Hybrid Wars Begin: What's Behind the Price Tag?


Back in January, when we reported on the slew of electric cars rolling out at the Detroit Auto Show, we questioned whether the EV renaissance had really arrived. While electric cars had seized center stage, hybrid vehicles were much closer to having a significant impact on the mass market.

Just two months later, the hybrid market has gotten hot enough for a price war. Toyota (s TM) and Honda (s HMC) are already going head to head in Japan, and the two automakers are also gearing up for a fight in the deflated U.S. market. For car buyers who have been waiting for an affordable hybrid, all of this activity is very exciting. But what does it really mean for fuel consumption, emissions and the drive toward cleaner transportation?


To start, lower-emission vehicles are becoming increasingly realistic options for more than diehard, deep-pocketed early adopters. In order to compete with the new 1.89 million-yen (about $19,000) Honda Insight hybrid in Japan, Toyota is reportedly planning to shave about 296,000 yen, or $3,000, from the price of its gen-2 Prius for the gen-3 version, to 2.05 million yen, or about $20,940. The older Prius model may remain in Toyota’s lineup at a discounted price after the new one launches. The two automakers are also gearing up for a fight in the U.S. market (the Insight is priced at $19,800 for the U.S.).

But here’s the thing about the Prius vs. Insight battle. Behind the price tags (not yet finalized for the Prius), exterior designs (very similar), and high-tech gizmos (very few for the Insight) is a test of two different hybrid technologies. One, used in the 2010 Prius (50 mpg), has high efficiency in different driving conditions, but is more expensive than the technology used for the Insight. And while hybrids like the 2010 Insight (40 mpg) are less expensive to produce — facilitating wider adoption — they won’t win out on efficiency alone.

It comes down to the drivetrain — the system that transfers power to the wheels and makes them turn. The Insight, like Honda’s Civic and Accord hybrids, has a parallel drivetrain. As the Union of Concerned Scientists’ Hybrid Center explains, parallel hybrids use a gas engine, generator and electric motor to turn the wheels. They have a relatively small (and therefore lower-cost) battery pack charged primarily through regenerative braking and are most efficient for highway driving.

Toyota’s Prius, on the other hand, like the Ford (s F) Escape Hybrid, uses a series/parallel, drivetrain. The engine can drive the wheels directly, or disconnect and let the motor take over when it’s more efficient (for in-town driving, mostly). Hybrids with this dual system are generally more expensive than parallel hybrids (case in point: Prius vs. Insight), in part because they need a bigger battery pack. And while both types use computer controls, the dual system needs more computing power, which also adds cost. (Note: Extra tech features also add to the price difference, and a larger size pulls down the Prius’s MPG.) As BusinessWeek put it recently:

Toyota’s hybrid system drives only in the refined silence of electric drive when you first hit the accelerator. The gasoline engine kicks in later. There are times when a Prius driver is green as can be. Honda’s hybrid system is almost always burning gas. It can’t launch off the line in electric mode and it’s tough to drive it without burning gasoline.

To be sure, both models represent steps away from the gas guzzlers of the past and toward zero-emission vehicles for the future — and there’s likely room for the technologies to coexist. But the relative popularity (and profitability) of the Insight and Prius could influence the direction of future designs.

Whatever the technology, hybrids’ lower price points will go a long way to achieving real mass market appeal. Nonetheless, it will take a long time to swap out the more than 620 million passenger vehicles on the world’s roads. In a best-case scenario for Toyota, it will sell 400,000 new Priuses next year. Last spring, Global Insight forecast that hybrids could snag some 5-11 percent of the U.S. market by 2015, up from 2.2 percent in 2007. For the other 89-95 percent: How do you feel about conversion?


Peter Oppewall

Business week may not be the best source for automotive drive train technology explanations. Both Toyota Prius and Honda Insight are parallel hybrids where the wheels are driven by some combination of engine or electric motor depending on demand. A series hybrid is always electric drive, such as the extended range Chevrolet Volt design, with the gas engine only providing ability to recharge the batteries, never directly driving the wheels.

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