Itching To Ditch The Slow Lane

Andrew Abranches loves pulling into the parking lot at Northrup Grumman's space technology center in Redondo Beach, Calif., each morning in his Honda Civic hybrid. Among the plethora of Beemers and Benzes, the 35-year-old engineer says his car makes a statement that he is thriftier and more tech-savvy than his colleagues. "I could have gotten a small car that gets close in mileage" to the hybrid, he says. But "I like the technology more than anything else."

Toyota (TM), Honda (HMC), and other hybrid manufacturers have won over buyers, such as Abranches, who love gadgets, buy green, or just want to stick it to OPEC. But the technology will have to deliver more -- and for less money -- if hybrids are going to penetrate deeper into the market than just 0.5% of the 17 million U.S. car-buying consumers every year. To boost that share, carmakers must overcome daunting technological hurdles -- most of all, making hybrids' battery systems smaller, less costly, and more powerful. That would cut the nearly $4,000 price premium hybrids command and boost mileage. It could also deliver a big payoff in driver comfort. "Improving driving performance and pleasure is the next frontier for hybrids," says Takehisa Yaegashi, Toyota's senior manager for hybrid power train development.

Battery technology has already made great strides from the early days. Today's nickel metal hydride battery systems cost about $2,000 to $3,000 a car -- less than half the price of the first Prius power packs back in 1997. And they weigh half the 170 pounds of the batteries in that first generation.

Even so, better batteries may be the biggest barrier in reducing the cost of hybrids. Honda estimates that the battery accounts for about 60% of the $3,300 extra cost of its Accord Hybrid. One company insider says if the hybrid price premium could be halved, the technology could grab two-thirds of auto sales. For now, battery raw materials are expensive and, despite improvements, batteries still must be big to store a lot of energy.

Rising car sales spread those high costs over more units, but battery manufacturing capacity is still constrained. Only three companies -- Panasonic, Sanyo Electric, and Cobasys, a division of Energy Conversion Devices (ENER) in Rochester Hills, Mich. -- make them for hybrid cars. All are adding production, but Toyota still had to delay the launch of its Lexus RX 400h hybrid SUV because of tight supplies. Plus, the mobile-phone business could boost competition for nickel metal hydride batteries if their use in signal towers takes off. J.D. Power & Associates cited the continued high costs of hybrid batteries when the firm recently capped at 3% its estimate of the market share it expects hybrids to attain by 2010.


Engineers from Tokyo to Detroit are working on solutions, including lithium ion batteries, which have greater power density and cheaper raw materials. But for now, lithium batteries are too expensive to make -- and they can't handle the shocks of a moving vehicle. Says John German, American Honda Motor's manager for environmental and energy analysis: "Lithium ion is 10 years [away from] volume production."

As batteries improve, they will do more than save space. They could allow cars to drive in ghostly quiet electric mode longer. With faster computer processors, future hybrids should manage a smoother transition between electric power and gas. The goal: a switchover to gas that is barely noticeable to the driver. When hybrids are given cheaper, more powerful electrical guts, their popularity will really take off.

By David Welch and Chester Dawson

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