2005: Year of the Hybrid
By Bill Moore
It's 2005 and there's reason to be of good cheer!
The number of available models of gasoline-electric hybrids will nearly double with the Spring arrival of the Toyota Highlander Hybrid and Lexus RX400h, both sport utility vehicles. This will give car buyers a total of seven models(1) to choose from, including three from Honda, two from Toyota, one from Ford and one from Lexus.
According to Automotive Technology Research or ATR co-founder and former J.D. Powers & Associates lead analyst, Thad Malesh, this is only the beginning. His firm is predicting -- conservatively, I might add -- that there will be at least 50 hybrid-electric vehicle models on the market by the end of this decade.
"We're looking at a very aggressive market," he told me from his office in southern California shortly after his projections hit the wire services. "We're looking for a substantial increase in the next couple of years, which will begin the take-off... It's after two to three years forward that we really begin to see the effects of the work that's been going on behind the scenes."
Malesh projects that carmakers will be turning out up to one million vehicles annually by 2010, a number commensurates with the growing list of available models he foresees. Considering that it's taken Toyota seven years to build its first quarter million Priuses since its initial introduction in Japan in December 1997, producing a million hybrids a year will clearly signal that hybrids have arrived, despite initial automaker skepticism and foot dragging.
Malesh sees three primary reasons propelling this trend, including the high price of fuel, which he sees remaining a factor of life for the foreseeable future.
"The notion that fuel prices typically spike in the summer months and go back to some normal level, I think is sort of going away, and consumers here in southern California are clearly reacting to a new model." He sees prices remaining high for most of the time with occasionally softening as production catches up with demand.
"It's just the reverse of what we've seen in the past."
Rounding Around to Fifty
I asked Malesh, whom I first meet at a Future Car Congress in Washington, D.C. several years ago and who has been doing consumer research for thirty years, how he arrived at the number fifty for his projection. He first responded by telling me that fifty is a number that's been floating around Detroit for some time now and is an educated estimate of what's in the works, not only in Detroit, but in Japan and Europe.
To answer my question more directly, he said, "We have a lot of contacts within the companies, some that speak off the record, some that speak on the record, but it's a combination of things that we do... full time, and with respect to hybrids and clean diesel, since 1997.
"A lot of the things we've discovered with consumer research now matches more closely with what we believe the manufacturers have been doing, and in some cases, we actually saw the vehicles as long as four and five years ago."
Malesh is also convinced that carmakers are going to offer either gasoline-electric hybrids or clean diesels, but they won't offer clean diesel hybrids anytime soon, despite Ford's late December unveiling of the Mercury Meta One concept crossover pictured above. This ground-breaking vehicle does, in fact, mate both a clean diesel engine and a hybrid drive system and strongly suggests the direction in which Ford is thinking. But for Malesh, the need to keep down costs and earn back research and engineering dollars will compel firms like Ford and GM and DaimlerChrysler to push introduction of PZEV diesel hybrids like the Meta One out beyond the 2010 forecast period.
ATR is not only engaged in market analysis, but also in helping bring to the market clean engine technologies. He and his partner, who specializes in clean diesel systems, are working with a client to help get their diesel emissions reduction technology out of the lab and onto the road.
On the analytical-side of the business, Malesh not only relies on his thirty years experience, including the use of "regression" modeling, but also on comparative analysis. He gave me an example of this in the form of the new Honda Accord Hybrid. He said that not only does he believe it will be very successful, but that because it will be, Toyota simply will have to respond, and fairly quickly, by offering a hybrid-electric option in the Camry.
Harris Poll Senses Shift in Buyer Priorities Malesh noted that a recent Harris Poll of more than 14,000 people in the U.S.A. indicates that buyer priorities are beginning to change, with fuel economy beginning to rank higher in a list of new car features. The same poll also indicated that the respondents aren't as interested in paying more for "gee-whiz" technology that they see as having little economic value.
Besides higher fuel prices driving interest in hybrid-electric vehicle technology, there is the increasing trend among carmakers to offer hybrid-powered options in their mainstream vehicles like the new Ford Escape Hybrid and the Honda Accord Hybrid. Malesh sees this as really two separate drivers, one being the opportunity for consumers to buy vehicles with which they are familiar and comfortable, but which also offer significant fuel savings; and the second being the the ability to buy a car that offers more power than available in the standard model, while still providing some fuel savings.
"What the research told us years ago, was that people want to buy performance... And what you're seeing now with the Accord is a V-6 being promoted with more horsepower and... acceleration than their standard V-6. And the same will be true of the (Lexus) RX400h and others to follow.
"(Carmakers) have adjusted the spectrum more.. or they are packaging more towards the performance side, and that is very much the heart of the market in terms of general new vehicle buyers; and that's where they have to go with the technology to make it successful both financially and as a market-accepted product," Malesh told me.
What About GM-DaimlerChrysler's Consortium?
Just before interviewing Malesh in mid-December, General Motors and DaimlerChrysler (DCX) announced that they would be pooling their engineering resources to develop a common, next-generation hybrid-electric powertrain. So, what's he think of their announcement and what impact will it have on the industry leader, Toyota?
