The auto industry faces the biggest disruption since the launch of the Model T. Infotech is radically transforming what we drive and how we will travel.
FORTUNE -- For more than 30 years, Bill Ford, 54, has pushed his company and the auto industry to be more environmentally friendly. Soon after the great-grandson of Henry Ford first went to work in 1979, he was asked by Ford's CEO to stop making nice with environmentalists because it was causing too much trouble. (Later Bill Ford got heat from the environmental community, especially in the 1990s, for building gas-guzzling SUVs.) Now the company's executive chairman, Ford is seeing his efforts to make his company greener come to fruition this year with the global launch of a new series of battery-powered vehicles, including the all-electric Ford Focus. In this article Ford writes about the future of the electric car, the need for a more comprehensive U.S. energy policy, and how a network of cars connected by Wi-Fi technology will revolutionize the way we drive and even the way our cities are designed. --Brian Dumaine
The auto industry is about to go through a major transformation -- the biggest I've ever seen -- and new technology is driving it. For the first time in more than a century, some of the most fundamental and enduring elements of the automobile are being radically transformed. If you look at a car on the 100th anniversary of the Model T, yes, it has evolved dramatically, but it still has a gasoline engine, is sold through a dealership, and has four wheels. Now the pace of change has really stepped up. Electric vehicles are starting to take off. Later this year we'll launch an entire line of electric cars globally, starting with an all-electric Ford Focus, followed by a plug-in hybrid and an all-electric version of the company's new global C-MAX vehicle, a sporty five-seater. And we're not the only ones going electric. GM (gm) and Nissan already have electric vehicles on the road. The other majors have plans to launch their own versions over the next couple of years too.
But that's just the start. <!-- more -->Electric vehicles will have real-time information flowing through them. You'll be able to use your smartphone to check how much juice you have left in your car and to find an empty charging station. In the near future cars will also be able to talk to one another in real time using GPS and Wi-Fi. The system will warn you when another car runs through a red light in an intersection, giving you enough time to brake and avoid a collision. There's also an environmental benefit. The system can be used to route you away from traffic jams and even help you find free parking places -- all of which cut down on the energy wasted while idling or looking for an empty spot. One real sign of this change: Many of Ford's (f) suppliers are now nontraditional suppliers like Microsoft (msft) and retailers such as Best Buy (bby), which are helping provide the charging and IT infrastructure for this new form of mobility.
What's driving this change? I believe that the price of oil, over the long term, is going to go up. Ford held a summit a few years ago in Dearborn, Mich., with some leaders from major oil-producing countries, and the head of OPEC told me, "I can guarantee you that in the next five years the price of a barrel of oil will never go above $32." The next summer it was $70, and I thought to myself, "Even this guy can't predict the price of oil." The turmoil in the Middle East, a growing demand for energy in China, and the fact that oil is getting harder to find -- all this suggests that gasoline is going to get more expensive over time and that customers are going to care increasingly about fuel efficiency.
Building a global electric car
I would say that about 25% of Ford's fleet will be electrified by 2020, up from just a couple percent today, but even with this approximation it's really hard to predict. You might as well throw a dart. One thing I've learned is that you can't push technology. It has to be pulled. But I like the chances for electric cars because of the lack of tradeoffs customers have to make with this new technology. When you look back at the time when Ford was making a lot of SUVs and I was struggling with environmentalists, one of the issues was that the customer had to make a stark tradeoff if he wanted to be environmentally responsible. To be green, you had to buy a car that was underpowered, that wasn't any fun to drive, and that didn't have a lot of accessories -- it probably had crank windows and manual locks. And the customers would say, "Okay, I want to do the right thing, but I also don't want to drive that." What we have today is a very different equation. We will have all our latest and greatest technology available in our electric vehicles. They are fun to drive. You step on the accelerator and you get instant response. This will really make it easier for people to make the green choice.
I'm not sure which electric technology -- hybrids, plug-in hybrids, or pure electrics -- will win, so Ford is hedging its bets by investing heavily in all these technologies. If you're an urban dweller and don't need to drive long distances, then the all-electric option is ideal. However, I think in the short term conventional hybrids and plug-in hybrids (which run on a battery until it is depleted and then a conventional gas engine kicks in) will be more popular than the all-electric cars because they relieve range anxiety. If a few years from now battery breakthroughs extend the range beyond today's 75 to 100 miles per charge, then the pure electrics will become more desirable. The price of lithium-ion batteries -- the most expensive element in an electric car -- will come down too. As in the electronics industry, when you build more volume, the prices start to come down.
To make electric cars more affordable, Ford designed the Focus to be a truly global car. The new Focus that's sold in America will be the same Focus you'll see in Europe, Japan, China, and South America. That allows the costs to be spread out over millions of units. It also lets our engineers speed up product development. Anytime the car is changed or improved, the engineers need to do the work only once -- not three or four times. The gasoline, diesel, and electric versions of the Focus will all roll off the same assembly lines, so you can flex production up or down depending on customer demand. The reason Ford can build a global car today is that buyer preferences are harmonizing all around the world. It's largely a function of two things. One is the Internet. People are seeing what's available all around the world, and tastes are converging. The other is gasoline prices. When you had low gas prices here in the U.S. and high ones elsewhere in the world, you had a dichotomy of customer desires. Americans wanted big cars and didn't care about fuel efficiency. But as gas prices rise here, we are seeing customer preferences harmonize around the globe.
