This is part of the America's Future series airing on FOX News Channel, looking at the challenges facing the country in the 21st century.

STUTTGART, Germany — German cars are renowned for their engineering, luxury and performance, but with gas prices soaring, CO2 emissions building and car sales slumping, when the German brands talk about their new “green” approach, people listen.

“This change is definitely for real,” said Matthias Krust of Germany’s Automobile Week magazine.

With Japanese brands releasing environmentally friendly models and American firms catching on, Volkswagen-Audi’s boss said it outright: The future belongs to electric power.

Click here to see more on Germany's green machines.

Porsche and BMW are rolling out gas/electric hybrid cars, and Daimler’s Mercedes line is going green. Its popular Smart Car will be outfitted with a lithium-ion battery, the sort used in laptops and cell phones.

The new Smart Car, which will go on sale in 2010, is one of two Mercedes models with the battery. While it only goes 100 miles on an overnight charge, it's considered adequate for city driving and commuting.

For the long haul, Mercedes is steering toward a car fitted with a space-age fuel cell. The car has an electric motor, too, but is powered by a chemical reaction between hydrogen and oxygen. This hydrogen fuel cell will produce almost no pollution, even as it offers a driving range approaching that of a conventional car.

Those engines may sound improbable, but carmakers say they’re under development and on the way.

“I think it’s really feasible, if the world wants to change to zero emission,” said Christian Mordieck, Daimler’s director for fuel cell and battery development.

But there are obstacles along the way. Mercedes admits that it will take a few years before the fuel-cell cars go on sale, and its hydrogen-powered vehicles would require all-new fuel pumps, which gas stations have yet to accommodate.

Smart’s electric juice may be easier on the environment, but it could be harder on consumers’ wallets; right now, the electric models cost more than gas-powered ones.

Some critics say Daimler and other German firms aren’t doing enough to change their fleets, and are simply conforming to stringent European environmental standards.

“The German car industry is not moving fast enough toward fuel-efficient cars,” said Daniel Kluge of Verkehrsclub Deutschland, an environmental transportation organization based in Berlin.

Still, Daimler points to more models, like its new sleek hybrid prototype, which buys it time before the right technology rolls along. If only for the economic survival of global carmakers, most agree a new “route” needs to be taken.

Click here to read other America's Future stories.