Ford Thinks Hybrids Will Beat Electric Cars

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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.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. 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.

Read/Post Comments (7) | Recommend This Article (7)

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 July 14, 2012, at 9:50 AM, matthewluke wrote:

    "Ford's John Viera, who has the mouthful-title "global director of sustainability and vehicle environmental matters..."

    Yeah, that is a bit much. They should just call him the "Eco Director" or something. That's all I have to contribute. Carry on.

  • Report this Comment On July 14, 2012, at 10:58 AM, SkepikI wrote:

    I presently drive a 99 Subaru with 375,000 mi on it because it has been one of the most reliable and economical vehicles Ive ever owned. Also because I am very sure technology is changing and also that i don't know who the winner will be. I drive a lot of places where chargers are not, and might never be, but gas stations are and likely will be for a long time. This makes hybrids my guess, but its a guess, that I don't have to make just now. My best move is to wait about 2-3 years, watch Ford's fusion plug in hybrid -out this fall for reliability and THEN decide. I expect there are more than a few people like me (well, not with 375,000 mi Subarus) who will wait a bit. Average car on the road age last I checked was 10years and a bit. I am long F and buying under $10/sh because I see they are well managed, and I think their strategy fits the times. I used to be a Chrysler guy, but wouldn't touch them now- nothing good can come from Italian ownership and a deteriorating reliability record, not to mention stiffing dealers who had more than 80 years with them.... GM, Government Motors, no better run and no more efficient than before the taxpayers unwillingly and unknowingly spent billions to prop them up.

    Ford is the last American Car Company left, it looks like they will act that way and be the winner to me. Certainly they are the only Car Company worthy of my investment.

  • Report this Comment On July 14, 2012, at 1:13 PM, MARKETSURFER wrote:

    Eventually the trend will be for hybrids using liquid natural gas instead of gasoline. Natural gas is extremely inexpensive and will remain so over time as there are tremendous reserves of natural gas with more reserves being discovered all the time. Natural gas is also more environmentally friendly. All electric vehicles would place a great burden on the electric grid whereas the hybrid engines produce their own electricity. In the event of a shortage of electricity or breakdown of the electric grid hybrids could still run on gasoline/natural gas. In the event of a shortage of gasoline/natural gas hybrid vehicles could still run by being charged up with electricity until supplies of gasoline/natural gas were restored. Hybrid vehicles may also be engineered in the future to be able to generate electricity that can be drawn from the vehicle like an electric generator to operate equipment and systems outside of the vehicle. This would greatly insulate our infrastructure should the electric grid be compromised by terrorists or acts of God.

  • Report this Comment On July 14, 2012, at 5:35 PM, gallerypup wrote:

    It's time to Hybrid the Ford F150 and the Ford FLEX ... sales will soar!

  • Report this Comment On July 14, 2012, at 6:32 PM, autoinsider wrote:

    We need to go natural gas for transportation. Unfortunately the liquid fuel companies keep sabotaging this effort. After the election there may be more in this direction.

    (long natgas).

  • Report this Comment On July 14, 2012, at 11:12 PM, Sparkystiltskin wrote:

    Hold up, you mean to tell me that an established company with an established business model of making cheap cars, AND has dedicated subsidiaries AND has huge sums of money in internal combustion engine R&D thinks that abandoning all that isnt the way the industry will/should go?

    Say it ain't so!!!

    Ford is a bloated behemoth that will rise and fall with the ebb and flow of the economy- they will never be the 1st into anything new- and when they join the game their products will be low end imitations of better vehicles with little value added and directed at the lower and lower middle class.

  • Report this Comment On July 15, 2012, at 9:34 AM, WXY wrote:

    There is no doubt in my mind that battery electrics will eventually be the winning technology. It's not there yet, and I'm not making any predictions. Battery technology keep improving, and at a much faster rate than ICEs. There will be a time when it will be cheaper, more reliable, better performance and vastly cleaner. I'm sure Ford knows this, but they also know that they must make money now and that many consumers do not accept change willingly. There are large numbers that will only go kicking and screaming. But most will accept it one it becomes a no-brainer. When lies by the holdouts can easily be seen for what they are with just average intelligence.

    People don't want engines, they want transportation. Why buy, maintain, and carry a power plant in you car. Just carry adequate power with you. Eventually electric fill-ups will be cheaper, quicker, and take the vehicle further than anything we have now. It is even possible that at some point you won't even need to stop to top off the charge of an electric vehicle. Just because it's not here now doesn't mean we should give up on electric cars. Anyone who has lived with person computers for more than 30 years will tell you, don't be limited by your own imagination.

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