It was Toyota Motor Corp.'s most extravagant product launch in years. As chimes sounded, huge video screens showed scenes of sky and birds. A giant globe rotated slowly on stage, then stopped to reveal a sporty compact car placed inside it. A broadcast voice summoned Toyota President Hiroshi Okuda to take a ride in the Prius, the world's first mass-produced car powered by a combination of gasoline and electricity. Six-foot-tall Okuda squeezed into the back of the Prius while Toyota chief engineer Takeshi Uchiyamada drove the car silently down a ramp to the ballroom floor of Tokyo's ANA Hotel.
Quite a spectacle for just one new car among the score the giant auto maker has recently launched. But Toyota was not just presenting the Prius, which goes on sale in Japan on Dec. 10. It was making a declaration--that the Prius would be the first of a new generation of Toyota cars whose engines would cut air pollution dramatically and boost fuel efficiency to spectacular levels. Toyota, in short, wants to launch and dominate a new "green" era for automobiles--and it will spend billions to do it. Says engineer Uchiyamada: "We wanted to design a car that would set a new standard for the 21st century." After conquering Japan, Toyota plans to sell the Prius and other green cars in the U.S.
GAS AND ELECTRIC. It's a big bet. Oil and gasoline prices are bumping along at record lows. Many green cars remain expensive and require trade-offs in terms of performance. No carmaker has ever succeeded in selling consumers en masse something they have never wanted to buy: cleaner air. Even in Japan, where a liter of regular gas can cost as much as $1, carmakers have trouble pushing higher fuel economy and lower carbon emissions.
But Japan's major carmakers are ignoring the doomsayers. Toyota at the moment leads the pack by making a serious effort to mass-market the hybrid car, which uses a gasoline engine and electric motor to cut emissions dramatically and get as much as 28 kilometers per liter--equivalent to 66 miles a gallon. Honda Motor and Nissan Motor, too, are developing hybrid cars. Toyota, Nissan, and Mitsubishi Motors are launching cars and sport utilities that increase fuel efficiency by as much as 30% in tests and cut pollution through direct-injection gasoline engines. "It's going to be like quality, manufacturing efficiency, and product engineering. Green cars could be yet another issue that puts Japan in a leadership position," says Maryann N. Keller, veteran auto analyst for Furman Selz Inc. in New York.
The Japanese have several reasons for going green. In the next century, as millions of new car owners in China, India, and elsewhere take to the road, the Japanese predict that gasoline prices will rise worldwide. At the same time, Japan's carmakers expect pollution and global warming to become such threats that governments will enact tough measures to clean the air. So Japan's auto industry is shelling out about $2 billion every year on green-car research. When representatives from 155 countries touched down in Kyoto on Dec. 1 for an international summit on global warming, Toyota, Nissan, Honda, and Mitsubishi all had a readymade forum for promoting their green cars.
The determination to turn green cars into mass-market vehicles is what sets Toyota and its Japanese rivals apart from U.S. and European carmakers. True, the Big Three in Detroit and Germany's carmakers are also spending billions on electric and hybrid vehicles, direct-injection engines, methanol, ethanol, and hydrogen-powered fuel cells. The Germans are making a success of their direct-injection diesel technology. But no one in Germany or the U.S. sees a huge market developing soon for hybrid vehicles or electric cars. General Motors has leased only 288 EV1 electric cars after a year. Detroit just doesn't see how it can achieve the economies of scale needed to produce green cars at a profit.
Toyota, in contrast, swears it will sell more than 12,000 Prius models to Japanese drivers in the next year. To do that, it is charging just $16,929 a car. The company insists it will not lose any money on the Prius. But rivals and analysts estimate that at current production levels, the cost of building a Prius could be as much as $32,000. If so, Toyota's low-price strategy will generate annual losses of more than $100 million on the new compact. Says Christopher Redl, automotive analyst at ING Baring Securities (Japan) Ltd. in Tokyo: "It's going to sell very well. But that's only because they are going to sell it at a loss." Japanese television is also blitzing the airwaves with programs explaining how hybrid vehicles work.
Toyota first started to develop the Prius four years ago. Four engineers were assigned to figure out what types of cars people would drive in the 21st century. After a year of research, chief engineer Uchiyamada concluded that Toyota would have to sell cars better suited to a world with scarce natural resources. He proposed a car that would be 30% more fuel-efficient to cope. But Toyota's head of research and development, Akihiro Wada, nixed that idea. "He said our goal was too low and that we would have to increase fuel efficiency by two times," says Uchiyamada.
So Uchiyamada spent yet another year researching what types of engines could meet such high standards. He considered electric motors. But an electric car can only travel 215 km before it must be recharged. Another option was fuel-cell cars that run on hydrogen. But he suspected mass production might not be possible for another 15 years. So Uchiyamada finally settled on a hybrid system powered by an electric motor, nickel-metal hydride battery, and gasoline engine.
POWER SPLIT. Working for two years, the Toyota engineers developed the power system now in the Prius. The car is driven by both an electric motor and a newly developed 1.5-liter gasoline engine. When the engine is in use, a special "power split device" sends some of the power to the drive shaft to move the car's wheels. The device also sends some of the power to a generator, which in turn creates electricity, either to drive the motor or recharge the battery.
