May 10, 2007 / 6:41 AM / 12 years ago

Toyota says hybrid cost premium to disappear

TOYOTA CITY, Japan (Reuters) - Toyota Motor Corp. (7203.T) expects to cut costs for hybrid cars enough to be able to make as much money on them as it does on conventional gasoline cars by around 2010, a top executive said on Thursday.

Toyota's new concept car Hybrid X is on display during the first media day of the 77th Geneva car show at the Palexpo in Geneva, in this March 6, 2007 file photo. Toyota expects to lower costs for hybrid cars enough to be able to make as much money on them as it does on conventional gasoline cars by around 2010, a top executive said on Thursday. REUTERS/Denis Balibouse

Japan’s top automaker has been keen to see the fuel-saving powertrain enter the mainstream since launching the Prius, the world’s first hybrid car, in 1997, but sales have come at the expense of profitability given their high production costs.

But Masatami Takimoto, executive vice president in charge of powertrain development, said cost-cutting efforts on the system’s motor, battery and inverter were bearing fruit, and the cost structure would improve drastically by the time Toyota reaches its sales goal of one million hybrids annually in 2010 or soon after.

“By then, we expect margins to be equal to gasoline cars,” he told Reuters in an interview at Toyota’s headquarters in Toyota City, central Japan.

If it succeeds, Toyota would be removing the main hurdle preventing rivals from pushing the expensive powertrain, which twins a conventional engine with an electric motor, and likely widen its sales lead as more consumers seek better mileage amid rising fuel costs.

Data this week showed U.S. gasoline prices at an all-time high above $3 a gallon, and Takimoto said he expected energy prices to continue rising.

Toyota likely achieved cumulative hybrid sales of one million units this month, having moved 998,900 by the end of April.

In 2006, it sold 313,000 units, accounting for the majority of the world’s hybrid cars, and aims to lift that to 430,000 units this year with ramped-up production of the popular Prius.

With endorsement from Hollywood stars such as George Clooney, Toyota struggled for years to keep up with demand for the second-generation Prius. But sales began to suffer late last year after U.S. tax credits whittled down for the model, prompting Toyota to offer incentives of up to $2,000 on each Prius.

Pundits said that was pressuring already-tough margins on the hybrid. But Takimoto said he saw little impact on profitability before and after the incentives appeared, mainly thanks to larger volumes — Prius production will rise by 40 percent to 280,000 units this year — and the ongoing efforts to shave costs.

“There really hasn’t been that much of a difference in margins,” he said, adding: “In a sense, you could say things are finally normalizing now. The Prius will soon enter its fifth year, and all this time we had no incentives on it.”

Industry watchers expect the current Prius to be remodeled late next year or in early 2009, using a lithium-ion battery for the first time. Takimoto declined to confirm the speculation, but added that Toyota’s lithium-ion battery, under development with Matsushita Electric Industrial Co. (6752.T), was technically ready to be mounted on hybrid cars “any time.”

Additional reporting by Noriyuki Hirata

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