FT article on hybrid car market
Japan: Lead is eroded as hybrid halo starts to slipBy David IbisonPublished: February 27 2006 16:04 Last updated: February 27 2006 16:04
If the Detroit Motor Show was anything to go by, Geneva will be used by Toyota Motor and Honda Motor to prolong their bragging about hybrid vehicles. The two Japanese manufacturers dominate the market for petrol/electric technology and have not missed an opportunity to highlight their engineering prowess over their traditionally powered, petrol-only US rivals.
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Indeed, there was worrying news for US and European manufacturers ahead of the show when Honda Motor announced it would release the world’s first hybrid sub-compact for far less than $20,000, introducing a hybrid competitor to the market for cheaper, smaller cars.
The coming democratisation of hybrids is adding to the hype that has always surrounded them. Stoked by rising fuel prices and the apparent slaking of the US consumers’ appetite for large sport utility vehicles, hybrids were one of the hottest motoring stories of last year, leaving sensible industry executives shaking their heads in bewilderment.
Carlos Ghosn, the joint chief executive of Nissan Motor and Renault, is a well-known sceptic. He told an audience in Tokyo that he believed hybrids were a “terrible business proposition”, adding that “hybrid sales account for less than 1 per cent of global sales. It is a niche technology”.
His comments came as competitors are investing heavily in the development and expansion of hybrid cars. Ford Motor, General Motors, BMW, DaimlerChrysler, Volkswagen and Porsche have all announced plans to boost production and sales of the fuel-efficient vehicles.
However, sotto voce, GM and Ford have both admitted that the technology is not likely to be profitable for years, while Toyota and Honda say hybrids have narrower margins than petrol-only cars.
Mr Ghosn described demand for hybrids as “anecdotal” and added that he remained unconvinced consumers wanted petrol/electric vehicles rather than fuel-efficient diesel cars, cars that use “flex-fuel” – which has a higher alcohol content – or fuel-cell vehicles. “We have to be careful that we don’t try to impose a technology on the market,” he said.
This year and next could be when some of the gloss starts to come off the hybrid story. And the effect would be felt most by the leaders of the hybrid pack, Toyota and Honda.
The main market for hybrids is the US, and changes to the tax code due in late 2006 are expected to have a negative effect on hybrid sales. The new code imposes a limit of 60,000 on the number of hybrid cars each manufacturer can sell that will receive a full tax credit.
Once this number has been passed, the tax credit is phased out over a 15-month period to 50 per cent and then 25 per cent and then to zero. Previously, tax benefits were available to all buyers of hybrid cars with no upper limit on sales.
JD Power & Associates, the auto research group, has concluded that the number of hybrid models available in the US will increase to 52 by 2012 from the current 11, and it sees hybrid sales climbing 270 per cent to 780,000 units from 210,000 in 2005.
With Toyota and Honda expanding the number of hybrid cars on offer, there is every chance their tax credits will be exhausted by mid 2007. Buyers before that date will likely receive only partial tax benefits. Hybrid cars are already aggressively priced and the removal of the tax credits they receive in the US is likely to undermine their attractiveness.
There is also growing understanding by the public of the more complex issue of cost-benefit analysis when applied to hybrids – an argument favoured by many environmentalists.
A study by the American Council for an Energy-Efficient Economy, a non-profit research group in Washington, found that in mid-size cars, boosting mileage from 26 mpg to about 41 mpg using better engines and transmissions would add $1,000 to the price of the car, equivalent to 57 cents for each gallon of petrol saved, assuming the car has a 12-year lifetime.
It calculated that a similar hybrid vehicle would get better mileage but the electric system would add $3,500 to the price of the car, or $1.38 per gallon of petrol saved – more than twice the cost of using conventional technology. The figures vary but the added cost of hybrids is 1.5 to 3 times the added cost of conventional improvements, the ACEEE said.
The blogosphere is also playing a part in undermining hybrids. Owners have posted their own observations on their vehicles comparing actual miles per gallon with the manufacturers’ claimed numbers.
“I drove a [Toyota] Prius for a week and never saw 60 mpg,” said one. “I averaged around 42.”
Hybrids are, however, fashionable. And there are as yet few practical pretenders to their green credentials.
But the lead of Japan’s Toyota and Honda is being eroded by their US and European rivals. Combine that with a slipping of the hybrid halo, and the Japanese manufacturers’ bragging might deserve to be a little muted.
