GM's Plug-In Push

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Toyota, too, has been working with nano-phosphate as a hedge, but on a slower track than its cobalt-oxide program, which was in a joint-development project with Panasonic (MC). And GM is working with cobalt-oxide on a slower track for the same reason. But GM's nano-phosphate development is, according to supplier company sources working with Toyota, at least a year ahead of Toyota's. "All hell has been breaking loose at Toyota on its plug-in program for the last three months as it changes horses," says one supplier company executive working with Toyota.

Consumer Readiness

Toyota and Honda (HMC) have been uncharacteristically open in their criticism of GM's plug-in push. At the Tokyo Motor Show, Honda CEO Takeo Fukui said his company won't pursue plug-ins at all, because he feels they don't deliver enough environmental benefits. Toyota's project general manager in its hybrid vehicle system-engineering division, Yoshitaka Asakura, said he isn't even sure consumers want a plug-in, and that while Toyota is developing a plug-in Prius as a trial balloon, it is looking more for ways to expand its existing hybrid systems.

Honda's bearishness on plug-ins doesn't cloud the potential of the technology. Honda, while leading all auto companies operating in the U.S. in fuel economy, has proved to be especially tone-deaf in understanding the U.S. market for its vehicles. It launched the Insight hybrid around the same time as Toyota's Prius, but its size and unappealing styling made it a dud. The Civic hybrid has been a steady seller, but it is dropping its Accord hybrid (BusinessWeek.com, 11/19/07), which didn't sell at all and offered little fuel economy benefit over the nonhybrid Accord. Toyota, whose executives say they don't believe GM can get a battery small enough to fit in a car and have a 40-mile range, meanwhile, is heavily invested in its hybrid system and has the advantage over its rivals in passenger car hybrids.

Indeed, some believe the "wow" factor of getting more than 100 mpg could help plug-ins eclipse the popularity of hybrids. GM says the Volt technology will allow consumers to go up to 40 miles on battery power, after which the gas engine kicks on to recharge the battery while the driver continues. If a driver makes several short trips on battery power, the battery can simply be plugged in overnight to recharge. Many drivers could go weeks without gassing up. And electricity at night is cheaper than daytime recharging. Dr. Gary Vas, director of the University of Michigan Memorial Phoenix Energy Institute and a nuclear energy professor who is leading a study of plug-in vehicles, says the early indication on a study he is leading on the marketability of plug-ins "shows that consumers are more than ready to embrace it."

Toyota executives have said they believe the right model for plug-ins will enable drivers to go perhaps as much as eight miles on a charge before the gasoline power kicks on. University of Michigan's Sastry says such a conclusion may be dictated by the technology they have chosen, rather than consumer research. "I don't have any doubts that consumers will react very strongly to a 40-mile gas-free range," says Sastry.

Marketing Benefit

Consumer acceptance of the technology will depend a great deal on the price of the car, which GM insiders say will likely be between $25,000 and $30,000, and the final design. GM says it will build the Volt on the same engineering platform as the new Malibu. But it is a system GM can expand to other vehicles just as Toyota rolled out its hybrid system to five other Toyota and Lexus models.

GM engineers say the Volt and electric car program have "an open purse," meaning that when they need more money, they get it. A123 Systems Chief Executive David Vieau says GM's schedule for 2010 is "a risk" as far as using the nano-phosphate battery, but he believes they'll make it. In any case, GM is working with multiple supplier companies to give it the best chance. "But it's pretty clear GM will have an early advantage" when they start delivering cars. Robert Lutz, GM's chief product executive, says GM testers will be driving a prototype by this April.

When Toyota launched its first hybrids, it lost money for a few years on each one until the cost of the technology came down as sales volume went up. But the halo effect of the hybrid more than made up for it. The same internal study at GM that indicates consumers see the automaker as "part of the problem" also showed that the image of the Prius led car buyers to believe that Toyota's trucks and SUVs were about 25% more fuel efficient than they really are. Says GM's Burns: "We didn't understand the marketing benefit to the whole company that a hybrid would have, but Toyota schooled us on that."

The question is, does the student have what it takes to outsmart the teacher?

Kiley is a senior correspondent in BusinessWeek's Detroit bureau .