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Ford's Electrifying Future

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After years -- decades, really -- of talk, the future is finally (almost) here: Electric cars are about to become a mass-market reality.

Ford (NYSE: F  ) Executive Chairman Bill Ford said as much in a speech last week at the Society of Automotive Engineers' annual World Congress. Ford, who has long tried to push the company that bears his family's name in a more environmentally friendly direction, was clear: Many new technologies may be coming to market, but electric vehicles will be "the biggest game-changer" of them all.

This is an extremely important moment for the global auto industry. The companies that have the resources and expertise to become standard-setters in this new technological world stand a good chance of holding a leading market position for years to come.

Why this is a major moment
It's not news that the world's automakers have been pouring tremendous resources into the development of more efficient vehicles. From Washington to Beijing, governments in the world's major auto markets are raising standards for efficiency and emissions, and automakers are attacking the problem from a variety of technological angles.

The challenges have been enormous. To be truly feasible, not only does any new technology have to deliver the safety, range, and reliability that consumers have come to expect (at an affordable price), but it also has to use the existing automotive infrastructure, or come up with a whole new one. Hydrogen-powered engines, for example, seem like a great idea since they would use familiar internal-combustion technology to burn the most abundant element in the universe, with next to no emissions. But where do you refuel?

From theory to practice
While problems like these have been debated, automakers have put gasoline/electric hybrids into mass production. Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) have led the way with this new-but-familiar technology, and Toyota's iconic Prius has become a globally familiar sign of the auto's future.

But hybrids are an interim solution. The problem in going fully electric has been battery technology. Achieving range and functionality comparable to gas-powered cars at a reasonable cost has proven to be an enormous challenge.

That is finally changing. Like Toyota and Honda, Ford has already put high-profile hybrids on the street and is leveraging partnerships with suppliers like Magna International (NYSE: MGA  ) to bring fully electric vehicles to market in the very near future, starting later this year with a modified Transit Connect van revamped by Smith Electric Vehicles. Ford has promised a fully electric version of its Focus -- largely developed by Magna -- for 2011 and "next-generation" hybrids by 2012, including a "plug-in" hybrid developed with Johnson Controls (NYSE: JCI  ) that can be recharged via an external electricity source.

Ford is well-positioned, but it's not alone
General Motors, of course, has said that it will have its much-hyped Chevrolet Volt on dealer lots by year's end. Whereas Ford has leveraged supplier relationships to move forward, GM, in hopes of being well-positioned for the long term, has put tremendous effort into building in-house resources and expertise ahead of launching any groundbreaking technologies. It recently announced a significant expansion of its battery research lab.

But GM's hybrid offerings to date have done little in the market, and pricing for the Volt -- essentially an electric car with a gasoline-powered generator built in -- may render it uncompetitive, now that Nissan's all-electric Leaf is due in the U.S. by year's end at a competitive price. Ford's electric Focus is expected to be priced in the same range when it arrives next year.

Not all of the players in this new space will be familiar names. Chinese heavyweight BYD has said that it hopes to bring its own electric car to the U.S. market late this year. Efforts by Chinese automakers to sell cars in the U.S. have so far not borne fruit, but BYD is worth taking seriously. Not only was the BYD F3 the best-selling car in China during the first quarter, but the company is developing electric cars jointly with Daimler (NYSE: DAI  ) . BYD is owned in part by Berkshire Hathaway (NYSE: BRK-B  ) , which made a significant investment in 2008.

Ford certainly looks well-positioned against all of this competition, but questions remain. How will the upcoming all-electric offerings stack up in the real world? Can the company ramp up production and expertise in-house quickly if market demand proves strong? And what will happen when other automakers -- Toyota, for instance -- step into this market with disruptive surprises?

One thing is already clear: The next couple of years will be dramatic.

More Foolish auto industry coverage:

Fool contributor John Rosevear owns shares of Ford. Berkshire Hathaway is a Motley Fool Inside Value selection. Berkshire Hathaway and Ford are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2010, at 3:41 PM, lemoneater wrote:

    Thanks for the heads up. I wish Ford success in helping us be less dependent on foreign oil. It was nice to see JCI jump today.

  • Report this Comment On April 20, 2010, at 5:54 PM, Electricfish wrote:

    Nissan's leaf is going nowhere...with no battery management system (only a cooling fan blowing) that thing will not last more than 2 or 3 years. There is no magic Li-ion battery (like snake oil) that they have developed. the chemistry for those batteries are pretty much set once you choose Li as the base metal.

    The leaf should be useless in peak winter. A huge paper weight for 25K.

    Lets see what ford (i.e its suppliers) does with its battery management system. If the Volt doesn't meet the needs of everyone(not just the sunny states) in the U.S then electric cars are pretty much dead in the water for now.