Building a 21st-century transportation system
The auto industry is ready with the technology, but the electric car revolution is not going to happen fast enough here without a strong U.S. energy policy. Congress needs to outline a multiyear view of where we're going. A confluence of many things has to happen to make the electrification of cars a reality. Ford is making money, and the company has invested significant amounts in electric car hardware, and it's ready to go, but the country is not ready to go right now. We need to build a smart grid and install millions of car-charging stations in garages and in public spots while creating the IT that ties it all together. If we don't, there's a danger America will get left behind.
The Chinese government predicts that 5 million electric vehicles will be on their roads by 2020, and they can almost ensure that those projections will be met. (Currently about 70 million cars ply its roads.) Beijing and the regional governments are heavily subsidizing electric cars -- cheap land, loans, and subsidies -- and they have a huge number of government scientists involved in battery research at a scale no private company could match. I think Washington can and should help with R&D and the early adoption of the technology. With our deficit problem it would be a tough proposition. But it's important for this country to get on with this technology for the reasons everyone knows: energy independence and climate change. Some see the issue as an energy-independence problem, others as a climate-change problem, but it doesn't matter because it takes you down the same road.
Take lithium-ion batteries – the key to electric cars. I think it's a matter of national security to have a competitive American battery industry. Washington should increase R&D spending here unless they want to cede the development of batteries to other nations. Right now Asia has the lead in this sector. At Ford we can buy batteries from anyplace in the world, but I'm speaking here as an American, not as the chairman of Ford. If this is going to be a critical energy technology for us, we'd be crazy to trade off one dependency on foreign oil for another dependency called foreign batteries. It's a matter of national security. What happens if a country suddenly shuts off our supply of batteries?
Making cities more livable
I've worked at Ford for 30 years, and for most of those years we've worried about how to sell more cars and trucks. But now I worry about something entirely different: What if all we do is sell more cars and trucks? The way the auto industry is growing globally, we're in danger of losing our freedom of mobility due to gridlock. The number of cars on roads will jump from 800 million today to as many as 4 billion by 2050. And even if the cars are all green, that doesn't solve this problem. A green traffic jam is still a traffic jam. The average American spends a week every year stuck in traffic. In Beijing the average commute is already 2½ hours. Last year one traffic jam outside the city lasted for 11 days.
The notion of today's ownership model of two cars in every garage just isn't going to work, yet drivers don't want to give up individual mobility. A few people will be willing to take buses and trains, but those systems move in linear grids, and most of us don't want to move that way. Even New York City, which has a great public transportation system, is full of cars, and you have gridlock there. There has to be a better system.
Instead of focusing on building more roads and rails, we should work on putting intelligence into our systems. That means smart roads, smart parking, and smart public transit. We need to use real-time data to optimize personal mobility on a massive scale. You can start to see bits and pieces happening around the world. Abu Dhabi's Masdar City has a driverless electric-vehicle system that moves passengers on underground roads. Hong Kong's Octopus system ties together commuter parking, buses, and trains into a single-payment system. You get one ticket on your cellphone, and it doesn't matter whether you're taking a train, a bus, or public transport of any sort. The ultimate solution would have transportation hubs where all forms of travel intersect, so you can get off a subway and get onto a Segway. Or get off a bus and get on a bike or share a Zipcar. Those hubs will be safe, well-lit, attractive places. You can imagine those transportation hubs as social hubs with cafés where people gather.
To make this new world of transportation a reality, Ford and other global car makers are working on a prototype system called intelligent vehicles, or V2V (for vehicle-to-vehicle) communications. The system, which will be ready for market in the near future, uses GPS and Wi-Fi to create a network that allows cars to communicate with one another. The system will alert you when another car is about to run into you or when a driver 10 vehicles ahead of you has suddenly braked. A warning buzzer goes off in your car, giving you enough time to avert an accident. There's also an environmental benefit. The system can route you away from traffic jams. With V2V a lot of the technology is already in the vehicle, and adding the capability is relatively inexpensive. What's so costly is the infrastructure. The nation needs to build, for instance, smart intersections with the Wi-Fi capability to transmit traffic data to drivers.
Another application of this network will be parking. One of the biggest wastes of energy and causes of congestion is drivers wandering around looking for parking spots. As we move to smart parking, we'll see the day where your vehicle can actually reserve you a parking spot in a city center before you arrive downtown. Satellite imagery could tell your car which spaces are open and direct you there. You will be able to choose and reserve your parking spots before you even leave the house. Various cities around the country have pilot projects where a reader would recognize your car when you pull into a space and automatically bill you for the time used. You never have to get out and feed the meter. Cities like it because the cost of maintaining meters is high. Instead of putting in $4 of quarters and only staying 20 minutes, you're billed only for what you use.
Building out a smart transportation system could be a great job creator. Rather than look at this as some type of New Deal-style federal work project, we should consider it an economic jobs enabler. By reducing traffic congestion, the workforce will become more productive. Ridding ourselves of our dependence on foreign oil and running our cars and trucks on clean, domestically produced electricity will boost commerce and promote growth.
I've spent my entire career talking about corporate sustainability and pushing for more earth-friendly products. Now that the industry is finally moving in this direction, people sometimes ask me, Do I feel vindicated? I say, "No, I feel energized." To me, we're just getting going.