The run-up in energy prices this summer forced many U.S. drivers to reconsider their gas-guzzling SUVs. But when it comes to fuel efficiency, what are their options? There are pitifully few subcompacts on the market to choose from, which may help explain why sales of them have been falling for years. Nor do new technologies offer much hope. All-electric vehicles such as General Motors Corp.'s (GM) EV-1 have been plagued by design flaws. Past that, the Big Three have been slow to bring alternative technologies to market, despite the green-energy goals of the U.S. government-led Partnership for a New Generation of Vehicles of the early 1990s.
If America's auto makers have been sitting on their hands, Japan's have been busy commercializing new technologies. In the past year, both Toyota (TM) and Honda (HMC) have rolled out affordable hybrid gas-electric vehicles. Honda's Insight and Toyota's Prius both use small, highly efficient gasoline engines to drive the wheels, power an electric motor, and charge a bank of batteries. Best of all: No plug is necessary. Both meet California's super-ultra-low emissions vehicle (SULEV) standards and get great gas mileage to boot. Honda says its two-door coup can hit 70 miles per gallon on the highway. Toyota's four-door Prius claims 52 mpg in the city and 45 on the highway.
The man behind the Prius is Hiroyuki Watanabe, a managing director of Toyota Motor Corp. With three decades of experience at the company, Watanabe was promoted to the board of directors in 1996. He has since guided the development of Toyota's electric vehicles and fuel-cell systems and is responsible for the company's environmental affairs. Watanabe recently spoke with Adam Aston, industries editor at BUSINESS WEEK.
Q: Toyota is one of the biggest promoters of alternate-energy technologies. Which one will be the winner?
A: Toyota invests a little more than 5% of revenue in R&D [about $3.6 billion based on fiscal-2000 revenue]. One of our highest priorities is cutting CO2 emissions. Based on the Kyoto Protocol, each country has a commitment to reduce its greenhouse-gas emissions. A specific percentage of this [reduction] is assigned to the transport sector. We have been looking at all possible technologies to achieve a coordinated approach to solve these problems. The ECO project, which Toyota announced in 1996, is one example. This introduced a handful of technologies used together for the first time. We introduced lean-burning fuel technologies, which use variable-valve timing in the engine to extract more energy from less fuel. For diesel engines, we innovated direct-injection technologies to improve power and reduce emissions. We are also interested in natural gas, electric cars, hybrids, and fuel cells.
Q: Why investigate so many technologies?
A: There is a benefit to developing a variety of technologies. The R&D teams on each project compete with each other to come up with the best solution. We can't predict which technology will eventually dominate. And until we know more clearly, promoting a range of technologies also helps to stimulate media and public interest in alternative-energy systems. When any of these technologies is ready to test, we will put them into production as quickly as possible. This gives us the advantage of testing the technology in the field.
Q: How soon will we see a shift toward non-gas-powered cars?
A: Some people say that the gas-engine era has ended, or will end soon, and that electric or fuel cells will soon dominate. I think that is wrong. In the short term, hybrid cars will emerge as a transitional technology, as the economy and industry shift from older fuels to new ones. Gas engines will exist well into the middle of this century. Right now we have 740 million automobiles in the world. By 2010, we will have more than 1 billion. Because cars are lasting longer, it will take decades to completely replace this existing base of gas-powered cars. In the process, we will certainly see a shift toward cleaner diesel and gas engines.
Q: Are diesel engines coming back to consumer cars?
A: Diesel engines have excellent combustion efficiency and offer a good way to reduce CO2 emissions. This is an essential element in our overall approach to cutting greenhouse gases. For now, we don't have plans to put diesels into the Camry or other family sedans. But it's interesting to note that in Europe, in the Camry's midsize class, about two-thirds of all sedans have diesel engines. This is because diesel fuel is significantly cheaper than gas in Europe. We realized some years ago that we needed to develop a clean and efficient diesel engine. So we began to investigate ways to improve the combustion efficiency of diesels. Toyota recently announced a new emissions-purification system that will help us achieve cleaner fuel burn. And it is likely that small, high-efficiency diesel engines will power hybrid-electric cars in the future.
Q: Toyota was the first auto maker to market a hybrid gas-electric car, the Prius. How did you win the race?
A: We have a basic notion that unless we find a solution for environmental problems, we will not be able to achieve sustainable growth in coming years. The only way to achieve this--it's not just smart R&D--is by interacting with the government and public. We introduced the Prius to Japan in 1997. At the time, we surveyed consumers and learned that 5% would willingly buy an environmentally friendly car, even if the price was $5,000 higher than similar gas cars. This surprised us. Now, there are more than 35,000 Prius cars running on Japanese streets. In the U.S., we introduced the Prius three months ago--now we have orders for nearly 3,500.
Q: Why is Toyota ahead of the U.S. in alternative fuels and power trains?
A: For one thing, we are advanced in the area of systems control. Here, I mean the computer control of fuel injection, gear shifting, tire speed, braking, and the like. In 1995, we deployed a vehicle-stability control system in a production car for the first time. It prevented wheel spin by simultaneously controlling the engine and brakes. The Prius uses a very complicated descendant of this early control system. It oversees the electric motor, the gas engine, and the batteries. This control mechanism is difficult to develop quickly.
Q: How far away are we from a commercially viable fuel-cell vehicle?
A: Fuel-cell cars will be available in the near future, but in limited volume. DaimlerChrysler has already announced a target date of 2004. Toyota has targeted 2003. Mass penetration will take longer. First, fuel cells must be safe and reliable. Fuel cells now have a problem with sluggish engine startup. And there is the question of infrastructure. Today, we have filling stations that distribute gas, but how will we handle the distribution of hydrogen? Until it is possible to cleanly make, store, and use pure hydrogen for fuel cells, we will need to rely on gas or compressed natural gas, and to reform them on board into hydrogen to generate the fuel for the cells. Cost is another problem--hybrids can't cost significantly more than similar gas-powered cars. And the price of fuel must be reduced to near the cost of gasoline. It may be another 10 or 20 years until these elements are all in place.
Q: Which system is the greenest?
A: We approach this in a very holistic manner. The conventional way to evaluate emissions is to simply measure waste gases at the tailpipe while the car is running. A better way is to calculate the net environmental load of the vehicle--this is sometimes called "well to pump" plus "pump to wheel" costs. The first half counts the cost of extracting and processing the fuel. The second half is the traditional measure of how efficient a vehicle is at converting fuel into motion. Using this method, the environmental impact of different engine systems can be surprising. For example, gas engines are about 84% efficient from well to pump, but just 15% efficient from pump to wheel. Multiply the two, and the overall efficiency is about 13%. Hybrid cars do much better by this measure. From well to pump, they are about 84% efficient. And from pump to wheel, they are 30% efficient. So for a hybrid, overall well-to-wheel efficiency is 25%. For battery-only vehicles, overall efficiency is about 21%.
Q: This sounds great for countries that can afford it. But what about China or India?
A: This issue is immensely important. And it is why we need to invest in new, cleaner technologies now, so that over time we can push the operating costs down and make them available to emerging markets as well.