Reinventing the Hybrid Wheel

Will Toyota and others convince buyers that the latest models are more than weird science?

When Toyota (TM ) launched the 48-mile-per-gallon Prius gasoline-electric hybrid sedan three years ago, the compact-size novelty hit a chord with enviros and technology buffs. But it never did much for Evan Fusco. Now, Fusco, a 36-year-old emergency-room doctor from Nixa, Mo., is happily plunking down $21,000 for a second-generation Prius, plus $5,000 more for such extras as an onboard navigational system. While he's glad his new wheels get 55 mpg, he's more excited about the car's roominess, sleek lines, and high-tech feel. Says Fusco: "I'm not a radical greenie."

It looks like there are plenty more Fuscos out there. When Toyota Motor Corp. launched the car in Japan in September, it sold 11,000 Priuses in the first two weeks, beating expectations eight times over. In the U.S., dealers are scrambling to keep up with orders. Already, Toyota says 10,000 orders have come in. In San Francisco alone, one local dealer has cash deposits down for 100 Priuses, or two months' worth of inventory. All of which suggests that Toyota may well meet its goal of selling 35,000 in the first year.

Are hybrids going mainstream? Not yet. But Toyota is pushing hard to exploit its early lead in hybrid technology, even as it drives down the production costs. After the Prius, Toyota plans a slew of new hybrid models, which should hit the market beginning next year. They include the auto giant's Lexus luxury brand, which is racing Ford Motor Co. to bring the first SUV hybrid to market. And even though Detroit is readying its own fuel-efficient models and Honda (HMC ) is adding the Accord to its two-car hybrid lineup, rivals concede that Toyota has the edge. Says one Honda executive: "If Toyota can drive the cost of the technology down, they will have a 5-to-10-year lead on every other manufacturer."

DON'T PLUG THEM IN. But first, Toyota and the rest of the industry must convince buyers that hybrids aren't just weird science. Toyota's marketing will lean heavily on Prius' size and power in addition to its eco-friendly reputation, says Meyer. The auto maker is pushing the new crop as full-performance, full-size vehicles that also just happen to get boffo gas mileage. Prius ads will hit TV networks in November to drive home the point. The first spots will remind consumers that the Prius doesn't need to be plugged in, since it recharges its battery using the brakes. Even though hybrids have been on the market for three years, 50% of consumers don't yet know that, Meyer says.

The real plug for hybrids could come next year, when Lexus and Ford offer hybrid technology to soup up their SUVs. Toyota's Lexus 330 hybrid sport-ute, which goes on sale next summer, will mate a V-6 engine with an electric motor to get the horsepower of a brawny V-8 engine at 30 to 35 mpg. Lexus will charge as much as $5,000 more for the hybrid RX 330, but the SUV will outrun the regular V-6-powered RX 330. Toyota also plans to sell hybrid versions of its Highlander SUV and Sienna minivan in a few years. Ford will enter the fray with a gasoline-electric version of the Escape SUV. Says Ford Chairman and CEO William C. Ford Jr.: "We're not asking the customer to give up passenger space, luggage space, or acceleration."

Sounds great. Now if only the hybrids can actually make money. The original models, launched by Toyota and Honda Motor Co. three years ago, lost as much as $8,000 a car. And the first-generation Prius, about the size and price of a Toyota Corolla, cost $6,000 more than that compact. The new Prius is the same size and price as a midsize Camry. The Prius is not profitable yet, but Toyota predicts that if sales continue at the current pace, the hybrid will cover its development costs and move into the black in a few years. In the race to dominate the hybrid market, there's no denying that Toyota is way out in front.

By David Welch, with Kathleen Kerwin in Detroit

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