You can bet that citizens of Detroit-- or more generally the state of Michigan-- hope their fate is similar to that of Ford (F). Just a few years ago, Ford was heading down the path to bankruptcy and failure. Its CEO was one of the big automakers who pleaded before Congress on national television to save the industry. Although Ford had the best finances out of those three companies, it still was in bad shape. Today, Ford has regained much of the traction it lost.
This is embodied in Ford's quest to regain its trademark blue logo, which it had to give to the banks as collateral in order to secure a $23.5 billion loan. Under the conditions of the loan, in order to regain its trademark it had to be deemed investment quality by two different agencies. With the recent upgrade to investment quality by Moody's, Ford now has complete control over all of its assets, including the blue logo. In short, Ford is no longer burdened by its debt.
Now that it is no longer mired in bureaucracy and red tape, Ford has really shifted its attention toward the future. Specifically, it is focusing heavily on electric and environmentally conscious vehicles. Due in part to stricter emissions standards, Ford plans to triple the production of its EcoBoost vehicles that cut emissions by about 15%. Additionally, it plans to extend the EcoBoost technology from five vehicles to ten, diversifying its product line. This is a necessity, as European emission standards won't allow certain vehicles in if emissions are too high, thus Ford has to cut emissions to even be able to sell all of its current product line. All of this is planned for 2015.
More long-term, Ford is heavily pushing its electric vehicle technology, specifically its Focus Electric. At a conference this week, Ford boasted about its Focus technology and used the opportunity to compare and contrast it with similar electric model Nissan (NSANY.PK) Leaf. According to Ford, the Focus Electric not only has more engine power, but it gets better gas mileage and charges in half the time the Leaf takes.
It is currently hard to truly gauge sales of other electric vehicles, as some production facilities are not online yet. Additionally, electric vehicles are a relatively new market and as such consumer preferences are not established. Even with that news, automakers are betting big on electric vehicles, with Ford shipping its Focus Electric to automakers for the first time this weekend. Not surprisingly the first consumers to get the vehicles will be in California, New York, or New Jersey.
As many analysts have noted, electric vehicles aren't selling as well as expected. Consumers are nervous to switch to electric vehicles for many reasons, including long battery charge times and also due to non-electric vehicles getting increasingly better gas mileage. But Ford does not seem phased, as the investment in electric represents a substantial long-term investment. As such, it will take some time for the market to take hold.
Not everyone is so cheery about electric vehicles. Some cite the heavy subsidies given to electric vehicles as a guarantee that they will fail. I think it is a bit premature to declare that a vehicle will fail because it is subsidized, but there are valid points. The author claims that environmental initiatives pushed by the government have had poor success, and I imagine it is much easier to write about these failures after the Solyndra debacle. But given the very short timeframe of electric vehicles so far, we will have to wait and see. Since these subsidies won't be around forever, automakers will find ways to decrease the price tag of these vehicles or risk absorbing tremendous investment costs.
Competition among electric vehicles will likely become very strong in the upcoming years. Look no further than General Motors (GM) to see this, as the majority of consumers of its Chevy Volt electric vehicle come from non-GM cars. It says that the biggest switch comes from consumers switching from a Prius to a Chevy Volt. Additionally, sales of the Chevy Volt have tripled from the same time last year.
Another major player in the market is Nissan Motors. Nissan might have a slight advantage at the moment, as it's beginning to offer its electric vehicle, the Leaf in emerging markets. This will give it an advantage over Ford and GM, neither of whom offer an electric vehicle widely. More importantly, Nissan just announced that it would begin producing an all-electric van, called the e-NV200. With production scheduled to start in 2013, it won't be long before we see a larger, more spacious electric vehicle.
A larger vehicle might be just what the market needs. Many have stated that electric vehicles are too cramped and have little multi-functionality. With a van slated to enter to production, Ford and GM will have to step up to the plate. Toyota (TM) understands this, and is planning to release an electric version of its popular RAV4 SUV late this summer. This will really test the market, as the RAV4 sells very well and is very versatile.
Case in point for small vehicles is the Fit EV set to be produced by Honda (HMC). Honda plans to release the Fit EV in the United States in summer 2013. Honda has a very good reputation in the United States and I believe the car will do well. However, the downside is the Fit is a very small car. Even with four doors the car is certainly a compact car, and entering another small compact car into the electric vehicle market is risky. Honda is hoping there will be enough demand one year down the road to justify another compact electric vehicle.
Ford, known for its extremely popular F-series trucks, has turned a corner. Not only has it paid back its debt to its creditors, but it has shifted focus to a smaller, more environmentally conscious line of vehicles. These cars are also outfitted with new technologies, many of which include Sirius XM Radio (SIRI) features and more. This all suggests a Ford looking forward instead of back to the old days.
This is a long-term investment, and anyone considering buying into the company should be aware of this. I think this is a great investment, as the Focus series has always been a very strong seller for Ford. Adding an electric vehicle to its product line will do a lot for diversification. If the electric vehicles pay off as these automakers believe, Ford will be in a great position to reap the rewards.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.