Business Week's March 5 issue has several articles about Toyota. We have three items below. First, a sidebar in which CEO Katsuaki Watanabe confirms that the next-generation Prius (model year 2009, out late 2008 or early 2009) will use lithium-ion batteries. So much for rumors about an early plug-in.

The second story contains the opposite of what we hoped for, and logically expected. In an accompanying Q&A (online only) Watanabe promises (astonishingly that the new Prius will have "much higher performance and good mileage per gallon." We interpret this to mean a bit better MPG that drivers need and much quicker 0-60MPG to Prius owners who love the safe handling and pep of the current car.

The context is, of course, the national attention to PHEVs getting 100+MPG of gasoline, plus electricity. On the plus side, we were pleasantly surprised when the Toyota website http://www.calcars.org/­calcars-news/­694.html published its poll showing that 39% of respondents wanted PHEVs; a total of 94% wanted PHEVs/higher fuel economy/alternative fuel hybrids and only 6% wanted "higher power output". On the minus side, we were unimpressed by new billboard ads touting Prius as "PRIUS. 60 MILES AND MILES AND MILES AND MILES AND MILES PER
GALLON." The billboards have a small footnote, saying EPA Estimated City MPG -- but ads on pumps at independent gas stations show the car with a "60MPG" sticker with no footnote. (The Prius sticker says 50MPG highway/60 MPG city. Until now the company has summarized that as 55 MPG. Soon, with revised EPA tests, the car will probably average around 45-48MPG, which is close to what most drivers experience.) We can supply photos for journalists of the billboards and gas-tank signs.

Third is from the main print story "Why Toyota Is Afraid of Being Number One," which is mostly about the company's current push on powerful trucks and its continuing fears of a backlash in the U.S. We excerpt some history on its early hybrids, including the company's relationship with the Sierra Club, and its early successes in Hollywood (this Oscar season somewhat shadowed by PHEVs and EVs).

Toyota's Bid for a Better Battery CEO Watanabe confirms that Toyota will develop new lithium-ion batteries for its third-generation hybrids http://www.businessweek.com/­magazine/­content/­07_10/­b4024075.htm

It's easy to see why Toyota's image as an environmentally friendly auto maker has gotten a bit scuffed up of late. The Japanese carmaker's recent focus on bigger, faster autos has made it an easy target for green groups.

At the North American International Auto Show in January, for instance, Toyota (TM ) unveiled the all-new Tundra (see BusinessWeek.com, 01/30/07, "First Drive: 2007 Toyota Tundra") pickup, its biggest truck ever, and the FT-HS, a 400-horsepower concept car that uses the company's hybrid system to help propel it from 0-60 in four seconds. Small surprise, then, that environmentalists were complaining that it was more about performance for Toyota than ecology.

New versions of the Highlander and Sequoia sport-utility vehicles, meanwhile, will also be bigger and heavier than their predecessors. "That's not terribly green," says Kurt Sanger, an analyst at Macquarie Securities in Tokyo. "Toyota's fuel economy remains relatively good, but it's not getting better with the new products" (see BusinessWeek.com, 2/7/07, "Going Young at Chicago Auto Show").

LI-ION IN THE STREETS Yet Toyota should soon be giving the environmental lobby something to cheer about. In an interview with BusinessWeek on Feb. 16, Chief Executive Katsuaki Watanabe confirmed that Toyota's third-generation hybrid cars, due out in late 2008 or early 2009, will use lithium-ion batteries. Lighter and more powerful than the current nickel metal hydride packs, the new batteries will help make for more fuel-efficient hybrids. "We will change the battery from nickel hydride to the lithium battery," the CEO said during a rare one-on-one interview at the company's headquarters in Toyota City. Toyota officials say it's the first time Watanabe had confirmed the change of cells (see BusinessWeek.com, 2/22/07, "Talking with Toyota's Top Man").

While widely expected, some had wondered whether Toyota's li-ions would be available in time for its new hybrid system. Watanabe, who occasionally visits the site where the batteries are being developed, has no doubts: "We can develop the battery in time," he says.

