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BMW has already built hyrdogen-powered cars, they built a fleet of 12 (or somewhere around that many) V12 7-series cars....of course those aren't fuel cells.
There are many ways to get hydrogen. The most common method currently in use is, as you said, to extract it from natural oil.
The second most common method is, as mentioned, electrolysis. Electrolysis will take more energy to separate them than you will get back from recombining them. Electrolysis is the exact opposite of what a fuel cell does, since NO process is 100% efficient, you always lose something in the conversion. If it were 100% efficient, you could use the electricity from the fuel cell to power electrolysis and keep combining/splitting water forever....but it's not 100% efficient, so you waste energy in there. Of course using electricity is the "cleaner" approach....yeah right, most of the electricity comes from natural gas or coal burning power plants....or maybe even nuclear....or hydro.....tell me all those are environmentally friendly! They all suck.
But there is lots of research going on in this field. One promising "technology" is to use an algae. There is an algae (maybe more than one, I'm not sure) that processes water and naturally releases hydrogen as a byproduct. Harnessing their power would be an environmentally friendly method assuming they don't have any bad byproducts. The problem with this is that they haven't managed to get a system stable or large enough for any industrial production yet, but it's research in the works.
Another "clean" way of doing it is to use solar power to provide energy for electrolysis. There are cleaner and less clean ways of doing this, but a lot of it comes down to whether you can produce it on a large enough scale and do it cheaply enough to make it practical.....time will tell.
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