Toyota Prius: Chapter Three
July 16, 2007

By Peter Nunn

It’s still the best part of two years away. Nevertheless, the world is already watching and waiting on the next Toyota Prius.

Behind firmly closed doors in Toyota City, Japan, Toyota engineers and designers are now working on exactly this vehicle. What will it look like? How will it be engineered? How will it move the sector to enable Toyota to reach its goal of selling 1 million hybrids per year by the early 2010s?

Toyota’s reported vision is for:
· a new, third-generation Prius, slightly bigger than today’s model for debut in 2009;
· a trio of versions, including one smaller than the Corolla and one larger than the current Prius that resembles the Hybrid X concept shown at March’s Geneva Auto Salon;
· traditional nickel-metal hydride batteries, not lithium-ion ones;
· further progress in the Prius becoming leaner, meaner, greener and cheaper.

One thing is for sure: The current Prius is a standard setter and global superstar. Its successor in will have a lot to live up to.

A peek under Toyota’s tent

Despite the new Prius being nearly two years away, the media, both business and enthusiast-orientated, remains fixated on the the gasoline-electric hybrid that today is one of the hottest cars on the planet, a brand of its own and the ultimate symbol of automotive green goodness.

Toyota’s reported vision is to offer a new, third-generation Prius, slightly bigger than today’s model in 2009.

However, a separate bigger version, borrowing some of the design cues and vision of the Hybrid X concept, shown at March’s Geneva Auto Salon, is also being readied.

Japan’s Nikkei reported in late June the “bigger Prius” would have a 2.0- to 3.0-liter engine. Toyota most likely will build this new model at the Miyata plant of its affiliate, Toyota Motor Kyushu, the paper said. Its likely launch date is 2010, backed by a global sales plan of 100,000 units per year.

The third new Prius variant will be smaller than today’s car, positioned at the upper end of the Corolla scale, according to sources. It would be unveiled in 2011.

It all adds up to a formidable investment, even for Toyota, Japan’s richest automaker, which recently posted record-breaking annual profits of $14 billion.

While doubts remain in some quarters whether Toyota’s hybrids are genuinely profitable yet and whether the technology is truly as green as it is widely perceived to be, Toyota’s hybrid bandwagon continues to roll onwards.

Three Prius models instead of one, meantime, are a massive R&D burden. On the other hand, Toyota would be able to achieve significant economies of scale by spreading R&D investment over a bigger range of models.

And the Prius, of course, is not the only gas-electric hybrid from Toyota. The company now sells eight different hybrids through its Toyota and Lexus channels and has said that its hybrid offerings “will double” by the early 2010s.

Just last week, Jim Press, Toyota’s top North American official, reaffirmed the Japanese automaker’s commitment to hybrids and predicted hybrids, presumably Toyota’s, which now account for three of every five hybrids sold in America, will eventually dominate U.S. roads as fuel prices continue to rise. "Eventually, everything will be a hybrid," said Press, president of Toyota Motor North America, told Bloomberg News in an interview.

Rivals and the industry in general can be in no doubt then that Toyota is determined to be – that is, remain -- the hybrid market leader, whatever it takes.   

No lithium-ion batteries, for now

Japan’s media has also reported two other things about the coming third generation Prius. First, that the program has been delayed, from a late 2008 intro back to spring 2009.

Second, that Toyota has given up (for now at least) on using lithium-ion batteries in the new Prius and will stay with the current style of nickel-metal hydride battery pack.

Toyota has a policy of not talking about future model plans. However, neither story has been denied, and both fit a pattern of Toyota wanting, obviously, to bring the next Prius to market in as smooth, glitch-free manner as possible.

Early demand for the next Prius is expected to be substantial, so Toyota clearly wants to avoid any supply restriction kinks in the system, through production or suppliers.   

Quality is a priority

Toyota’s reputation has been damaged of late through spiraling recalls and quality problems. The company is now instituting major changes to new model development to right the ship. More time and money will now be spent at the prototype stage, and more engineers hired, a complete reversal of Toyota’s obsessively lean, cost-cutting, speed-essential ways of the past few years.

