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A lot of investors love the idea of electric cars. Witness the excitement around Tesla Motors (Nasdaq: TSLA ) , which just rolled out its battery-powered Model S sedan to much enthusiasm -- and which has thousands of orders for the new model already in hand.
Electric cars are clean and high-tech and seem like they should be the future, many say. But while visionaries and gadget-geeks alike clamor for more automotive electrification, the big global auto manufacturers continue to hedge their bets, with Ford (NYSE: F ) the latest to join the chorus of concern.
Why hybrids are a safer bet
Ford's John Viera, who has the mouthful-title "global director of sustainability and vehicle environmental matters," gave an interview to Bloomberg recently in which he shared the Blue Oval's view of the near-term future of greener cars.
Viera said Ford sees "electrics" comprising as much as a quarter of its total sales by the end of the decade -- but like the chief engineer at green archrival Toyota (NYSE: TM ) , Ford expects nearly all -- 90% or more -- of its "electrics" to be hybrids, not purely electric cars.
Hybrids, of course, combine a conventional gasoline engine with an electric motor powered by a battery that recharges on the fly. From the perspective of an automaker selling to the mass market, hybrids have two huge advantages over pure electrics, at least today:
- They cost less. Electric-car batteries are still very expensive, something that's not likely to change for at least a few years. (Why does Tesla's sedan have better range than most other electric cars? Look at the price tag.) Hybrids need only a small battery, which together with the electric motor and other systems adds just a modest premium to the price of a purely gasoline-powered car.
- They're just like "normal" cars from a driver's perspective. Hybrids can be refueled at any gas station, just like conventional cars. They have plenty of range -- in fact, a Toyota Prius or Ford Fusion Hybrid has more range than conventional counterparts do. Contrast with electrics: Tesla's expensive rides aside, most have ranges well below 100 miles -- and "refueling" away from home involves finding a special charging station (few and far between right now) or waiting hours while the car recharges on conventional 110-volt current. That's why General Motors' (NYSE: GM ) Chevy Volt includes an onboard generator that's powered by -- you guessed it -- gasoline.
Both of these factors make hybrids (including "plug-in" hybrids, which have a limited all-electric range) a much safer bet as a mainstream product than purely electric cars, at least within the next decade. But as Viera pointed out, Ford is hedging its bets: If demand for pure electric cars happens to take off, the Blue Oval will be ready.
Ford's strategy: Keep options open
Viera says Ford, like Toyota, GM, Honda (NYSE: HMC ) , and other major automakers, is exploring other alternatives to gasoline, including compressed natural gas, fuel cells, and hydrogen power. But like Toyota, Ford thinks technologies like hydrogen fuel are unlikely to make it to the mainstream any time soon.
Meanwhile, Ford's caution about changing technologies is inherent in its electric-car designs. Rather than designing dedicated all-electric (or even hybrid) models like some other automakers, Ford creates hybrid or electric variants of its existing models -- like the Focus Electric, or the hybrid versions of the Fusion sedan.
These vehicles can be built right on existing assembly lines, alongside the conventional gas-powered cars they're derived from. That means that Ford can quickly increase or reduce production of the electrics or hybrids in response to market demand -- without retooling or setting up new assembly lines, which can take months and cost hundreds of millions of dollars. It also means costs are kept down, as cars like the Focus Electric are adapted from existing mainstream designs and have many parts in common.
That seems like the most sensible approach in a world where the future of electric cars is still very much an open question. Do you agree? Scroll down to leave a comment and share your thoughts.
Ford's stock has been under pressure lately, with its stock dropping below $10 a share. But the company is still performing very well at home and is investing heavily for growth abroad. Have these short-term pressures created an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Get instant access to this premium report.