The more I follow the "hybrid story," the more I'm convinced that from an investor's point of view, the opportunities here lie more with the auto parts makers than with the automakers themselves.
Yesterday, Ford (NYSE: F ) Chief Operating Officer Jim Padilla voiced his company's mounting frustration at its inability to secure parts necessary to build hybrid gas-electric vehicles such as its Escape and Mariner SUVs. According to Padilla, certain Japanese automakers (meaning Toyota (NYSE: TM ) and Honda (NYSE: HMC ) ) have engaged in "predatory" practices by locking up available supplies of specialized components necessary to build hybrid automobiles.
Well, duh. Ford's been in the hybrid game for what, a year now? Honda and Toyota have been selling the things since 1997. It's not exactly a case of the Japanese buying up all of Sanyo's (Nasdaq: SANYY ) and Matsushita's (NYSE: MC ) hybrid components in order to deny them to competitor Ford. Rather, two things are happening: First, Toyota and Honda were first to market, and so they've got dibs on most of the existing supplies, have more supply contracts in place, and so on. Second, Toyota and Honda have reached critical mass with their production of hundreds of thousands of hybrid Priuses, Highlanders, Civics, and Accords. Ford, on the other hand, hopes to sell just 20,000 of its hybrid SUV models this year. If you were an auto parts supplier, whom would you favor with your limited capacity to produce hybrid auto parts: the guys who guarantee you 300,000-plus unit sales per year, or those offering to buy 20,000?
Ford's argument is silly -- enough said.
More interesting to this Foolish investor are a couple of comments Padilla made while complaining about his company's Japanese rivals. For one thing, there appear to be capacity issues with hybrid parts production -- suggesting that demand exceeds supply, which means that the parts suppliers have proportionally more pricing power.
In addition, "hybrids on the market now go for a $3,000 to $3,500 premium," Padilla said, "and that only covers a fraction of the costs." Interesting. If true, it suggests that as profitable as hybrids may be for the automakers that have reached scale in their production (Ford says its hybrids still aren't profitable; Toyota says its models are), the suppliers are making even greater profits on hybrid parts. That might make the parts makers one of the smartest ways to invest in the hybrid boom.
Further Foolishness is Job One:
Fool contributor Rich Smith has no position in any company mentioned in this article.
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