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Honda Succeeds Where Ford Failed

By Matthew DiLallo - Sep 15, 2013 at 10:03AM

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Ford can’t catch a break these days. First, it was discovered that the C-Max failed to deliver on its promises and now Honda has zoomed past it. Is Ford finished?

Photo credit: Honda

It's been a rough year for Ford's (F -2.44%) drive to go green. Despite investing heavily to deliver its next generation of fuel efficient cars, Ford keeps coming up short. The company's progress was slowed when it was found that its C-Max hybrid failed to deliver on its promised fuel economy. Now, one of its chief rivals, Honda (HMC 1.11%), has taken advantage of Ford's misstep and has zoomed past it in the battle to build the most fuel efficient car.

Honda's latest addition to the fuel economy wars, the 2014 Accord Hybrid, delivered an EPA-certified rating of 50 mpg in city driving. That's three miles per gallon better than Ford's Fusion Hybrid, which had been the top of the midsized sedan segment. It's also well ahead of Toyota's (TM 0.85%) Camry Hybrid which came in at 43 mpg in city driving.

To be fair, the Accord Hybrid's highway rating is 45 mpg, which drops its combined rating down to 47 mpg. That actually ties it with the Fusion Hybrid, which also has a 47 mpg combined rating. However, in a day where headline numbers matter, Honda can boast of beating Ford on that all important city driving number. That being said, the Accord Hybrid is also still a bit behind Toyota's popular Prius hatchback, which still leads all hybrids with an EPA-certified 51 mpg city rating. However, for those looking for a gas sipping mid-sized sedan, the Accord Hybrid is now the car to beat.

Despite hitting fifty, car makers still have a long way to go in order to meet the government's aggressive future CAFÉ standards. That standard is set to nearly double by 2025 to a fleet average of 54.5 mpg. As Ford's recent struggles with the C-Max indicates, manufactures don't have an easy road ahead to meet those future standards.

That's forcing manufacturers to take risks in order to deliver the next generation of gas sipping automobiles. In Honda's case, it went away from the industry standard of nickel-metal hydride batteries and instead is using lighter and more powerful lithium ion chemistry. It is a move that does have the potential to backfire down the road given Boeing's (BA -2.84%) issues with lithium-ion batteries on its 787 Dreamliner. On the other hand, Tesla (TSLA -0.84%) uses automotive-grade, Lithium-ion battery technology in its all-electric Model S and has yet to experience any issues with that technology.

Right now Honda's bet on the battery, as well as improvements to the aerodynamics and a more efficient wheel design have taken its Accord Hybrid to the next level. That leaves Ford with a little bit of catching up to do in order to improve its fleet's fuel economy. That being said, this past August Ford did have its best auto sales month since 2006 with sales of its C-Max hybrid contributing to 44% of its growth in the small car category. So, while the car disappointed on miles per gallon, it hasn't disappointed in sales, which is where it really matters. So, while Honda might have won this lap, Ford is still well positioned to win.

Matt DiLallo has the following options: long January 2014 $10 calls on Ford and short January 2014 $10 puts on Ford. The Motley Fool recommends Ford and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
$16.03 (-2.44%) $0.40
Honda Motor Co., Ltd. Stock Quote
Honda Motor Co., Ltd.
$27.25 (1.11%) $0.30
The Boeing Company Stock Quote
The Boeing Company
$167.20 (-2.84%) $-4.88
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
$160.77 (0.85%) $1.35
Tesla, Inc. Stock Quote
Tesla, Inc.
$911.99 (-0.84%) $-7.70

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