Enviro Cars: The Race Is On

Toyota's green machine will soon have lots of rivals

For more than a year, Toyota Motor Corp. has been cranking out the world's first mass-produced hybrid car. Under its hood are two power plants--a gasoline engine and an electric motor. In congested urban areas the motor is the full-time workhorse, while the engine keeps the batteries charged and kicks in extra oomph when passing.

Toyota's Prius goes a long way toward achieving the low-pollution benefits of electric vehicles. Yet it doesn't saddle drivers with a car that can only wander 100 miles or so before it must stop to recharge its batteries. In fact, because of the dual-energy approach, the Prius wrings 870 miles out of a tank of gas. "It represents a new value for the 21st century," boasted Toyota President Hiroshi Okuda when the car was launched.

Now, Toyota's backyard rivals are revving up their own hybrids. Honda, Nissan, and Fuji are gearing up to challenge Toyota's lead in "green" cars. The contest kicks off in the fall, when Honda Motor Co. aims to steal the spotlight with the first gasoline-electric hybrid car in the U.S., along with Europe and Japan. Toyota's Prius won't leave Japan until 2000, after an overhaul to give it more zip for foreign roads and to comply with various national regulations.

Honda's green contender will be a two-seat subcompact with an aluminum body. Code-named VV, it reverses the Prius recipe: The electric motor plays second fiddle to the gas engine, which runs constantly. Still, thanks largely to the VV's light weight--roughly 1,000 pounds less than the Prius--Honda promises the VV will one-up Toyota in fuel economy, cleanliness, and price. "We wanted to create a car so fuel-efficient it would shock everyone," says Hiroshi Kuroda, the VV's head engineer. Its engine will comply with California's tough Ultra-Low Emission Vehicle (ULEV) standard, the stage beyond the Low Emission Vehicle standard that the Prius meets.

Back in Japan, a third contender will enter the ring this fall: Nissan Motor Co. Its hybrid probably will be an offshoot of the new Tino station wagon. Come 2001, Fuji Heavy Industries hopes to mesmerize minicar fans with a hybrid Subaru minivan.

DISTANT PROFITS. The race is on because Japanese drivers are snapping up 1,765 Prius compacts a month. That's shy of Toyota's production capacity of 2,000 a month, but way over the initial target of 1,000. But it's still too few to be profitable. Analysts estimate that building a Prius costs many thousands more than its $19,000 price. Honda expects to lose money, too. "It depends on the volume," says Honda President Hiroyuki Yoshino. "We don't know how many we will sell."

To trim their hybrid losses, Japan's carmakers hope to crank up volume by going global. It will be a tough battle. Consumers haven't been eager to "buy" cleaner air--especially in the U.S., where gasoline costs less than bottled water. That's why General Motors Corp. is betting on hybrid buses and trucks. Fleet owners are willing to pay more up front if the outlay can be recovered from lower operating costs. GM plans to test a diesel-electric hybrid bus on New York City streets later this year. A hybrid car should be ready for production by 2001, GM says, but there's no timetable for actually building it. Ford Motor Co. and DaimlerChrysler don't expect to roll out hybrid cars before 2003, if then. Skepticism abounds in Europe as well. Although Volkswagen's Audi division has been road-testing hybrid cars since 1989, it hasn't found one that measures up to the Audi image.

BYE, BYE GAS? Japan's carmakers remain undeterred. They see hybrid technology as a bridge between the squeaky-clean, but unpopular, all-electric vehicles of today and tomorrow's ultimate green car--which probably will be powered by a fuel cell that chemically converts gasoline or hydrogen into electricity without combustion. With increasingly stringent pollution curbs spreading from country to country, gasoline engines seem doomed--but not for a decade or two. In the interim, better fuel efficiency could pay off in big market-share gains, just as it did after oil prices skyrocketed in 1973.

So Japan's carmakers are barreling ahead. Soon, the hefty subsidies for every hybrid may begin easing. Analysts expect Honda to buy its VV batteries from Panasonic EV Energy Co., the Toyota-Matsushita group joint venture that supplies nickel metal-hydride batteries for the Prius. If so, rising volumes could drive down battery costs--and batteries account for 20% of total hybrid costs. At 10,000 batteries a month, Panasonic EV Energy says it could slash its prices in half--reducing total hybrid production costs by 10%.

Nissan plans to use lighter lithium-ion batteries to offset the weight of its hybrid, which will be larger than the Prius. Nissan also is fine-tuning a new transmission to provide better handling, says Hiromasa Maeda, a senior engineering manager. The investments in new technologies mean "no one can make money for the time being," says analyst Koji Endo of Schroders Japan Ltd., a Tokyo securities firm. But he predicts some players will start earning returns "in three to five years."

This fall, look for Toyota to react strongly to Honda's challenge. Akihiro Wada, Toyota's executive vice-president for development, doesn't like being upstaged by Honda, so Toyota is working on a few performance-boosting schemes to trump the VV. For its U.S. debut, Wada wants the Prius to leap over California's ULEV standard and qualify as a super-ultra-low emission vehicle--which may make it slightly costlier in the U.S.

Pioneering green cars isn't easy or cheap. But the intense rivalry triggered by the Prius might end up helping to make the rush hour commute a healthier time to breathe.

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