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Following the bandwagon of alternative fuel vehicles, Ford Motor Co. (F - Analyst Report) is reportedly coming up with a natural gas version of widely-popular F-150 pickup trucks in 2014. The upcoming model would be equipped with a prep kit including 3.7 liter V-6 engine and will have an option to run either on compressed or liquid natural gas or gasoline.

Ford already offers bi-fuel option on its heavy-duty trucks, but the latest addition would mark a stepping-stone for the company into the CNG-enabled light-duty vehicle space, which is currently gaining momentum in the commercial as well as retail markets.

In the upcoming F-150 models, Ford would offer factory-installed prep package costing roughly $315. However, a complete upgrade from Ford Qualified Vehicle Modifier, which involves Westport Innovations Inc.’s Westport WiNG Power System including CNG fuel tank and fuel-delivery systems, will be priced somewhere around $7500-$9500. Although, these enhancements to F-150 remain expensive, consumers are expected to register gains with 24-36 months spans, given the current lower natural gas prices.

With the latest addition, Ford is expected to register an uptick in its natural gas truck sales. According to market reports, the company registered 11,000 natural gas truck sales last year, representing twice the combined number of trucks it sold in 2009, 2010 and 2011. Ford’s sales projection for 2013 includes a 29% growth in its CNG powered vehicle over last year’s sales figures.

With F-series trucks claiming popularity backed by 645,316 units being sold in 2012, we believe the new alternative fuel option in its 150 model will only add to its popularity, enabling the company to reach its growth targets. Apart from the F series, the company’s commercial fleet of CNG vehicles include E-Series vans, Transit Connect taxis, Super Duty large pickups and chassis-cab trucks.

Not just the growing awareness on fuel economy, but enforcement of several environmental protection acts also boosts the use of alternative fuel vehicles. Environmental Protection Agency (EPA) and Department of Transportation (DOT) have worked together to form Federal Corporate Average Fuel Economy (CAFE) standards in 2010. According to the new regulation, automobiles covering model year 2012-2016 need to have fuel economy standard of 34.1 miles per gallon.

Financially, market reports suggest that average price of a new car may rise by $985. However, in terms of fuel savings, the average consumer will gain around $3,000 over the life of a vehicle with the standards being enforced.

Given these factors, the auto market is gradually moving toward manufacturing eco-friendly, fuel-efficient vehicles. Apart from Ford, major U.S. automakers like General Motors Company (GM - Analyst Report) and Chrysler Group LLC have also shown keen interest in tapping this emerging market, especially in the commercial and corporate space where alternative-fuel vehicles are high in demand. Market sources project that around 130,000 natural gas vehicles, mainly commercial trucks and buses are currently running on American roads.

However, despite these positive, number off recall issues that took place in recent years have made us somewhat wary over the future of F-150. In May 2013, issues surfaced regarding F-150 related to EcoBoost V-6 engine power failures while accelerating. No accident was registered but according to reports, National Highway Traffic Safety Administration (NHTSA) received 95 complaints regarding EcoBoost engine failures.

In Apr 2011, Ford extended the recall to 1.35 million units in the U.S. and Canada due to the pressure from the safety regulators. In May 2011, NHTSA included another 1.3 million units into its investigation. Further, in Aug 2011, Ford recalled 1.1 million units of F-150, F-250 and Lincoln Blackwood pickup trucks due to a problem with their gas tanks that could catch fire.

A probe was also initiated in Sep 2010 after receiving 32 consumer complaints by NHTSA. As many as 1.4 million units of F-150 pickup trucks were suspected of possibly having the problem with the traps holding fuel tanks that can rust and break.

Although, recalls remain a common issue for all automakers including Honda Motor Co., Ltd. (HMC - Analyst Report) and Toyota Motor Corp. (TM - Analyst Report) a negative impact of this persistent problem, especially with Ford’s F series cannot be ruled out. As a result, we believe how the market reacts to the new version of F-150 is something to wait and watch out.

Ford retains a Zacks Rank #2 (Buy).

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