Toyota engineers are also reportedly worried about the quality and safety of the current lithium-ion batteries. So it’s said that Toyota’s decided to err on the side of caution and stick with nickel-metal hydride pack: less advanced but far more of a known quantity.

Plug-in Prius in the works

Toyota, like others, is also investigating the merits of plug-in hybrid technology and announcement on that is believed to be imminent, certainly before the end of the year.

Toyota also is working on the costs of hybrids. Toyota admits that hybrids are still more expensive than conventional models but is now working extra hard to narrow that differentiation down. The stated goal is to have margins comparable with gas models by 2010, which will be no easy task.

Honda ups the hybrid ante

Not that the next Prius will necessarily get everything its own way, of course. Honda will unveil its new, dedicated global hybrid model in 2009, at a price lower than today’s Civic hybrid. At the same time, European makers and Detroit are also aggressively moving up hybrid plans. 

Edmunds.com’s intelligence shows about the dozen hybrids available to buyers today is expected to double in the next couple of years.

The Prius’ most direct rival – Honda’s new dedicated hybrid - will be built in Japan at the planned rate of 200,000 units per year, with 50 percent of production earmarked for North America. It will likely be previewed in fall 2008, perhaps at the Paris Auto Salon.

A source who has seen the car says it bears an uncanny resemblance to the Prius. Honda is also promising a dramatic cost reduction – from $4,000 down to $2,000 – in the price premium for a hybrid versus a conventional gas model, news which apparently rattled quite a few in Toyota City.

Diesels challenge hybrids

The coming new wave of clean diesels will also threaten the Prius’ image as the ultimate four-wheeled green leader.

Two recent research reports show U.S. sales of both diesels and hybrids will grow significantly in the next five years but diesels will outpace hybrids.

A report from UBS and Ricardo predicts diesel and hybrid sales will hit 2.7 million a year by 2012, or about 15 percent of the U.S. light vehicle market. Diesel will outstrip gasoline hybrids by 1.5 million versus 1.2 million. Diesels, the report concludes, will gain preference because of its cost advantage while hybrids’ substantial manufacturing cost penalties are unlikely to be eroded even in mass production.

Another forecast by Siemens VDO Automotive Corp., published Monday, also showed diesels outpacing hybrids, though the numbers for both were lower than those in the Ricardo/UBS study.

And a report released by J. D. Power and Associates Monday showed hybrid consideration dipping as consumers become more realistic about the fuel-efficiency capabilities of hybrids.

To that end, a number of automakers, including Honda, have announced plans for diesels in the U.S. Last week, GM announced diesels for Saturns and Cadillacs.

Stunning Prius history

Remarkably, it was 10 years ago that the Prius first came on the scene.

Originally sold only in Japan, this dumpy-looking sedan achieved the market breakthrough Toyota craved, but at spectacular cost. It only really took off when it became the darling of Hollywood A-listers, like Leonardo di Caprio.

The current Prius, launched in 2003, is a vastly superior car in every respect. Bigger, better looking with, of course, much improved gas-electric hybrid technology.

Toyota sold 127,570 units of the Mk 1 Prius. But today’s Mk II is already up to 630,000-plus units and still in big demand. In North America alone, Toyota executives have said they expect to sell at least 175,000 Prius hybrids, up from about 109,000 in 2006.
   
And it’s America that’s truly taken the Prius to its heart. Toyota has sold 368,000 units of the current shape Prius in North America, according to the latest available figures. Japan, in contrast, has taken 190,000 units. Prius sales in Europe stand at 64,000 units
with the rest of the world making up the remaining 8000 units.

Those numbers are set to rocket, however, when the third-generation, new and improved Prius launches beginning in 2009 with its three versions.

Toyota’s Press likened the Prius to the Ford Model T when he was interviewed by Bloomberg News.  “The Prius is the forerunner," he said. "It's going to be like the Model T when you look back."

Hyperbole? Only time will tell.

Peter Nunn is a Tokyo-based automotive writer. Originally from the U.K., moving to Japan in 1988, he reports on the Japanese auto industry for media outlets in North America, Japan, Europe and Australia.

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