Toyota Delays US Prius Plant — Until 2016 (TM, HMC, TSLA, F)

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Back in 2008, when gasoline pump prices were on a steady march to $4/gallon, the Prius hybrid electric car from Toyota Motors (NYSE: TM) was selling like hotcakes in the US. Toyota announced that it would begin building the cars at its Blue Springs, Mississippi, plant in 2010. That’s not going to happen either.

A Toyota executive said yesterday that the Blue Springs plant would begin building Corollas, a move that was caused by the closure of the company’s plant in California that was jointly owned with General Motors. The executive also said that the main components of the Prius, the motor and the battery, “are not mature enough for local production.” The company will decide where to build the cars following the next round of revisions to the Prius design, which is now scheduled for 2016.

The Prius, like the hybrid Insight from Honda Motor Co. (NYSE: HMC) uses a NiMH battery to partially power the car and a regenerative braking system to recharge the battery. All-electric vehicles, like the Nissan Leaf, the Chevy Volt, and the Roadster from Tesla Motors, Inc. (NASDAQ: TSLA) use lithium-ion batteries exclusively and must be plugged in to recharge the batteries. The Tesla Roadster is already on sale in limited quantities for about $100,000, while the Nissan Leaf and Chevy Volt are scheduled to go on sale before the end of 2010 for about $40,000. The Fusion from Ford Motor Co. (NYSE: F) starts at around $27,000. The Prius and the Honda Insight have both been available for years, and have a starting price of about $21,000.

Part of Toyota’s reasoning in delaying Prius manufacturing in the US has to do with the weak US economy. Toyota doesn’t agree with estimates that total US sales will top 12 million units in 2011 or 14-15 million units in 2012. Total US hybrid sales for 2010 are forecast at around 368,000 units, of which the Prius is likely to garner around 60%. If Toyota’s right about 2011 and 2012 forecasts, then the company is unlikely to hit 2010 sales forecasts as well.

Perhaps a more compelling reason to wait has to do with confusion in the market. As the market for electric cars grows, consumers will be able to choose among hybrids, plug-in hybrids, and all-electric vehicles. Hybrids, like the Prius, have been around the longest and many consumers probably think of this technology as yesterday’s news. Marketing for all-electric vehicles, like the Leaf and the Volt, touts the technology as the next big thing. More than a few buyers will respond to that pitch.

Honda is will introduce all-electric vehicles using lithium-ion batteries and adopt lithium-ion for their hybrids. Toyota planned to put a lithium-ion battery in its 2010 Prius, but the technology the company chose to use couldn’t be produced economically. While it’s true that lithium-ion batteries weigh less and have a higher energy density than NiMH batteries, the lithium batteries are more expensive, especially in all-electric vehicles which would use up to 20 pounds of the stuff.

Marketing innovation aside, there is yet another incentive for all-electric car makers. Through the 2009 stimulus act, the federal government will offer a tax credit of $2,500-$7,500 for buyers of electric cars, depending on the size of the battery. A Prius, with its small battery, would qualify a buyer for a $2,500 credit. The all-electric Chevy Volt, with its large battery, qualifies for the full $7,500 tax credit.

Its recall problems aside, Toyota has to decide on its next battery technology and regain its confidence in the economy before it will commit to building electric cars in the US. Such a deliberate approach might usually be a good thing, but the battle for the electric car market is heating up just as Toyota is stopping for a breather. It doesn’t seem possible that the company will wait six years to build an electric car in the US. By then the industry could be off in yet another direction.

Paul Ausick

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