Toyota Prius Turns 10

When Toyota Motor Corp. launched the Prius hybrid-electric vehicle a little over 10 years ago on Dec. 10, 1997, a good helping of skepticism was dished out along with all the accolades the car received.

“No one thought the Prius would succeed in the marketplace so soon,” says Tokyo analyst Koji Endo, director-equity research at Credit Suisse First Boston Securities (Japan) Ltd. “We had a rough timeframe in mind of 20 years, not 10.

“It's not that the technology wasn't impressive, as it offered the industry an interim solution to the problems of limited range of pure electric (battery-powered) cars and the staggering costs of fuel cells, but we didn't see how Toyota could lower hybrid system costs to a point where the car was both affordable and didn't lose money,” Endo adds.

At the outset the system, including battery, motors and inverter, added an estimated ¥1 million ($9,000) to the car's overall cost. Some analysts put the amount as high as ¥2 million ($18,000). If true, the HEV powertrain would have cost more than the retail price of a fully loaded Corolla.

When the Prius went on sale, it listed for ¥2.15 million ($19,150) excluding tax. Since then, Toyota has raised the car's price only slightly, to ¥2.3 million ($20,000), although the auto maker now offers a premium version equipped with its latest telematics technology and more luxurious trim at ¥3.25 million ($30,000).

More importantly, Toyota has cut system cost by 75% (nearly 90%, if the ¥2 million base figure is correct). With lower cost has come steady growth in sales, more than 40% annually. The auto maker expects to announce total global sales of 281,000 units when 2007 results are announced in early January. And unlike a decade ago, all will be profitable, although margins remain small.

A late entry to the market in 1997, the bubble-shaped car registered sales of just 323 units in its first three weeks, enough to win the “Japan Car of the Year” award, even though most of those 300-plus owners would not take delivery of their cars until after the New Year and only a handful of dealerships had a real-live Prius for their showrooms.

At the outset, the Prius was available only in Japan.

In 1998, the Prius' first full retail year, monthly sales averaged 1,500 units. Midyear, the auto maker had to boost plant capacity to 2,000 units, from 1,000 at startup. In fact, installation of the hybrid system didn't take place on any of the three assembly lines at the auto maker's Takaoka plant, but in a small custom shop on the plant's 336-acre (136-ha) site.

Toyota later moved assembly to its Motomachi plant and then to Tsutsumi. To deal with increased demand following the launch of the '03 model, the third generation, the auto maker shifted part of production to the Fujimatsu plant of Toyoda Auto Body Co. Ltd., an affiliated manufacturer.

An added problem for the auto maker 10 years ago: It could not turn to its highly regarded supplier group for most key components due to the accelerated lead time to bring the car to market. As a result, Toyota had to produce the inverter, power control module and several other key components in-house at its Hirose electronics plant in Aichi prefecture.

Had Toyota been forced to turn to its supplier base, production would have been delayed at least a year, one official explained.

Management had rushed the car's launch to take advantage of the publicity surrounding the Kyoto Conference on Climate Change, which was held during the first week of December. In total, more than 170 countries ratified the protocol to cut greenhouse gases on Dec. 11, the day after the Prius went on sale.

Hiroyuki Watanabe, who headed the team to develop the car's energy-management system, credits the strong leadership of then-Toyota President Hiroshi Okuda for bringing the car to life a year ahead of schedule. “Without a commitment from the top, we couldn't have accomplished this,” he declares.

Okuda became president in the summer of 1995, several months before a prototype was exhibited at the Tokyo Motor Show in October and nearly four years after the project had been conceived. Management advanced the launch date shortly after the show.

As the project shifted into high gear — with as many as 2,000 engineers involved at varying stages from almost all major technical divisions inside Toyota — a critical obstacle was the car's nickel-metal hydride (NiMH) battery pack. Apart from the fact the battery continues to be the single most expensive component in most hybrid systems, there were serious problems with overheating and durability. The battery had to last the car's life which, for the Japanese market, was more than 62,500 miles (100,000 km).

Toyota turned to its longtime battery supplier, Matsushita Electric Industrial Co. Ltd., to co-develop and produce the battery pack. Then midway through the project's engineering phase, in December 1996, the auto maker expanded its relationship with the electronics giant and Matsushita's battery-making subsidiary, Matsushita Battery Industrial Co. Ltd.

Together they formed Panasonic EV Energy Co. Ltd., the Prius' nominal supplier, although batteries actually were produced at Matsushita Battery's Kosai plant in Shizuoka.

Hybrids were not entirely new in Japan. Mitsubishi Motors Corp., in spring of 1995, delivered a pair of Chariot-based hybrids to the California Air Resource Board for two years of running trials. The HEV, as Mitsubishi called it, was a follow-up to a 1993 Tokyo Motor Show hybrid concept, the ESR.

Then in summer 1997, Toyota launched a hybrid version of its Coaster bus, while Hino Motor Co. Ltd., Toyota's truck-making subsidiary, already had conducted four years of fleet tests with nearly 100 city buses before the first Prius was sold.

The Coaster and Chariot were “series” hybrids, meaning only their electric motors turn the drive wheels.

What made the Prius different is that it employed a “parallel” system that allowed both 1.5L gasoline engine and 288-volt (now 500-volt) motors to turn the wheels. Moreover, Toyota configured the Prius' dual power systems to nearly double the car's gas mileage, one of the auto maker's chief engineering objectives.

That 100% differential has narrowed over the years with improvements in internal combustion engine technology, including everything from better fuel injection to reduced friction of pistons and other key components.

Still, the 2003 Prius achieved an impressive 44 mpg (5 L/100 km) in combined city/highway driving, according to Consumer Reports magazine, and an Environmental Protection Agency rating of 60/51 mpg (4/4.6 L/100 km).

