Ford's Electric-Car Gamble

Ford (NYSE: F  ) released some details about the launch of its upcoming Focus Electric the other day, and for better or worse, the Blue Oval is taking a somewhat tentative approach to joining the electric-car maybe-revolution.

Ford says that the Focus Electric, an all-electric version of the brand-spankin'-new Focus compact, won't debut until late 2011, nearly a year after Nissan's Leaf makes its appearance on these shores. And even then, sales of the electrified Ford will be limited to several urban markets.

For a company that has pushed forward so aggressively in recent years, one that strives to be seen as an environmentally aware innovator, late 2011 seems a bit late to the party. Is it wise for Ford to wait?

Fashionably late
The list of automakers preparing to launch electric vehicles in the United States has grown quite a bit recently. While the Leaf and General Motors' (NYSE: GM  ) not-exactly-a-hybrid Chevy Volt will start shipping momentarily, suddenly there are quite a few more on the way:

  • Chrysler parent Fiat is bringing an all-electric version of its 500 here, but not until 2012.
  • Mitsubishi will start rolling out a small electric commuter car in the United States sometime late next year.
  • Honda (NYSE: HMC  ) , long seen as an electric-car skeptic, has finally announced that it will produce an electrified version of the popular Fit, to arrive here in 2012.
  • Toyota (NYSE: TM  ) will launch an electric version of its RAV4 SUV, the first fruit of its partnership with Tesla Motors (Nasdaq: TSLA  ) , sometime in 2012.

What do all of those announcements have in common? The day the vehicle will arrive at dealers is at least a year away. And even Nissan is rolling the Leaf out in phases, starting with just a few regional markets, and in tiny volumes at first.

Why?

Simple: Nobody really knows whether they'll sell.

The electric-car conundrum
Sure, they'll sell somewhat -- GM and Nissan should have no trouble meeting their modest first-year sales goals, and a few governments and General Electric (NYSE: GE  ) have announced that they'll be making fleet purchases of electric vehicles. But will they sell in genuine mass-market numbers? Will Joe and Jane Average trade their SUVs in for a battery-operated eco-mobile?

Yeah, I'm skeptical too.

Here's the dilemma: Developing these cars and tooling up to produce them costs big bucks. And they're a shaky proposition: They're expensive for what they are, and most electric autos aside from Tesla's six-figure Roadster have ranges of 100 miles or less. But costs will come down and ranges will get longer as battery-makers scale up and develop better technology. That'll happen as investments increase, and that'll happen as more electric cars find buyers.

Given all that, it's not hard to see why Ford, like most of its competitors, is taking a bit of a wait-and-see attitude. This is one corner of the auto market where ramping up slowly makes a lot of sense.

Ford's launch plan
Ford has chosen 19 urban markets to participate in the Focus Electric's sales debut, and the company said in a statement that the markets were chosen based on "commuting patterns, existing hybrid purchase trends, utility company collaboration, and local government commitment to electrification."

Limiting the initial rollout to places such as San Francisco and Boston obviously makes a lot of sense, particularly if your goal is to keep volumes (and sales goals) modest at first: Go where the likely buyers are! If electric vehicles don't take off in these kinds of markets, they're not going to take off anytime soon.

In truth, all-electric vehicles are likely to remain niche products for a while, even if they are successful. The electric-car revolution, if it happens, won't happen overnight, or even in the next decade. That's still a big "if," and in that light, Ford's wait-and-see rollout makes an awful lot of sense.

Want to read more about Ford? Add it to My Watchlist, which will find all of our Foolish analysis on the Dearborn dynamo.

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor pick. You can try Stock Advisor or any of our Foolish newsletter services free for 30 days, with no obligation. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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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 November 20, 2010, at 2:14 PM, baldheadeddork wrote:

    I've said for a long time that a dual-mode/plug-in hybrid like the Volt was going to be the bridge between the internal combustion engine and whatever follows. The range limitations won't make pure electrics viable beyond a niche market in the US.

    But how high do gas prices need to go before either gives owners a real benefit? I believe that number is going to be a lot higher than most people are thinking. The greater manufacturing costs of series hybrids and pure electrics are part of it, but the bigger reason is that fuel efficiency in conventional small cars has improved greatly in the last few years.

    Five years ago my wife wanted to buy a Prius because she had sixty mile, mostly stop and go commute. She got a Scion xB instead because it cost a third less than the Prius and still got 35mpg, which made it one of the most fuel efficient cars on the market at that time. (She loved the X-Box, too.) I ran the numbers and even with her killer commute she would have had to drive a Prius for six or seven years to actually save any money.

    Now 35mpg is achievable in a mid-size sedan. If you really want to save money on fuel, you can get over 40mpg from several compacts. And there's still money on the table. Start-stop hasn't caught on here because the EPA doesn't allow it to measure in its mileage testing, but American's love of automatic transmissions will make it an easy and relatively inexpensive add-on that will increase fuel economy by 10-15%. GM made a presentation earlier this year that predicted a 17% improvement with start-stop, and said it would be on 20m vehicles a year by 2015.

    If Joe and Jane want to get rid of their SUV's, these are the cars they're going to be shopping against the Volt and Leaf. Even with government incentives they're still going to cost substantially (~40%) more than a conventional car in the same size class. So if a typical compact in 2014 is getting 45mpg and midsize sedans are over 35mpg thanks to stop-start, either a hybrid/pure electric needs to hit astronomical mileage/fuel cost numbers or the cost of fuel has to go way over $4 a gallon. And if oil does get that expensive, I think the immediate impact will be a surge towards LNG powered vehicles. That won't improve fuel economy but it will bring down the cost of ownership compared to gasoline.

    So all of this is a long-winded explanation of why I think Ford is right to be a little skeptical about rolling out electrics. But I think they should still get into it. They may not work in the US market but I think they're much more viable in Europe and Asia, where emissions laws are stricter and people are more likely to use public transportation than drive on long trips.

  • Report this Comment On November 22, 2010, at 12:34 PM, Melaschasm wrote:

    I am disapointed that Ford is wasting money on an electric vehicle. I do understand why management has caved into government pressure to produce a vehicle that is not needed, and offers no advantages.

  • Report this Comment On November 30, 2010, at 10:06 PM, glenrgraham wrote:

    I believe that a car can be built that would be extremely fuel efficient, but some of the trade-offs would be a reduction in speed and safety. The lighter the car, the more fuel efficiency. With the development of extremely strong durable plastics and polymers, it should be possible to significantly reduce the weight of an automobile. However, federal regulations must change to accomodate the necessity of gaining significant miles per gallon. Speeds would be reduced which might compensate somewhat for reduced safety concerns. A car made of light weight polymers and designed for fuel efficiency - think small - would easily get 80 miles per gallon without the need for a electrical capacity.

  • Report this Comment On December 14, 2010, at 11:44 PM, kettyrobinson wrote:

    Electric car sound's interesting. I think as its an electric car there would be low fuel consumption and driving in such car would be great experience. According me if ford is thinking about it then what's wrong in that.

    http://www.thegreenautos.com

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