  • Report this Comment On April 20, 2010, at 9:14 PM, TMFMarlowe wrote:

    Electricfish... we'll see about the Leaf, but I don't see Ford (or GM) releasing an electric vehicle that hasn't been extensively tested in a Detroit (or Arctic circle) winter.

    Thanks for reading.

    John Rosevear

  • Report this Comment On April 21, 2010, at 3:21 AM, oferdror wrote:

    All electric cars suffer from the same problem: limited range. If the full range of an eectric car is about 200km (120 miles) and for a gas car it is 600km, then the effective range (you don;t wait til the ast drop to fill up) is 100 vers. 500 km. That's five times more fuel stops on long range drives.

    The thing is, plus in hybrids solve this. You need batteries with a range of only 50km for most people on most days, but have the gasoline engine as backup or for long ranges. This wil reduce gas consumption by "only" 85-90% overall, but that's all you need for most practical purposes. Reducing total gas consumption in the USA by factor of 5-10 (assuming everyone shifts to pug-in hybrids) would effectively address the two main points for switching: (1) There would be no need to import oil from various shady places over the world and (2) cars would cease to be a significant CO2 source.

    So what's the downside of plug-in hybrids?

  • Report this Comment On April 21, 2010, at 8:40 AM, only1ferret wrote:

    Agree with oferdror, plug in hybrid will be my next car. Hopefully in the next few years. Not really interested in electric car that only goes 120 miles. If I had an electric car, wouldn't I still need a second car for longer trips?

    and why would I want that?

  • Report this Comment On April 21, 2010, at 11:40 AM, plange01 wrote:

    GM is being forced to speed up the sale of its remaining assets ,repay the taxpayer welfare they recieved the close by the end of 2010.all that is left is for GM to deal with the millions of investors,bondholders,accident victims and venders it cheated out of billions with its fake obama prepackaged bankruptcy..this will not go away and GM will never be able to survive in the US...

  • Report this Comment On April 21, 2010, at 12:27 PM, Matt015 wrote:

    Why two cars only1ferret? Because that is the American way! (hell you should have 3 or 4)

    Anyway, I think Ford working with suppliers instead of inhouse will allow them much greater flexibility with new technology. If technology shifts, Ford can react quickly without spending billions on a technology that is outdated in a few years.

  • Report this Comment On April 21, 2010, at 3:07 PM, baldheadeddork wrote:

    I think we're probably five years from truly viable, high-volume electrics and plug-in hybrids. The cars I see coming to market in the next year or two, particularly the Volt, seem to be a rushed response to the $150 oil we had two years ago. I don't think the technology or the pricing is ready for prime time, and I think these first cars like the Leaf and the Volt are going to be niche sellers at best.

    I know I'm a huge Ford honk, but one of the things I like about them is that they're not rushing into this and trying to get a car to market ASAP. They've got an excellent hybrid platform and smaller EcoBoost engines coming to market that are going to offer improved fuel economy compared to a regular gas engine but cost a lot less than a hybrid. They have the time and space to get it right, and I'm pretty sure that's what they're doing.

    I'm not very optimistic about the future for full electrics in the US market. They can be great as a second car that will only be used for commuting, but they won't have the range or the quick recharging ability to be the primary car in a household. Now how big is the market for a $26K (with government incentives) second car?

    I think the Chevy Volt is going to be the model for successful high efficiency cars - a plug-in series hybrid with a very efficient engine to power the electric drive motors and offer hundreds of miles of range, while still returning ~50mpg. (And there is room for improvement. Replace the Volt's gasoline engine with an ultra-efficient diesel and I don't think 65-70mpg would be out of the question.)

    The Volt is the design of the future, but I'm skeptical about GM's ability to pull it off. GM doesn't have a lot of engineering experience with hybrids, and what it does have is in the simple BAS mild hybrid design. Jumping from that to a next-generation series plug-in design would be hard for any company to pull off. I think GM is going to be incredibly lucky if the first generation Volt doesn't have a lot of reliability problems.

  • Report this Comment On April 21, 2010, at 5:58 PM, Electricfish wrote:

    @baldheadeddork Actually GM's two mode hybrid(more complex and efficient than toyota's and ford's hybrid systems) has been around since 2000 even before ford's escape hybrid came out. They have more experience with it than ford. The only thing they have not been able to do is make a profit from their hybrids(and I dont think ford is making any profits either right now). Short sightedness of both GM and the US energy policy is what cost GM. They should have stuck with EV1 which was ground breaking. But I guess they were running out of money ever since the late 90's to keep up with a money draining program. Toyota had the luxury of having the japanese govt subsidizing their hybrid vehicles and so kept selling priuses at a loss for more than 8 years(1999-2006). Toyota makes money on their hybrids now.

  • Report this Comment On April 21, 2010, at 6:13 PM, Electricfish wrote:

    I meant the two mode is supposed to be more complex and powerful (not efficient).

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