It's not just the batteries that will be better. The rest of Toyota's next-generation hybrid systems will also be a big step up from what's on the road today. "We are now aiming at reducing, by half, both size and cost of the third-generation hybrid system," saysWatanabe. That should go some way to bringing the price of hybrids closer to regular gasoline cars.

MORE HYBRID MODELS On performance, Toyota is more circumspect. Watanabe says the company isn't ready to reveal data on the extent to which performance and fuel efficiency will improve. Analysts suspect Toyota will lean more towards bettering the latter. "There will be a greater benefit for consumers who are really serious about fuel efficiency," says Koichi Sugimoto, an analyst at Merrill Lynch (MER ) in Tokyo. He reckons fuel economy could increase by 20% to 30%.

If that proves correct, it should assuage the green lobby, which has complained that Toyota's hybrids-like the Lexus RX 400h (see BusinessWeek.com, 3/8/06, "Hybrid Heaven in a Lexus ") and Toyota Highlander SUVs-don't have much better fuel economy than the gasoline-only versions.

Longer term, Watanabe reiterates that he believes hybrid sales could reach 1 million a year by the early part of next decade. At the Detroit show, Toyota North America chief Jim Press told reporters the company is looking to boost hybrid sales by 50% in 2007, to between 250,000 and 300,000.

To ramp up sales, Toyota will increase the number of hybrids on the market. Reports in Japan suggest the company plans to offer a hybrid version of any model that sells more than 100,000 units a year (see BusinessWeek.com, 4/3/06, "Toyota Winning the Hybrid Race"). "We're considering what sort of hybrid system can be applied to many types of hybrid vehicles," says Watanabe. But for hybrid sales to reach seven figures "we will probably have to double the number of models with a hybrid system installed." Applying hybrid systems to diesel and other alternative fuels is also under consideration.

SAFETY MATTERS If Toyota can achieve its goal of rolling out li-ion powered hybrids in double-quick time, it will widen its lead over other many auto makers. To catch up, the Big Three U.S. carmakers have asked Washington to subsidize advanced battery research to the tune of $500 million, spread over five years. General Motors (GM ), meanwhile, has asked Johnson Controls-Saft Advanced Power Solutions, a joint venture between automotive-systems manufacturer Johnson Controls (JCI ) and Paris-based Saft, and Cobasys, a joint venture between Chevron (CVX ) and Energy Conversion Devices (ENER ), to develop li-ions.

Still, Toyota should be wary of rushing. For one thing, its li-ions will need to be durable in order to win over buyers. "You don't want a hybrid car, which you already pay more for up front, where you have to replace the battery after a few years," says Macquarie's Sanger.

Then there's the safety issue. Last year, Sony (SNE ) took a $430 million charge after li-ion powered laptops caught fire (see BusinessWeek.com, 9/20/06, "Battery Woes Spark Few Concerns Among Auto Makers"). In cars, where the risks are greater, avoiding fires is even more important. "We're making sure that the problem can be avoided." says Watanabe. "These difficulties must be reflected in the design."

Talking with Toyota's Top Man Katsuaki Watanabe made his name at Toyota as a cost cutter. Now he's steering the world's most profitable automaker to No. 1 http://www.businessweek.com/­magazine/­content/­07_10/­b4024074.htm

If it's tough at the top, Katsuaki Watanabe isn't showing it. Since taking over from Fujio Cho as chief executive of Toyota in June, 2005, the 65-year-old has won admiration for showing calm assurance, tenacity in battling complacency, and razor-sharp knowledge of all things Toyota.
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Q. Despite the success of the Prius, Toyota has also been criticized lately for introducing larger vehicles like the new Tundra. Will Toyota's next generation hybrids provide a response to critics? A. I still have the idea of having [hybrid sales of] 1 million units [a year] in the early part of the next decade. For us to be able to do that, we will probably have to double the number of models with a hybrid system installed.

