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An American Prius?Japanese automakers have crushed the Big Three with their hybrids. Here's how U.S. carmakers could catch up.

By Daniel Gross
Posted Saturday, Sept. 22, 2007, at 6:43 AM ET
Chief engineer Yoshikazu Tanaka of Toyota Motor. Click image to expand.

When it comes to hybrids, the heavyweight tussle between American and Japanese automakers appears to be a hopeless mismatch. Toyota introduced its gas-electric hybrids in 1997 (when regular was $1.18 per gallon), and in June announced its 1 millionth hybrid sale. In the first eight months of this year, Toyota sold 189,945 hybrids in the United States, with Honda notching a respectable 24,000. As for the Americans? Don't ask. Ford doesn't break out sales of Escape and Mercury Mariner hybrids. At General Motors, hybrids—like long-promised market-share gains—are mostly concepts.

Toyota clearly stole a march on its slow-footed U.S. rivals and shut them out of a hot new market, much as Apple crushed its competitors with the ubiquitous iPod. But the iPod, and the broader innovation it represents—making huge quantities of music and video portable—has created a small entrepreneurial ecosystem. There's a large and growing aftermarket of iPod holders, speakers, car mounts, and headphones, developed and sold by companies not run by Steve Jobs. In the same way, the big idea behind the success of Japanese-made hybrids—the proposition that electric batteries can displace gasoline as fuel—has its own coattails. Across the United States, enterprises big and small are developing souped-up batteries, plug-in kits, and technology that hold the potential to turn cars from gas guzzlers into power generators.

In 2001, when hybrids were barely on the radar screen, Dave Vieau co-founded A123Systems in Watertown, Mass., to build lithium-ion batteries, which can store and deliver more energy than traditional batteries. The first application was in power tools. "But at the end of 2002, we saw hybrids as an opportunity that could be interesting," he says. A123Systems has raised $102 million in venture capital, and about half of its 800 employees are working on hybrid-related projects. "We can improve the energy density, accelerate more quickly, and all without taking up too much space." Translation: A 45 mpg hybrid can now get up to 125 mpg. Today, about three dozen vehicles equipped with A123Systems cells are prowling the cul-de-sacs of chichi suburbs.

Hybrids Plus Inc., founded last year in Boulder, Colo., lashes together up to 1,200 lithium-ion cells the size of D batteries into pumped-up battery systems that can be charged in wall outlets. "In daily usage, we're seeing numbers as high as 137 miles per gallon," says CEO Carl Lawrence. Even with their Rocky Mountain-high cost—refitting a Prius can cost $24,000—the conversions are drawing interest from wealthy techies who gain psychological satisfaction from using less gas. (This is Boulder, after all.) The 15-person company has completed six conversions and should finish an additional 20 this year.

Widespread use of plug-in hybrids would be good news for utilities, which could sell the juice at night during periods of low demand. EnergyCS, a 13-person engineering shop in Monrovia, Calif., is developing an electronic and software system that would allow plug-in hybrids to charge batteries efficiently. One of its clients: the giant utility Pacific Gas & Electric. In April, PG&E used a hybrid to demonstrate an application of V2G technology. V2G isn't a category on Craigslist. It stands for vehicle-to-grid: In addition to drawing power from the energy system, hybrids can theoretically provide the power stored in their batteries to the electrical grid. Should V2G come to fruition, on a sweltering August day, you could run your air conditioner off your Ford Escape.

Naturally, cost is an issue. It takes 64 years of gas savings to pay off the extra investment a Hybrids Plus conversion entails. But these entrepreneurial initiatives function as demonstration projects for risk-averse big companies, which know how to reduce costs through mass production. In August, A123Systems signed a deal with GM to help develop a fuel cell for the Chevy Volt. GM believes a plug-in hybrid like the Volt, which could be in showrooms by 2009, could render the average daily commute—about 40 miles—gas-free. Such efforts could ultimately lead American firms to create what would have been unthinkable a few years ago—a car not powered with fossil fuels. As we speak, at Google's headquarters in Silicon Valley—where a massive solar-generating installation went live in June—four Priuses converted to plug-ins are being recharged by the sun.

The technology isn't fully competitive with gas-powered vehicles. Many of the startups in the space will likely fail. And there are also questions about how well these innovations—brilliant in the lab—will work in the real world on a mass scale. Of course, that's exactly what U.S. automakers said about hybrid vehicles themselves—1 million sales ago.

