Can fuel efficiency drive profitability?

Fuel efficiency is the name of the game in today's auto industry, but can fuel efficient vehicles drive profits?

Must we rethink our box?

Will fuel economy power the future?

Small, cheap cars, boosted by government policy, can beat the heavy, costly vehicles in terms of sales, but what about profits?” recently questioned Zhang Xin, an auto analyst at Guotai Junan Securities in Beijing, regarding a decline in Warren Buffett backed BYD Automotive sales in China.

Consequently, if China can't build a profitable new auto industry around fuel efficiency, can the US?

Is that even the right question? For instance, is profitability a mechanism of energy prices?

Obviously, high energy prices make fuel efficiency a much more compelling sell, so it would seem that higher energy prices could then drive fuel efficient profitability.

Unfortunately, however, higher energy prices also mean higher prices for everything. If energy prices rise too fast, according to some studies, consumers won't necessarily be motivated to buy more expensive, but also much more fuel efficient vehicles. Instead, most consumers will choose a combination of efficiency and cheaper upfront costs, as consumers will simply have less money to spend on both energy and autos.

Cheaper and more fuel efficient, it would seem, is a doubly whammy for automaker profitability.

But what about alternative fuels or batteries? Could such technologies make fuel efficiency profitable as mainstream solutions? Essentially, can we just add batteries or new fuels to our current fleet and fix everything?

Or, inevitably, is today's form of personal transportation simply a dinosaur that must evolve into an entirely new form in order to turn fuel efficiency into a profitable and sustainable business model?


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