Markets are constantly changing and companies are forced to adapt, or go out of business. Ford Motor Company (NYSE:F) and Toyota Motor Corporation (ADR) (NYSE:TM) are successful now and look to have strategies that will succeed in the future as well. Different strategies are adapting the automakers to the changing market. One is to invest in fully electric vehicles, such as General Motors Company (NYSE:GM) Chevy Volt. A more popular option is hybrid vehicles, where Toyota Motor Corporation (ADR) (NYSE:TM) dominates with the Prius and Camry, while Ford Motor Company (NYSE:F) is gaining ground with the C-MAX and Focus electric. While those options have had some success, I don’t think full-electric is the answer for another decade. Let’s look at why downsizing and more efficient internal combustion engines, or ICE, are the answer for a foreseeable future, and which automaker is prepared to take market share, both near and long term.
Looking at the graphic above, it puts into perspective the tiny fraction of alternate-power vehicles on the road today. When you take a look at the future CAFE standards for vehicle fleets, it’s unrealistic to think that the amount of hybrids or electric vehicles will command enough of the market to meet the miles per gallon (mpg) requirements anytime soon. Look at two results from KPMG’s recent survey (link opens a PDF):
1). 92% of respondents said the No. 1 factor in purchases was fuel efficiency.
2). 85% of auto executives said ICE downsizing and innovation represents the best chance to reach high fuel efficiency and low emissions.
The majority of executives now believe it will be at least six to 10 years before ICE is replaced as the best answer for clean, efficient engines. For now, it’s vehicles with innovation, such as Ford’s EcoBoost engine, which account for over half of the engines it sells. Although ICE innovation is expected to receive the most investment in research and development over the next five years, companies are still branching out into some alternate energy powertrains.
Ford has done extremely well with its EcoBoost engines, which account for half of the engines it now sells. The Fusion, Focus, and Escape are great examples of how ICE innovations can boost miles per gallon into the mid-30s on the highway, and sell extremely well. Ford’s recent Atlas concept, which is rumored to go into production in 2014, is replacing up to 700 pounds of steel with aluminum, could be capable meeting CAFE standards out to 2025. Ford hasn’t been the only automaker successful with fuel efficiency.
Toyota has produced efficient vehicles since it entered the U.S. market. It has had great recent success with its hybrids, and dominates the segment which could be the next big trend. People forget that the Prius debuted way ahead of its time in 1997. A time when people were more focused on not trampling other vehicles, like a monster truck, in their oversized Hummer. It also has cars that get great mpg rates through ICE with the Camry and Corolla both expected to finish in the top six of total vehicles sold this year.