“When we compare the Prius to the 4-cyl. Corolla and Civic, both of which get around 30 mpg (7.8 L/100 km), this represents a considerable fuel savings over the course of a year,” says Gabriel Shenhar, a senior engineer for Consumer Reports' Auto Test Division.

Even though the Prius was the first HEV on the road in Japan, Toyota did not introduce it to North America until the summer of 2000, eight months after Honda Motor Co. Ltd. launched the hybrid Insight in the market. This is one reason why many in the U.S. still believe, wrongly, that the Insight — and not the Prius — was the first mass-produced HEV.

Lance Ealey, an automotive consultant for Cleveland-based Freedonia Group, says the Prius gave Toyota a “green glow” with green standing for something other than the environment. For much of the past decade, Toyota generated more than half of its profits in the U.S. “The Prius created excitement,” says Ealey. “It enhanced the brand and drew people into Toyota showrooms.”

Overseas sales of the car, the lion's share in North America, now account for 60% of the total. Cumulative sales are projected to grow to more than 900,000 units by the end of 2007.

Meanwhile, total hybrid sales by the auto maker are on track to reach 1.3 million, including gas-electric versions of the Kluger and Harrier SUVs (and their overseas derivatives, the Highlander Hybrid and Lexus RX 400h), plus four other core models.

Among Toyota's competitors, Honda, which launched the hybrid Insight in 1999, has since introduced HEV versions of the Civic and Accord, although the latter since has been discontinued in the U.S.

Cumulative HEV sales by Honda were expected to exceed 240,000 units by the end of 2007. The total includes the Insight, which the auto maker phased out of production in 2006. In its current product plan, Honda intends to roll out a new compact hybrid in 2009 that is priced low enough to realize yearly sales of 200,000 units.

Honda president Takeo Fukui says the car, like the Civic and Accord hybrids, will adopt a smaller version of the auto maker's Integrated Motor Assist or IMA system. “We will not introduce a Prius-type hybrid,” declares Fukui. “It is not cost-effective, particularly for long-distance driving on open roads.”

Ford Motor Co. introduced the Escape and Mariner Hybrids in 2004 and 2005, respectively, and recently began producing the Tribute Hybrid for Mazda Motor Corp. Cumulative Escape and Mariner Hybrid sales through November total 64,345 units. Mazda sold 71 Tribute Hybrids since it went on sale in September.

Also this year, Nissan Motor Co. Ltd. launched the Altima Hybrid in January into the U.S. market. Sales through November reached 7,436 units.

Nissan's first HEV, the Tino Hybrid, went on sale in March 2000. Unlike Toyota hybrids, the compact car employs a lithium-ion battery. Sales of the limited production run totaled 100 units.

The Altima Hybrid, which is produced by Nissan North America Inc. in Smyrna, TN, depends heavily on Toyota for key system components including the NiMH battery and inverter. It uses essentially the same components as Toyota's Camry Hybrid, which is produced by Toyota Motor Mfg. Kentucky Inc.

When Nissan introduces its next-generation model, currently planned for 2010, the auto maker will go back to a Li-ion power pack.

Meanwhile, General Motors Corp. is in the process of launching HEV versions of its Chevrolet Tahoe and GMC Yukon, its first two full hybrids. In mid-2008, Chrysler LLC will offer up Aspen and Durango models with similar 2-mode hybrid powertrains, followed by GM, again, with the Cadillac Escalade SUV and Chevrolet Silverado and GMC Sierra HEV fullsize pickups. Ford also is scheduled to launch HEV versions of its Fusion and Milan sedans in 2008.

Joining the bandwagon, both BMW and Mercedes-Benz, longtime critics of hybrid technology, now are gearing up for a series of launches by decade's end. At the Frankfurt motor show, Mercedes unveiled the ML450 Hybrid, an upscale cross/utility vehicle scheduled to go on sale in 2009, plus six more units, both gasoline and diesel, throughout its model lineup.

BMW, utilizing the hybrid system jointly developed with Daimler AG and GM, is readying a full-hybrid version of the new X6 to be built in the U.S. and a still-to-be-named “mild” hybrid in its luxury lineup.

Kazuo Okamoto, Toyota executive vice president-product development, estimates hybrids will account for 10% of new car demand in Japan and the U.S. by 2015, compared with only 1% in Europe, where diesels continue to reign supreme. Much, of course, depends on fuel prices.

Still, Okamoto reconfirms the auto maker's plans to boost yearly hybrid sales to 1 million units by around 2012, from 420,000 this year. He warns, however, that to achieve this target, at which time Toyota plans to offer as many as 15 hybrids throughout its lineup, system cost must be reduced further.

The auto maker is targeting a 50% reduction for the next-generation Prius, due in 2009, from about $2,500 for the current model to $1,250.

Analysts note the auto maker originally planned to bring the new version to market in 2008, but delayed the launch when management opted against switching to a Li-ion battery pack and decided to stick with NiMH.

Will HEVs eventually be supplanted by pure-electric and fuel-cell vehicles, considered the ultimate solution for “sustainable” transportation?

Apart from the fact that Toyota regards aspects of HEV technology (such as brake energy regeneration) as core to all future powertrains, whether gasoline engines, or fuel cells, supercapacitors or batteries, Okamoto says “the real test will be when regular consumers can afford them. And that is unlikely for many years to come.”

Still, he is optimistic about medium- and long-term prospects. “We consider hybrids like other new technologies such as televisions, DVDs and consumer electronics in general, all of which were expensive when they first came onto the market. Then costs gradually came down.

“In the case of notebook computers,” recalls Okamoto, “no one thought when they first became available that they would one day deliver the same performance as conventional mainframes…or that they would ever become affordable for average consumers. I think hybrid technology will follow the same trend.”

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