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Toyota says cost of making hybrids will fall

Toyota Motor Corp. expects to cut costs for hybrid cars enough to be able to make as much money on them as it does on conventional gasoline cars by around 2010, a top executive said on Thursday.
The Toyota Prius is on display at the Ne
Industry watchers expect the current Prius to be remodelled late next year or in early 2009, using a lithium-ion battery for the first time.Stan Honda / AFP - Getty Images file
/ Source: Reuters

Toyota Motor Corp. expects to cut costs for hybrid cars enough to be able to make as much money on them as it does on conventional gasoline cars by around 2010, a top executive said on Thursday.

Japan's top automaker has been keen to see the fuel-saving powertrain enter the mainstream since launching the Prius, the world's first hybrid car, in 1997, but sales have come at the expense of profitability given their high production costs.

But Masatami Takimoto, executive vice president in charge of powertrain development, said cost-cutting efforts on the system's motor, battery and inverter were bearing fruit, and the cost structure would improve drastically by the time Toyota reaches its sales goal of one million hybrids annually in 2010 or soon after.

"By then, we expect margins to be equal to gasoline cars," he told Reuters in an interview at Toyota's headquarters in Toyota City, central Japan.

If it succeeds, Toyota, on its way to becoming the world’s biggest carmaker, will be removing the main hurdle to cost-competitiveness for the hybrid — the expense of the powertrain, which twins a conventional engine with an electric motor. It will also likely widen its sales lead as more consumers seek better mileage amid rising fuel costs.

Data this week showed U.S. gasoline prices at an all-time high above $3 a gallon, and Takimoto said he expected energy prices to continue rising.

Toyota likely achieved cumulative hybrid sales of one million units this month, having moved 998,900 by the end of April. By 2020, Takimoto said he expected hybrids to become the standard drivetrain and account for "100 percent" of Toyota's vehicles.

In 2006, it sold 313,000 units, accounting for the majority of the world's hybrid cars, and aims to lift that to 430,000units this year with ramped-up production of the popular Prius.

With endorsement from Hollywood stars such as George Clooney, Toyota struggled for years to keep up with demand for the second-generation Prius. But sales began to suffer late last year after U.S. tax credits whittled down for the model, prompting Toyota to offer incentives of up to $2,000 on each Prius.

Pundits said that was pressuring already-tough margins on the hybrid. But Takimoto said he saw little impact on profitability before and after the incentives appeared, mainly thanks to larger volumes — Prius production will rise by 40 percent to 280,000 units this year — and the ongoing efforts to shave costs.

"There really hasn't been that much of a difference in margins," he said, adding: "In a sense, you could say things are finally normalizing now. The Prius will soon enter its fifth year, and all this time we had no incentives on it."

Toyota does not disclose its costs or margins on its cars.

Industry watchers expect the current Prius to be remodelled late next year or in early 2009, using a lithium-ion battery for the first time. Takimoto declined to confirm the speculation, but added that Toyota's lithium-ion battery, under development with Matsushita Electric Industrial Co., was technically ready to be mounted on hybrid cars "any time".

Eager to match Toyota's green image, domestic rival Nissan Motor Co. announced plans last month to form a joint venture with electronics giant NEC Corp. to mass-produce lithium-ion batteries to be used in environmentally friendly vehicles such as hybrids and plug-in hybrid cars.

Mitsubishi Motors Corp. followed this week with a similar plan, partnering GS Yuasa Corp. and Mitsubishi Corp. Both ventures want their batteries to become the de facto standard for the auto industry.

Takimoto said Toyota had been approached by both parties as well as many other battery makers, but dismissed their products as "unusable" due to their low energy density.

"Our battery is still superior," he said. He added that plug-in hybrids, which can be recharged through an electric socket, were still years away from practical application and pure electric vehicles even further out because even with a trunk full of rechargeable batteries, they would have a cruising range of just 60 km (37 miles).

European auto majors such as DaimlerChrysler AG and Volkswagen AG, meanwhile, have poured much of their energy into clean-diesel engines to challenge hybrids.

But Takimoto warned that the need for particulate filters and other traps to clean tailpipe emissions meant cost premiums for such diesels would be just as high as the first generation of hybrid cars.

Still, he stressed that Toyota was working on all powertrains across the spectrum so that it could offer the best solution depending on different market needs, acknowledging that a surplus of diesel fuel in the United States could foster a market for diesel passenger cars.

Toyota is in talks with truck maker Isuzu Motors Ltd. to cooperate in diesel technology, and says it hopes to announce details by July. Among other alternative-fuel vehicles, Takimoto said Toyota should be able to mass-produce zero-emission fuel-cell vehicles, which run on hydrogen, by 2020. A prototype with a cruising range of 310 miles — equal to today's gasoline cars — would be ready soon, he said.

In other efforts to improve fuel economy, Toyota is trying to reduce the weight of vehicles through increased use of high-tensile steel and resin products, Takimoto said. Aluminium, at one-third the weight of steel, was once an attractive alternative, but he said its use was unlikely to expand for cars due to high and volatile prices.