Does Going Green Contribute to Bottom Line Profits?

It's always nice for big companies and their PR spin machines to mention how green and environmentally friendly their operations have become. However, those statements are often just that -- PR spinning its wheels. We have to be honest with ourselves: While the going green theme will help improve Ford's (F -0.50%) or General Motors' brand image, it hasn't historically contributed much to the bottom line, if at all. A recent study by Interbrand found that the automotive industry has improved by leaps and bounds in producing environmentally green brands and, this time, there is more substance for investors looking at the bottom line.

Best global green brands
Recently Interbrand, the world's leading brand consultancy, released its annual "Best Global Green Brands" report. Surprisingly to some, the automotive sector dominated, with Toyota (TM 0.17%), Ford, and Honda owning the top three spots -- in that order. Automakers also make up 50% of the top 10, with Nissan ranking fifth, and Volkswagen in at No. 7. Nissan was even named the most improved, jumping 16 spots from last year to its No. 5 ranking.

The report examines consumer research and public perception of each company's sustainability and green practices. According to Interbrand, David Pearson, Deloitte's Global Sustainability Leader, noted that: "Sustainability continues to assert itself on the business agenda. Customers and stakeholders are holding businesses more and more accountable for sustainability performance, and businesses are working hard to ensure that their external perception reflects their internal efforts."

The reason that this global green brand report means more than it has in the past is because we've seen a boom in green products that have actually produced profits in the bottom line. Three good examples of this are Ford's EcoBoost engine, Toyota's Prius, and the breakout company Tesla (TSLA -0.34%).

EcoBoost
Ford's critically acclaimed engine, which launched in 2009, offers a unique combination of fuel economy and turbocharged power. Ford has lofty goals for its emissions as regulations continue to tighten, and its EcoBoost offers approximately 20% better fuel efficiency, and 15% reduced greenhouse emissions. Thus far, the sales have backed up the hype; see the impressive growth below.

Source: Ford Press Release.

The increase in EcoBoost sales, including its option in America's No. 1 selling F-Series, was a prime reason Ford jumped 13 spots in this year's report to No. 2. While Ford's popular engine has been a great success, Toyota has taken a more complete approach.

Toyota has owned Interbrand's "Best Global Green Brand's" No. 1 position for three years now. The Japanese automaker continues to make environmentally sound practices a part of its business strategy, and continues to excel in the hybrid segment. Consider that almost 3 million Prius models sold worldwide last year alone – an impressive number. As the future trends continue toward EV, improved fuel efficiency, and smaller vehicles, profits will continue to improve from these green initiatives. Toyota looks well-positioned to reward its investors with increasing revenues in the segment.

Tesla (TSLA -0.34%) is in a league all its own right now, and its entire mission is to produce EVs for the future. Tesla believes that, after 100 years of the internal combustion engine, it's time to shake up the industry with a more environmentally friendly vehicle. This may be the ultimate proof that going green is gaining more traction, as Tesla posted its first ever profit last quarter, and has seen its stock price more than double since April. While the quarterly profit was partially from selling its zero-emission credits, we have to remember a company like this wouldn't have found any success or profits a decade ago – and many still can't.

Bottom line
The fact is that green products and fuel efficiency is selling with consumers more than ever, and is beginning to contribute to the bottom line. When it comes to being successful in the automotive industry, it's all about flexibility, fuel efficiency, and popular designs. Many of the global automakers can now offer multiple engine sizes and flexible options for fuel efficiency, as well as EVs for the early adopters. It's no coincidence that during the surge in automotive sales, we see a surge in going green, as well. Finally, investors should start seeing a surge in contributions to the bottom line profits -- another welcome change.