"How does 500 mpg sound to you?"

With this disingenuous "boxed" comment, former CIA director James Woolsey (now co-chair of the Committee on the Present Danger) drew a lot of eyes to his New Year's Eve op-ed on the pages of Saturday's Wall Street Journal. While most of us begin a new year with promises of small goals we hope to achieve, Woolsey drove straight at, if not a promise, then a goal that could quite literally change the world: hybrid cars getting 500 miles to the gallon.

A few caveats
Or so it seemed. Reading further into Woolsey's piece, it turns out that the "500 mpg" goal is predicated on a whole host of assumptions and qualifications, and is probably not attainable in the near future. For example:

  • Caveat No. 1
    The key to the whole idea hinges on announcements made by General Motors (NYSE:GM) (and echoed, if with a bit less confidence, by Toyota (NYSE:TM)) last November. To wit, GM intends to unveil an upgraded version of its gas-electric hybrid Saturn Vue SUV in 2007. Not only will the vehicle harvest energy from braking for later use in powering the vehicle electrically (as Toyota's hybrid Prius now does), but the new Vue will also be capable of recharging its batteries from an ordinary wall electrical socket. This new automotive animal will be termed a "plug-in hybrid."

    The problem: Toyota, which has a decade-long technological lead over GM in the development of hybrids, says that even it has "a lot of basic research to do" before it could produce a mass market plug-in hybrid. While more optimistic, GM agrees that "the technological hurdles are real," and warns that it "can't give . . . a production date for our plug-in hybrid." Echoing the sentiment, the American Council for an Energy-Efficient Economy says we're still a good five years away from being able to put reliable plug-ins up for sale in dealer lots.

    And yet, GM is promising that its 2008 model-year Vue will come in three variants: the current, inferior-to-Toyota technology hybrid; a new "two-mode" hybrid that will be nearly twice as fuel-efficient as its predecessor; and a plug-in hybrid. So which is it: Will we see plug-in hybrids for sale in less than a year, or five years hence?
  • Caveat No. 2
    Based on existing technology, the best GM can promise from its plain-vanilla hybrid SUV is 25% better fuel economy than the non-hybrid Vue. So how exactly do we get from the Vue's current 30 mpg to Woolsey's 500 mpg? The idea is that by using electric outlets as its primary fuel source, a plug-in hybrid can get itself a good 20 miles' worth of power just by sitting attached to the outlet overnight. For the majority of American car owners who drive less than 20 miles per day, therefore, these vehicles will essentially be getting "infinity miles per gallon." Meanwhile, for the (large) minority of drivers who drive more than 20 miles per day, Woolsey argues that on average, it's reasonable to postulate that "a 50 mpg hybrid, once it becomes a plug-in, will likely get solidly over 100 mpg of gasoline."
  • Caveat No. 3
    Now we're up to 100 mpg. Nothing to sneeze at, that -- but it's still a far cry from "500 mpg." So where do the other 400 mpg come from? Ethanol. The third leg of Woolsey's postulate is that we can further stretch a gallon of gasoline by driving E-85 vehicles, capable of burning a mixture of 85% ethanol, 15% gasoline. Which is entirely doable, but -- until we get unsubsidized ethanol prices down below the cost of gasoline -- is also economically illogical.

So to sum up, 500 mpg requires: getting the first 20 miles "free" from an electrical outlet; building a 50 mpg hybrid; and economically mixing seven parts ethanol with one part dinosaur juice at the pump.

Could it work?
I have to admit, as pipe dreams go, Woolsey's plan is a pleasant one. Personally, I think it has too many moving parts, and that Washington is too dysfunctional to get them moving in sync, for this plan to ever work. But if I'm wrong, then with time and luck, the idea could make "U.S. energy independence" a reality.

After all, both Toyota and Honda (NYSE:HMC) already have hybrids getting 50 mpg or better. And companies like VeraSun (NYSE:VSE) and Pacific Ethanol (NASDAQ:PEIX) are doing their darnedest to make all the ethanol Woolsey could wish for. All that remains, it would seem, is developing the rechargeable batteries to plug-and-play this 500 mpg future.

Caveat No. 4?
Which brings me to what -- when I initially set out to write this column -- seemed to be the biggest sticking point to the whole idea of plug-in hybrids. With the memory of the Great New York Blackout of 2003 still fresh in our minds, with California at risk of rolling brownouts every summer, how could GM seriously suggest that Americans add more strain to our overburdened electrical grid?

As it turns out, though, that fear was a red herring. For no sooner had GM announced its intention to create a plug-in hybrid, than the U.S. Department of Energy published a report assuring that plug-ins would pose no threat to the grid. The reason: Most people would recharge their plug-in hybrids at night -- when the grid has plenty of untapped capacity to produce power.

Crunching the numbers, DOE estimates that there is sufficient unused capacity on the grid at nighttime to support as many as 185 million plug-in hybrids -- or 84% of the vehicles currently on the road in the U.S. Even better, DOE calls this estimate "very conservative."

Foolish takeaway
Even if Woolsey's dream of a 500 mpg world comes to pass, disinterested parties estimate we won't see plug-in hybrids mass-produced until the second decade of the millennium, so there's plenty of time for Foolish investors to watch and evaluate the progress (or lack thereof). In my opinion, if plug-in hybrids ever become a reality, they'll open up numerous investing opportunities -- in the automakers, of course; in the ethanol companies, perhaps; in battery makers; but most of all, in electric companies like Dominion (NYSE:D) or Duke (NYSE:DUK). The advent of plug-in hybrids would turn these companies into 24-hour-per-day shops, significantly expanding their profit potential overnight (pun intended).

Just a word to the Foolish.

Duke is an Income Investor recommendation. Want to get paid to invest? Analyst James Early and other investors like you can show you how to find companies with good dividends with a free trial of Motley Fool Income Investor.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.