As hybrids go mainstream, Toyota, Honda rush to produce smaller models

Posted by: Ian Rowley on May 27, 2009

In Japan, it’s getting difficult to make the case that hybrids are a niche for drivers keen to demonstrate their environmental credentials. In April, Honda’s new Insight, which want on sale in February, was the country’s best selling car (excluding 660cc minicars). Toyota, meanwhile, received a record 80,000 orders for the third generation Prius, which was launched last week. The previous record, held by a Toyota compact, was 47,000. Those numbers suggest, at least in Japan, hybrids are heading for the mainstream.

Just as telling: Honda and Toyota are revving up plans a new generation of smaller gas electric models. According to a local media report today, Honda will bring forward a hybrid version of its Fit compact by 18 months to the fall of 2010. The Nikkei newspaper, without citing its sources, says the Fit hybrid will sell for $15,800, compared to the Insight’s $19,900. Like the Insight, it will use a 1.3 liter engine plus the company’s IMA hybrid system. The reports add that Honda expects Fit hybrid sales of around 50,000 a year in its home market—roughly a third of the number regular Fits it sold in 2008. Toyota is working a Yaris-sized hybrid which could hit the market by 2011 and will likely be sold for a similar price.

That both are in the pipeline shows how quickly Toyota and Honda are bringing down the cost of making hybrids. Until recently, the notion that either could sell smaller hybrids without incurring losses seemed fanciful. After all, hybrid systems add cost and weight to any size car. For smaller vehicles, which are lighter and tend to be the least profitable in automaker lineups, the problems are obvious.

Yet, if the report is correct, it sounds like Honda is confident of eking out further savings on its system. For the new Insight, it got the “hybrid premium”—the cost of adding the system compared to a similar size car—down to below $2,000. That enables Honda to make as much profit from each Insight sale as it would from selling a regular Fit.

Toyota, too, insists it can compete in smaller hybrids. Speaking after the launch of new Prius last week, its chief engineer Akihiko Otsuka told me that critics had been wrong to suggest that its “parallel” hybrid system, which is more complex than Honda’s “mild” version, is too expensive for smaller cars. Otsuka said that while Toyota’s system uses two motors to Honda’s one, its hybrids don’t need a continuously variable transmission. That, he said, means that Toyota, despite using larger batteries, can make its hybrid system cheaply enough to use even in smaller cars.