This article also appears in the Oct. 1 issue of Newsweek.

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
Photograph of Yoshikazu Tanaka by Toru Yamanaka/AFP/Getty Images.
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Remarks from the Fray:

I'm not sure how the post addresses the "Here's How US Carmakers Could Catch Up" promise. While the hybrid-support niche could indeed be huge, I don't see how that helps the Big Three, which really should be renamed to the Formerly Big Three anyway. Stupidity still rates in Detroit. Case in point, the 2000 and later Corvettes, which have no tow points, no jack points, and thus no way to move from dead-by-the-side-of-the-road to a garage without suffering damage to the plastic skin. Ask any tow truck driver who's had the misfortune to be called out for Corvette assistance.

Detroit has always hated the small, the fuel efficient, and still to this day whines that they can't make cars that can meet higher CAFE standards, that it's too expensive to make cleaner cars, yada yada yada. They lied 30 years ago, and they're lying today. It's possible, it's not too expensive. They just don't want to be bothered. Fine, you can't MAKE them change their teeny quarterly-profit-focus minds, so buy better cars from companies that make them and wave goodbye to the walking dead of the US industrial sector. If gas stays up around $3/gallon or rises even higher, it won't take too long before that crashing sound you hear coming unseen from the woods signifies the end of Auto Detroit.

--ihatethenewlogin

(To reply, click here.)

Here's my argument: in terms of saving the environment, gasoline use is a small component of the damage cars cause.

What would be best is if people were to use biotic transportation for short trips, communal transportation for medium trips and light freight, and large scale surface transportation for long hauls, while also minimizing these trips as much as possible.

Cars, which comprise mostly local and medium length personal and light freight transportation, have a high energy cost of production, high accident rates, require large, high maintenance thoroughfares comprised of oil rich blacktop, and use an overwhelming amount of power to move relatively light loads. The unpredictability of the individual driver requires all sorts of expenditures, from oversized highways to street lighting.

The system causes significant death and destruction. It is polluting and inefficient.

Making the cars themselves less polluting is nice, but if cars charge on peak hours, they will still be burning coal. When they wear out and crash the more complex cars are harder to recycle. People will still die, roads will still be a significant cost. All those parking lots and roads contribute to the albedo effects known as 'heat islands.'

We need to move away from passenger aircraft, yes, because they burn fuel like basically nothing else; but we also need to abandon personal transportation. More efficient vans and trucks/buses for local light freight and medium distance passenger travel; yes, this is probably necessary and a great innovation. But merely perpetuating the car and making people feel good about it? Awful!

--BenK

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The New York Times recently had an interview with GM's Bob Lutz about the Volt. Lutz is clearly not only focused on quarterly profits, and he seems to be committed to bringing the Volt to market - aiming for 2010, possibly will slip to 2011. Not 2009, as stated in the article.

However, when asked what the future at GM would look in terms of emphasis, what was his answer? It wasn't electric. It was ethanol.

Yes, Bob Lutz' vision of the future is more internal combustion engines. He's still solving last year's problem - oil dependency. Global warming hasn't lit up his radar yet. He sees the Volt as merely an internal combustion vehicle with some clever marketing potential. It's not a bridge vehicle to an electrical infrastructure; GM expects to keep churning out internal combustion engines indefinitely.

Ethanol is not an answer to global warming. Between the CO2 emitted producing it, and the CO2 emitted burning it, and the millions of acres of new farmland that will have to be cleared to produce enough of it (destruction of carbon sinks), ethanol is no better for global warming than just burning gasoline.

Lutz' vision of the future assumes that the buying public won't know or won't care that ethanol is not helping with global warming. It's not a safe bet.

It's also not safe to bet against all-electric vehicles. With battery technology such a hot development area, it's just a matter of time - and not much time - before electric vehicles outperform their ethanol-fueled counterparts in every respect: acceleration, range, operating and maintenance costs. Even recharging times are coming down.

And who will lead this parade, grab market share, position itself for advantage? Not GM. They'll be dragging their feet, lobbying regulators and legislators, looking for an angle that will let them hang on to their internal combustion empire.

It's a shame, really. Detroit has a chance here to reassert American technical know-how and dominate new markets world-wide, even to leap-frog the Japanese. Instead they'll be also-rans. Again.

--UrgeIt

(To reply, click here.)

(9/27)

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