If the Detroit Motor Show was anything to go by, Geneva will be used by Toyota Motor and Honda Motor to prolong their bragging about hybrid vehicles. The two Japanese manufacturers dominate the market for petrol/electric technology and have not missed an opportunity to highlight their engineering prowess over their traditionally powered, petrol-only US rivals.
//
Indeed, there was worrying news for US and European manufacturers ahead of the show when Honda Motor announced it would release the world’s first hybrid sub-compact for far less than $20,000, introducing a hybrid competitor to the market for cheaper, smaller cars.
The coming democratisation of hybrids is adding to the hype that has always surrounded them. Stoked by rising fuel prices and the apparent slaking of the US consumers’ appetite for large sport utility vehicles, hybrids were one of the hottest motoring stories of last year, leaving sensible industry executives shaking their heads in bewilderment.
Carlos Ghosn, the joint chief executive of Nissan Motor and Renault, is a well-known sceptic. He told an audience in Tokyo that he believed hybrids were a “terrible business proposition”, adding that “hybrid sales account for less than 1 per cent of global sales. It is a niche technology”.
His comments came as competitors are investing heavily in the development and expansion of hybrid cars. Ford Motor, General Motors, BMW, DaimlerChrysler, Volkswagen and Porsche have all announced plans to boost production and sales of the fuel-efficient vehicles.
However, sotto voce, GM and Ford have both admitted that the technology is not likely to be profitable for years, while Toyota and Honda say hybrids have narrower margins than petrol-only cars.
Mr Ghosn described demand for hybrids as “anecdotal” and added that he remained unconvinced consumers wanted petrol/electric vehicles rather than fuel-efficient diesel cars, cars that use “flex-fuel” – which has a higher alcohol content – or fuel-cell vehicles. “We have to be careful that we don’t try to impose a technology on the market,” he said.
This year and next could be when some of the gloss starts to come off the hybrid story. And the effect would be felt most by the leaders of the hybrid pack, Toyota and Honda.
The main market for hybrids is the US, and changes to the tax code due in late 2006 are expected to have a negative effect on hybrid sales. The new code imposes a limit of 60,000 on the number of hybrid cars each manufacturer can sell that will receive a full tax credit.
Once this number has been passed, the tax credit is phased out over a 15-month period to 50 per cent and then 25 per cent and then to zero. Previously, tax benefits were available to all buyers of hybrid cars with no upper limit on sales.
JD Power & Associates, the auto research group, has concluded that the number of hybrid models available in the US will increase to 52 by 2012 from the current 11, and it sees hybrid sales climbing 270 per cent to 780,000 units from 210,000 in 2005.
With Toyota and Honda expanding the number of hybrid cars on offer, there is every chance their tax credits will be exhausted by mid 2007. Buyers before that date will likely receive only partial tax benefits. Hybrid cars are already aggressively priced and the removal of the tax credits they receive in the US is likely to undermine their attractiveness.
There is also growing understanding by the public of the more complex issue of cost-benefit analysis when applied to hybrids – an argument favoured by many environmentalists.
A study by the American Council for an Energy-Efficient Economy, a non-profit research group in Washington, found that in mid-size cars, boosting mileage from 26 mpg to about 41 mpg using better engines and transmissions would add $1,000 to the price of the car, equivalent to 57 cents for each gallon of petrol saved, assuming the car has a 12-year lifetime.
It calculated that a similar hybrid vehicle would get better mileage but the electric system would add $3,500 to the price of the car, or $1.38 per gallon of petrol saved – more than twice the cost of using conventional technology. The figures vary but the added cost of hybrids is 1.5 to 3 times the added cost of conventional improvements, the ACEEE said.
The blogosphere is also playing a part in undermining hybrids. Owners have posted their own observations on their vehicles comparing actual miles per gallon with the manufacturers’ claimed numbers.
“I drove a [Toyota] Prius for a week and never saw 60 mpg,” said one. “I averaged around 42.”
Hybrids are, however, fashionable. And there are as yet few practical pretenders to their green credentials.
But the lead of Japan’s Toyota and Honda is being eroded by their US and European rivals. Combine that with a slipping of the hybrid halo, and the Japanese manufacturers’ bragging might deserve to be a little muted.
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