The Prius Risking a Commitment to Energy Efficiency

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Honda's and Toyota's success isn't a story of technological superiority. The Detroit companies have access to the same state-of-the art technology. General Motors built the world's first fuel cell car in the 1960s, has been designing hybrid electric prototypes since that time, and sold the first commercial electric car in the 1990s. Ford also has considerable expertise in battery and hybrid electric cars, aided in part by its participation in the Partnership for a New Generation of Vehicles (PNGV), mentioned in chapter 2. But there's a difference between expertise and execution. The Japanese companies saw transformation in the road ahead, took a risk, and invested. The U.S. companies didn't do so until many years later, and then far more tentatively.

The Prius story highlights Toyota's increasing willingness to take risks.71 When the Prius project was first being considered in 1995, it was believed internally to have a 5 percent chance of success, as mentioned in chapter 2, with costs projected to be as high as $2 billion. Although the other major car companies all had experience and expertise with hybrid technology, only Honda and Toyota had the commitment to energy efficiency72 and were willing to take the risk.

The story of the Prius begins in 1993, when Eiji Toyoda, Toyota's chairman and son of the founder, expressed concern about the future of the auto-mobile.73 Mr. Toyoda was acutely conscious of California's demanding 1990 zero-emission vehicle mandate and wary of America's new PNGV aspirations. Toyoda instructed an R&D team to improve fuel economy by 50 percent. Executive vice president Akihiro Wada ordered them to focus on hybrid power, to improve fuel economy by 100 percent, and to develop a concept car for the 1995 Tokyo Motor Show, just 12 months away.

To find the right hybrid system for the Prius, they went through 80 alternatives before narrowing the list to four. In August 1995, the new president of the company, Hiroshi Okuda, set December 1997 as the date when the Prius would go into production in Japan. That meant the car had to be developed, hybrid power train and all, in only 24 months—less time than for a conventional vehicle.

Meanwhile, the engineers in Japan kept running into problems. The first prototypes wouldn't start. It took them more than a month to fix the software and electrical problems. Then, when they finally got it started, the car motored only a few hundred yards down the test track before coming to a stop. The batteries were a disaster. The large battery pack, essential to hybrids, would shut down when it became too hot or too cold. During road tests with Toyota executives, a team member had to sit in the passenger seat with a laptop and monitor the temperature of the battery so that it wouldn't burst into flames. During cold-weather testing on Hokkaido Island, the cars ground to a halt at temperatures below 14 degrees Fahrenheit. A media testdrive was conducted in May, but each participant was limited to two laps around the track because battery performance was so poor. A team of 1,000 engineers worked overtime. One by one, the problems were corrected. With much tweaking, the team finally reached 66 miles per gallon—the 100 percent mileage improvement Wada had asked for.

Toyota unveiled the Prius in Japan in October 1997, two months ahead of schedule. It went on sale that December. The total cost of development was an estimated $1 billion—about average for a mass-produced new car, but high for a limited-production vehicle. The positive reception in Japan took almost everyone by surprise. The initial production plan of 1,000 vehicles per month was quickly doubled.

Toyota's marketing executives in the United States were closely monitoring the Prius—with great skepticism, and for good reason. There was little evidence that American consumers would pay a premium for better fuel economy—and for a car best described as "dorky." Worse, the car was underpowered for American expectations, the brakes were twitchy, and the trunk was small. Plus, it was something entirely new. Dealers would need to be trained to service and repair the new unfamiliar technology, and customers would need to become comfortable with an electric car that didn't need an extension cord. As Bill Reinert, Toyota's national manager of advanced-technology vehicles, said, "It was a Japan car. It seemed out of context in the U.S."

When the Prius made its U.S. debut in July 2000, it was underpowered for the American market, requiring 13 seconds to get to 60 miles per hour (compared to an average of 10 for all U.S. cars), and decidedly unattractive. It was launched with essentially no advertising, but it caught on anyway and, as in Japan, sales were much higher than anticipated.

When celebrities embraced the Prius, it really took off. Leonardo DiCaprio and Cameron Diaz were early buyers. Five Priuses ferried movie stars around at the 2003 Academy Awards. Detroit, obsessed with the supposed power of advertising, was stunned to see this strange-looking car find such market enthusiasm.

The big breakthrough came with the second generation Prius, unveiled in fall 2003. For about the same price of $20,000 it had more power (0 to 60 in 10 seconds), lower emissions, higher fuel economy (55 mpg74 tested but less in actual driving conditions), and more interior space. Plus, it was far more attractive. It won dozens of car of the year awards in North America, Europe, and Japan.

Since unveiling the Prius, Toyota has raced ahead of the industry to become the largest and most profitable automaker in the world. It wasn't lost on Detroit that Toyota's ascendancy occurred in tandem with its marketing of cutting-edge technology for a world fighting over oil and threatened by climate change.

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