Thanks to this variable transmission, the Prius can switch back and forth between motor and engine, or employ both, without creating a jerking motion in the way the car drives. The battery and electric motor propel the car at slow speeds. At normal speeds, the electric motor and gasoline engine work together to power the wheels. At higher speeds, the battery kicks in extra power if the driver must pass another car or zoom up a hill. When the car decelerates and brakes, the motor converts the vehicle's kinetic energy into electricity and sends it through an inverter to be stored in the battery. So the car's own movement as well as the power from the gasoline engine provide the electricity needed.
The energy created and stored by deceleration boosts the car's efficiency. So does the fact that the engine shuts down automatically when the car stops at a light. At higher speeds and during acceleration, the companion electric motor works harder, allowing the gas engine to run at peak efficiency. Toyota claims that in tests, its hybrid car has boosted fuel economy by 100% and engine efficiency by 80%. The Prius emits about half as much carbon dioxide, and about one-tenth as much carbon monoxide, hydrocarbons, and nitrous oxide as conventional cars.
The Prius also sports a futuristic look that Uchiyamada insisted on. He pitted all of Toyota's design studios against each other to come up with a fresh design. A focus group finally selected a curvy American design from a California subsidiary. "The old men in our group preferred the Japanese design because it was dignified," says Uchiyamada. "But the young wanted something different."
Nobody really knows how big the final market for hybrids will be. Toyota forecasts that hybrids will account for a third of the world's auto market as early as 2005. But Japan's Ministry of International Trade & Industry expects 2.4 million alternative fuel vehicles, including hybrids, to roam Japan's back streets by 2010. Only 5,250 have hit the roads so far. Nonetheless, the Prius has set a new standard for Toyota's competitors. "Just about every day, I'm told to try and move up the production of our hybrid," says engineer Hiromasa Maeda at Nissan Motor's technical center.
There seems to be no turning back for the Japanese. The government may soon tell carmakers to slash carbon dioxide emissions by 20% by 2010. And it wants them to cut nitrous oxide, hydrocarbon, and carbon monoxide emissions by 80%. The government may also soon give tax breaks to consumers who buy green cars. Officials at MITI have asked the Ministry of Finance to triple its budget for subsidizing alternative-fuel car buyers in 1998 to $63 million.
Japanese carmakers also take American pollution standards seriously. It was Honda, not an American carmaker, that first sold low-emission vehicles across the U.S. this fall, with the new Accord. Within six years, California will require that 10% of cars sold by each auto maker be zero-emission vehicles. "The time when zero-emissions are required has come," says Honda Executive Vice-President Hiroyuki Yoshino. "California is an important market for us." Honda hopes to sell cars powered by a zero-emission engine that spews out clean air. And Toyota has been lobbying California officials to class its hybrid as a "super-ultra-low emission vehicle."
ELECTROCUTION? Yet major hurdles remain to creating a mass market for green vehicles. Car buyers are not anxious enough about global warming to justify a sea-change in auto makers' marketing. Many of Japan's innovations run the risk of becoming impressive technologies meant for the masses but only bought by the elite. Why buy a $16,000 Prius when a $13,000 Corolla is more affordable? In Japan, Honda will outfit an Accord with a new low-emission engine at no extra charge, but few consumers have accepted the offer. Toyota has convinced only 1,862 of 43,332 Corona Premio buyers to pay $866 more for its version of the direct-injection gasoline engine. It doesn't help Toyota that it is launching the Prius in the middle of a sagging domestic car market.
The unfamiliarity of green technology can also frighten consumers. The Japanese government sponsors festivals where people can test drive alternative-fuel vehicles. But some turned down that chance on a rainy weekend in May because they feared riding in an electric car might electrocute them. "It took 20 years for automatic transmission to become popular in Japan," points out Hiroshi Fujii, an engineer in the powertrain product planning department of Nissan Motor. "It will take that long for many of these technologies to catch on."
The Japanese may face an even rougher ride in North America. Chrysler Corp.'s research shows that fuel economy ranks 19th among reasons to buy a car, right after "quality of the air-conditioning." Environmental concerns are further down the list.
Yet the Japanese press on. From 2010 on, Mitsubishi says, it will only sell cars powered by direct-injection gasoline engines in Japan. Such vehicles now account for almost 40% of Mitsubishi's sales. Toyota will soon introduce two recreational vehicles with direct-injection engines. Nissan is launching the Leopard sedan also powered by a direct-injection gas engine.
Japan's carmakers also have observed that their German counterparts are getting more serious about eco-cars. Audi has started leasing its Duo station wagons, which are powered by a combination of lead-acid batteries, an electric motor, and direct-injection turbo diesel engine. Mercedes-Benz will also offer a hybrid version of its two-seater SMART city car through its joint venture with Swatch makers SMH in 1999. And Mercedes may market a fuel-cell-powered passenger car starting in 2005.
Yet the Germans, unlike Toyota, are unwilling to subsidize green cars to broaden their consumer appeal. The efforts of Toyota and its Japanese rivals may be folly. Then again, many skeptics thought the Japanese would never succeed in selling fuel-efficient cars 20 years ago. If the Japanese are right about the potential of hybrid cars and other green technologies, their rivals in Detroit and Germany may have to play a costly game of catch-up.