UPDATE 1-Ford brings hybrid, EV work in-house to beat Toyota

Wed Aug 15, 2012 9:06pm EDT

* Flexibility, insourcing key to Ford's EV, hybrid plan

* Ford looking to take on Japanese rival Toyota

* Ford has 3 pct of U.S. hybrid, EV market; Toyota 66 pct

By Deepa Seetharaman

Aug 15 (Reuters) - Ford Motor Co, vying to beat Toyota Motor Co's record on fuel economy, is accelerating development of its hybrid and electric vehicles by bringing the design and production of key components in-house.

The No.2 U.S. automaker said Wednesday it will spend $135 million to design parts for its next wave of electrified vehicles and double its battery testing capability by next year.

This summer, Ford began building its own hybrid transmission. More than 1,000 Ford engineers are devoted to advanced vehicle development and Ford plans to hire more.

These efforts allow Ford to complete projects more swiftly and cut overall development costs, executives said. They also allow Ford to react more nimbly to changes in consumer demand.

"We're not wed to any one specific technology," said Kevin Layden, head of electrification programs and engineering. "I'm free to play the field and I'm very comfortable with that."

Improving fuel economy is a cornerstone of Ford's vehicle strategy. Ford expects hybrids, plug-in hybrids and EVs will account for as much as 25 percent of its global sales by 2020.

Ford this year is launching five electrified vehicles, including hybrid versions of the Fusion midsize sedan and C-Max crossover. The C-Max gets 47 miles per gallon, beating the Toyota Prius V, which gets 44 miles per gallon.

But Ford still lags far behind Toyota, which has dominated the market with its Prius hybrid family. So far this year, the Toyota brand has accounted for two-thirds of the U.S. hybrid and EV market, while the Ford brand represents 3 percent, according to Edmunds.com.

The high cost of batteries and electric drive components represents another challenge. To combat that, Ford, like other automakers, is increasingly looking to maximize the number of models and parts that can be built on a single line.

For example, Ford now builds a hybrid transmission at its Van Dyke Transmission Plant near Detroit. On one side of an aluminum palette, workers build a conventional six-speed automatic transmission. On the other side is the hybrid version.

Ford previously bought these transmissions from Japanese parts supplier Aisin. Bringing production in-house allowed Ford to shave 20 percent from development costs, partly by saving on shipping and component costs. The model also gives Ford the choice to build more or less depending on demand.

"It's not just cost savings. It's market opportunity as well," said David Cole, chairman emeritus for the Center for Automotive Research. "If your competitior has products but you don't, that's a problem."

Ford is also seeing savings from bringing battery design and testing internally after relying heavily on outside suppliers to design and test batteries for its earliest hybrids.

The expansion of battery testing allows Ford to finish projects at least 25 percent faster than with the previous generation of hybrid and electric vehicles.

The automaker said its current hybrid system costs 30 percent less than the previous version. The new system relies on a more-efficient lithium-ion battery, while the Ford's original Escape SUV hybrid used a nickel-metal hydride battery.

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