We always talk about the right vehicle at the right location and the right timing. An easy to understand example may relate to Brazil, a country with extensive bio-fuel availability. We have decided to [introduce a] Corolla that can accommodate 100% ethanol. We also think about diesel engines and compressed natural gas. Further into the future, the fuel cell is another area we're considering. But for all of those systems, a hybrid system can be applied.

Q. Will Toyota's next generation of hybrids, which are expected in late 2008 or early 2009, focus on fuel economy or performance? A. When we shifted from the first generation to the second generation hybrid we enhanced substantially performance in many different aspects. On top of that, we reduced both the cost and size by half. We are currently working on the third generation hybrid, which will also have a much higher performance and good mileage per gallon. On top of that we are now aiming at reducing, by half, both size and cost of the third generation hybrid system. We are not yet at the stage where we can disclose data relating to performance or fuel consumption.

Q. Will Toyota use Lithium-Ion batteries in the next generation hybrids? A. We will change the battery from nickel hydride to the lithium battery, and therefore we would like to reduce the size of the motors and inverters by half, so the overall size of the hybrid system can be reduced by half.

Q. There's been a lot of discussion lately over how long it will take Li-Ions that are safe and durable for autos. Will the batteries be ready in time? A. Yes, I believe we can develop this battery in time. Occasionally I visit the site where the development is going on to see the trial model.

Q. But were you worried by Sony's problems last year when Li-Ions in laptops were reportedly catching fire? A. Of course, we're experimenting on the problem that Sony encountered last year. We are making sure that the problem can be avoided. Automobiles are used in different conditions. For example, cars are used in temperatures from -20 degrees Celsius to 40 degrees Celsius and are constantly exposed to high vibrations. It's extremely difficult to build those systems for automobiles compared with cell phones which are used in relatively stable environments. These difficulties must be reflected in the design.

http://www.businessweek.com/­magazine/­content/­07_10/­b4024071.htm Why Toyota Is Afraid Of Being Number One It's overtaking Detroit-with trepidation. Now, the carmaker is relying on ever-savvier PR to avoid the U.S. backlash it dreads
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Few automakers have a more unassailable environmental pedigree than Toyota (its closest rival is Honda). And no car better represents the company's green cred than the Prius. To hear Toyota tell it, the hybrid was simply so trendy and well-engineered it practically sold itself. There's more to the story than that.

Just before Toyota was about to launch the Prius in 1999, it called Dan Becker, director of global warming initiatives at the Sierra Club. The company wanted the group's seal of approval for the Prius. Becker persuaded his superiors to create an award for the best hybrid technology. The idea was controversial, and Becker says some Sierra Clubbers called him a "whore for the auto industry." In the end, Honda's hybrid Insight won the Sierra Club Award for Excellence in Environmental Engineering; the Prius won the following year.

The Toyota-Sierra Club dance didn't end there. In 2001, the group borrowed a half-dozen Priuses and drove them from Maine to Florida, stopping in cities along the way and letting people drive them. The group also held a cross-country trek along Route 66, hitting towns and cities from Chicago to Los Angeles. The drive-and-tell seemed to work wonders. Says Becker: "Someone at Toyota told me that a phenomenal percentage of people who tested the car bought one." By 2004, Toyota had passed Honda and had the greenest image. "They just blew past us in the surveys," says John German, manager for environment and energy analysis for American Honda Motor Co. "They're in first place now."

Meanwhile Toyota turned to its point man in celebrity-ville: Mike Sullivan, who owns Toyota of Hollywood. Sullivan got hold of 26 Priuses and took them to the 2003 Oscars. Before long, such stars as Cameron Diaz and Leonardo DiCaprio were being photographed ("Look, we're so green!") with their Priuses. "It became the cool thing to do," says Sullivan. Now, every November, Toyota sponsors the annual Environmental Media Assn. Awards in Los Angeles. TV shows and movies that feature environmental causes get a trophy. Celebrities enter the ceremony along a green carpet, Sullivan is a sponsor, and the Toyota image is omnipresent.
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