Horse Race

Although hybrid cars currently account for less than 3 percent of auto sales, major car companies are fighting for position to become leaders in gas-electric technology. Every day brings more news that auto executives see electric-drive cars as the key to future prosperity.

Toyota, the current leader by a wide margin, is planning to double its hybrid production by next year—mostly by adding about 10 new models. Reports this week indicate that the company could sell 1 million hybrids every year, as early as 2011. On Tuesday, Toyota announced that it will guarantee a flow of lithium—the key to the next generation of advanced auto batteries—by taking a 25 percent stake in an Argentina-based lithium production project. This shows how Toyota is playing the hybrid game for keeps. Access to key components have created bottlenecks in hybrid production in the past.

Honda, once neck-and-neck with Toyota in hybrid technology, has experienced one blunder after the next in its hybrid marketing efforts. But it’s not giving up. Honda CEO Takanobu Ito, speaking at the Detroit auto show last week, said that he wants “to develop and expand our hybrids.” He challenged his research and development staff to produce a hybrid that beats the Toyota Prius in fuel economy.

The company will have to dig out from a series of mishaps. Honda introduced the Accord Hybrid with an emphasis on performance over efficiency and then canceled the car due to poor sales. The company aimed for hybrid affordability with the 2010 Honda Insight, but priced the car too close to the Civic Hybrid and Prius. Sales have been disappointing. And its next hybrid, the CR-Z hybrid sport coupe, due later this year, is small, lacks sports-caliber horsepower, and will have so-so fuel economy in the mid-30 mpg range. Ito is right to go back to the hybrid drawing board, and to begin introducing hybrids in the company’s Acura luxury brand.

On a happier note, Ford is on the rise. Last week, the Ford Fusion Hybrid received the North American Car of the Year Award. In 2009, Ford bypassed Honda to become the second largest seller of hybrids in the United States. Sales of the Fusion/Milan and the Escape SUV hybrid tallied to about 32,000—eclipsing Honda, although still one-sixth that of Toyota’s US hybrid sales. Moreover, Ford is on track to introduce an all-electric car, the Ford Focus EV in 2011, and a plug-in hybrid version of the Escape Hybrid.

Plug-in Cars Make Things Even More Interesting

Meanwhile, the Chevy Volt plug-in hybrid and all-electric Nissan Leaf are waiting in the wings—for limited introduction later this year. Both General Motors and Nissan have been almost completely left out of the current hybrid race. GM’s hybrid offerings include gas-electric sedans, SUVs, and pickups—but sales have been negligible. Nissan has only offered the Altima Hybrid in a handful of states. So the Volt and Leaf could be turnaround vehicles for the company’s electric-drive plans.

However, a growing number of critics warn that market adoption of cars with large expensive lithium ion batteries will take time. This month’s IEEE Spectrum magazine published a scathing criticism of the Chevy Volt’s market prospects. The article praised the Volt’s technology and capabilities, but suggested that higher costs will appeal only to “people who tile their roofs with photovoltaic cells, harvest the energy they expend on their StairMasters, or live underground in hobbit holes to conserve heat.” Spectrum author Philip Ross points to conventional hybrids as a better solution, as does John Petersen of Seeking Alpha, who writes that conventional hybrids “have proven themselves over the course of a decade in over a million vehicles worldwide…[while plug-in cars] have no meaningful track record in the real world, and promise more than they can hope to deliver.”

The merits and fallacies of these anti-EV arguments will be debated over and over again in the blogosphere in 2010—as the countdown to the Volt and Leaf continues. And as every global carmaker cranks up its R&D departments and turns up its marketing efforts to promote their place in the hotter-than-ever hybrid race.