"I think there are two responses that come to mind," he replied. "First, I don't believe in the near term that the new consortium, when it is finalized after the first of the year, will dramatically affect Toyota in the least. If anything, it may prompt Toyota to move even harder and faster."
He thinks that may translate into Toyota not only reviewing which platforms to offer with a hybrid option but it may also accelerate the time table for those introductions. It is also likely to spur the world's number two carmaker to more aggressively license its Synergy Hybrid system to other OEMs, giving them better terms than the GM/DCX group may offer.
"Toyota is a very, very strong competitor and they've already established (hybrid technology) as a strategic intent, and that means that new players almost ten years after the start of this industry... have a tough row to hoe."
Ford Hybrid - Just Whose Technology Is It?
When I asked Malesh about his understanding of the agreement between Ford and Toyota over licensing the Synergy Hybrid system, he explained that while he didn't sit at the negotiating table, it is his understanding that Ford did not buy or even license Toyota's hybrid drive technology. Instead, Ford reached a private agreement with its Japanese rival to avoid any potential patent infringement lawsuits. Ford engineers explained to me last summer at the Michigan Proving Grounds that the arrangement involved the exchange of a number of patents held by each company; in Ford's case, some proprietary exhaust catalyst patents.
The technology in the Escape Hybrid is Ford-developed, and while it shares certain common elements, like using an Atkinson-cycle gasoline engine, there is no Toyota technology or parts to be found in it.
From Malesh's perspective, he thinks Ford should have been much more aggressive in correcting erroneous press reports and making it clear to the public exactly whose technology powers the Escape Hybrid, and presumably all its future hybrid-electric vehicles (HEVs) to follow.
No More From-the-Ground-Up Hybrids
The Prius and the Honda Insight are likely to be the first and only vehicles ever designed specifically as HEVs, Malesh believes. He explained that its a matter of cost. It's simply just too expensive to design and build a vehicle exclusively as a hybrid. Instead, from now on out, hybrid drives will be offered as a powertrain option on existing vehicle platforms. All of the forecast fifty models by 2010 will be mainstream products.
"The technology is just too, too expensive, and I am talking just about the powertrain, let alone the engineering of platforms... to come up with a custom vehicle," he told me.
"There is another realistic reason, I think, that this will probably be the standard, which is production-based vehicles, is that consumers (who) really are very "green" are attracted to the Insight and any vehicle that offers a unique perspective -- the first Prius on the road -- because they set themselves apart for what they stood for.
"But the reality is most consumers in the mainstream market are sort of like the quiet political majority. They have their opinions and they like to do the right thing. But the reality is they don't want 'hybrid' plastered across the side of the vehicle; and they don't want to drive what other people may consider a science experiment or some extreme point of view of the person driving the vehicle. They just want to drive a vehicle with a different option that's cleaner and quietly and pleasingly know that they're doing their part. That is the business model of the future."
Malesh stated that he isn't aware of any customized hybrid platforms in development at this time and he suspects they won't be any going forward.
He also thinks that plug-in hybrids aren't going to be developed, at least in the near-to-mid term. He bases this on the still lingers public perception of the short-comings of battery electric cars. He said that both Honda and Toyota have had to make concerted efforts to overcome this perception, repeating in their advertising that buyers don't have to plug in their hybrids.
"Now to go back and tell (the public) you have to plug them in would be again a rethinking of the consumer's mind, which has already been subjected to misunderstandings and misnotions(sic). The reality of doing a plug-in vehicle is that consumers sort of have to contribute something to the equation. Economists call it subsidies, and the subsidy here is not quite as convenient. They're put out a little bit. They have to remember to plug it in, and the obvious things we found in research when we were still at (J.D. Powers & Associates) was that people are always concerned that if I don't do what I am supposed to do, what happens? Do I get left out. Is my battery dead and I can't drive the vehicle?
"I think that is going to be a challenge. It may prove out to be different, but right now we don't think (plug-in hybrids are) a big part of the future. We don't have any of those in our forecast."
Impact of Parts Shortage
Finally, I asked Malesh what impact current parts bottlenecks, specifically batteries, might have on his projections. Here he agreed that for the near-term Ford, Toyota and Honda will experience some production constraints, but that because the industry has started to recognize hybrids as increasingly mainstream products, he thinks capacity constraint issues will be solved fairly quickly.
"I think you'll see not only the main players like Panasonic, Sanyo and maybe a couple of others commit to additional.. investment for plant production in the form of a new plant or expanded production, but you're going to see some other folks that are going to be getting in it or maybe serve as Tier Twos to some battery folks to get the capacity up. They needed the commitment, they got the commitment and now they can turn commitment into investment."
ATR's report comes along with one-on-one consultation time at various service levels, typically running from $15-20,000US. Thad Malesh can be contacted at firstname.lastname@example.org.
1. We don't count the GM Sierra pickup, although it does offer some amenities, like auto stop/start found in more heavily hybridized platforms.