http://en.wikipedia.org/wiki/Liquid_fuel
http://en.wikipedia.org/wiki/Fuel_cells

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